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An Assessment of the SBIR Program at the National Aeronautics and Space Administration Appendix E Case Studies TABLE App-E-1 SBIR Case Study Firms: Principal Technology and Business Firm Principal Technology Principal Business AeroSoft, Inc. GASP—an engineering analysis tool (computer software) to predict aerodynamics/gas dynamics with respect to any aircraft or spacecraft. Engineering research and development. ARACOR X-ray computed tomography technology for several CT applications. Develops and manufactures x-ray test and inspection systems. Creare, Inc. Variety of technologies in Biomedical applications, cryogenics, fluid dynamics and heat transfer, manufacturing technology, sensors and controls, and software and data systems. An engineering R&D services company. Deformation Control Technology, Inc. (DCT) Developed simulation software to solve thermo-mechanical problems for the heat treatment industry. Developed DANTE™, as simulation software—Distortion Analysis for Thermal Engineering. Computer simulation of forging processes. Providing engineering services to the metalworking community specializing in process simulation and computer-based analysis of thermal and mechanical processes such as heat treatment, forging, rolling, extrusion, and powder consolidation. Essential Research, Inc. (ERI) Developed a semiconductor—Light emitting technology (LED)—Quantum Dots PIN diodes which are photodetectors, laser diodes
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration Firm Principal Technology Principal Business Luna Innovations, Inc. Core technologies are in fiber optics, wireless, and ultrasonic sensing, biotechnology, advanced materials, nondestructive evaluation, and integrated systems. Manufacturing process control, next-generation cancer drug development, analytical instrumentation, novel nanomaterials, advanced petroleum monitoring system, and wireless remote asset management. Mainstream Engineering Corporation Thermal control, energy conversion, turbomachinery-based technologies and nanotechnology. HVAC products, A/C certifications, recreational boating, environmental control units, generators/engines, M9ACE crew cooling, oil-less compressors, heat transfer fluids. Space Photonics, Inc. (SPI) Core Technologies: Micro Electronics Photonics Packaging; Ultra-High-Speed Fiber Optic Transceivers; Optical Network Components; and Free Space Optical Transceivers. Innovative avionics and space optical communications components, networks, services and support. Products include: SPI’s LaserFire® (Free-Space Communications Transceivers); MEMSpot® (beam steering devices currently under development); Micro-Electo-Mechanical Systems (MEMS); SPI’s FireFibre® (4-Channel transmitters and receivers); and SPI’s FireRing® (High Speed Real-Time Fiber Optic Networks). Technology Management, Inc. (TMI) Solid Oxide Fuel Cell System (SOFC). Fuel cell systems integrator. A compact, multifuel, modular, kilowatt class system, which can be delivered overnight. TiNi Alloy Company MEMS (Microelectronic-Mechanical Systems) and nanotechnology. Thin film microfabrication and materials science. The result is micro-miniature valves and micro-switches with potential applications to consumer products and manufacturing. Their technologies have applications in four areas: Biotech, Aerospace, Energy, and Medicine. Heat engines that run on hot and cold water, with application to aerospace devices; microdevices and nanodevices made of TiNi thin film.
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration TABLE App-E-2 Strengths of the NASA SBIR Program as Identified by Firms Interviewed for the Case Studies SBIR program is a cost-effective model for small business to obtain government funded projects—eliminates the intimidation factor for small business. Generally there are good topics to apply to over time. Requires the development of a new technology. The program is a great resource for companies to develop technologies, in particular technologies that would not be developed by larger companies. Allows for government to do some key research. Nice complement between NASA and DoD programs (broad and narrow scope, respectively). The range of ideas that get to see the light of day—ideas grow out of it. Policy on Intellectual Property is an important plus. Innovativeness is encouraged. Provides opportunities to work with government research labs and equipment which some small firms could not do without SBIR. Not a lot of strings attached like with VCs. Freedom to pursue technology they want within confines of solicitation. Data rights. SBIR allows high risk/high payoff ideas to get funding at the seed level which is difficult to do through private industry. SBIR promotes working with other companies and universities combining ideas with others to emphasize a team approach. This helps to ensure that the applicant has the right team to get a reliable, solid solution to a problem. SBIR is a merit-based competition. Size of company does not matter so it levels the playing field relative to large companies.
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration TABLE App-E-3 Weaknesses of the NASA SBIR Program, as Identified by Firms Interviewed for the Case Studies Agencies opt for lower risk projects too often. Inconsistency of topics. Inadequate feedback on losing Phase Is. There is often only a market for one unit purchased by the agency, thus a limited market for the product. This makes the SBIR program technology driven rather than market driven. Need to increase funding levels of Phase I and Phase II awards. Need more structured process for transitioning to Phase III. Requires small companies to develop an accounting capability and this might discourage some companies from applying for the program. Need to be more flexible with no-cost extensions. Time lags in program is primary weakness. Insider’s knowledge is needed to compete. Not all awardees that are good at Phase I and Phase II projects are necessarily good at commercializing. For SBIRs, there is 3 ½ years from writing a proposal to finalizing a Phase II. Over that time, technology changes. That is the real time lag problem. It would be helpful if firms can change direction of the contract as information changes. There should be a yearly technical conference (instead of having to contact topic authors during the solicitation process). Currently, conferences are geared more to application/contractual issues rather than technological issues. Agencies would then get fewer proposals because they would be able to more clearly define their technical needs. Need more opportunities to talk to primes (such as opportunity that Dawnbreaker provides). Concern with growing emphasis on short-term technology objectives. This trend moves against SBIR’s original purpose and is causing less innovation.
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration AeroSoft, Inc. David H. Finifter The College of William and Mary April 10, 2006 SUMMARY AeroSoft, Inc., is located in Blacksburg, Virginia. The company was founded and incorporated in 1988 by Dr. Robert Walters. It was set up to develop, license, market and support software for computational fluid dynamics (CFD) applications, utilizing novel algorithms which expand the capabilities of its users. AeroSoft also provides customized solutions for aerospace and military clients which wish to hire the expertise needed to solve individual problems, but with no interest in purchasing CFD software. The company should be categorized as a “lifestyle company” not a “growth company.” In 1993, the company had five employees and it currently has eight. The company has three related technologies (GASP, GUST, and SENSE)—engineering software packages—that have been developed and in each case, SBIR funding played an important role. Currently, about 50 percent of the company’s revenue comes from SBIR/STTR and other government contracts (with the Air Force currently) and 50 percent of the revenue comes from licenses sales that have been a commercial success. The firm was initially woman-owned but is not currently. In 1990, AeroSoft developed GASP v1 (structured code). GASP v2 was released in 1992 and in 1995, the company released GASP v3 (parallel CFD solver with GUI). In 1996, AeroSoft’s focus shifted from CFD analysis to CFD analysis and design. Dr. Walters sold the company to Dr. William McGrory in 1998. In 1998, the company released GUST v1 (unstructured flow solver and grid generator). Also, in 1998, the company released SENSE v1 as a sensitivity analysis tool. In 2001, the company released both GASP v4 and GUST v2. GASP is AeroSoft’s most important innovation. It is an engineering analysis tool (computer software) to predict aerodynamics/gas dynamics with regard to any aircraft or spacecraft. It involves computational fluid dynamics and is a structured solver. A second technology, GUST, is similar to GASP in that it is set up to predict aerodynamics. It is an unstructured solver. AeroSoft’s third technology is SENSE. This is a designer tool as opposed to an analysis tool. It is for the same applications as GUST and GASP. It provides design sensitivities and determines how performance will change as a property of the vehicle or the flow varies. SENSE is used in the design phase. The impact that AeroSoft’s technologies have on its customers includes: reduced cost, additional capability, higher quality, and increased ability to achieve agency mission.
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration The SBIR program was critical to the formation of the firm. AeroSoft would not have existed without SBIR. For the first four years, AeroSoft, Inc. was a paper company to bid on SBIRs and it had no employees. Its first Phase I, through NSF, did not turn into a Phase II. Then the company won two NASA Phase Is that became Phase II awards. The growth of the company is completely attributable to SBIR (it was 90 percent of the revenue). It took seven years for the technology to get commercialized and then gradually the firm got up to the fifty/fifty ratio that it now has with SBIRs and other revenue. It currently has an Air Force SBIR Phase II. Of its Air Force contracts, now two-thirds are SBIRs with the Air Force and the other one-third are non-SBIR Air Force contracts. AeroSoft still sells licenses to NASA but does not currently have a NASA SBIR award. It has licenses for its software with NASA Glenn, Langley, Johnson, Ames, and Marshall. The SBIR awards may or may not have had an effect on securing other financing. It may have been mildly beneficial with banks. The company is not in search of VC funding or other private investors. SBIR did help the company get Air Force non-SBIR contracts. The SBIR funding gave core engineering technologies to the company. There are fundamental algorithms and physical modeling directly attributable to SBIR. SBIR not only helped the company survive, but more recently it helped to maintain some of its critical employees. It has also helped with growth, too. The company became aware of SBIR from the solicitation from NSF. AeroSoft’s CEO was in the academic community with university connections. There was no geographical connection to SBIR agencies. To determine which agency it would apply to, the basis was the research topics and agencies where the company had applicable strengths. Basically it was looking for key words of “high speed aerodynamics.” AeroSoft’s strategy is limited by the topics available. In the past it has had a good success rate. It has gotten more difficult as the number of companies competing increases. AeroSoft’s strategy is basically to pick the number of proposals on which it has time to do a good job. In other experience, it finds that Air Force contracts are more relaxed and allow for establishment of longer term relationships. It has proven itself as an Air Force contractor. While Phase I is a short rushed time frame, Phase II is more like a regular Air Force contract. It is able to establish a relationship and get good closure on a research topic. How Would It Change the SBIR Process?—It is hard to get good two-way communication. This is not uniform across Technical Point of Contact (TPOCs) and depends on who you talk with to get different quality of information. The company wants to be sure it is worthwhile to propose the topics. In terms of debriefings, most of the debriefs simply state that “you did a great job technically but we didn’t pick you,” with no indication of whether you should come back. The company must use its own judgment about whether to
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration go back. It should be noted that SENSE did a couple of Phase Is before it went into Phase II. AeroSoft has had very little success in getting third-party private investment via Phase IIB. It basically plows back the licensing revenue into the firm. This is more a function of the software aspect of the product. There are not many third parties who want to commit money. It can get letters of support from third parties but not funding. The company would like to see more flexibility in government funding Phase III or IIB. In its case, the firm is technically top heavy and its sales and marketing are weak. Selection Process: The company sees that fairness of the program selection process varies. Politics play a role. How strongly a champion fights for you matters. But it has won its share and lost its share, so it is not complaining. The feedback the company gets is not always helpful. There needs to be more candor. The company never knows anything about winners or other losers. It would be good to know from the debriefing that with certain changes it would want to resubmit the proposal. Funding Lags: With regard to funding delays and time lags between Phases I and II, the owner has had to take out loans to keep staff on board. So the program should try to improve the continuity of topics. Size and Number of Awards: In regard to the size and number of awards, it prefers more opportunities for the company. It would add more contracts at current levels of funding per award. Note that computer equipment costs have actually gone down, so for its case, it is still able to fund the same number of man-hours with the relatively fixed level of awards. Strengths of SBIR Program: The company cited two program strengths. First, the SBIR program is a cost-effective model for small business to obtain government funded projects. Small companies are intimidated by the requirements for large contracts and the SBIR program eliminates the intimidation factor. Second, there are generally good topics to apply to over time. Weaknesses of SBIR Program: There were a few weakness cited by AeroSoft. First, the people writing the tasks and research topics are potential high risk takers but opt for lower risk projects. Second, there is an inconsistency of topics. It is either feast or famine on some topics. Finally, there is inadequate feedback on losing Phase Is. BACKGROUND ON THE COMPANY Introduction: This case is based heavily on an interview with AeroSoft, Inc. President William D. McGrory, Ph.D., on December 21, 2004 and on the company’s Web site. AeroSoft, Inc. is located at 1872 Pratt Drive, Suite 1275, Blacksburg, VA 24060-6363 (phone 540-557-1900; fax 540-557-1919). The Web site is <http://www.aerosft.com>. The company was founded and incorporated in 1988 by Dr. Robert Walters.
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration It was set up to develop, license, market and support software for computational fluid dynamics (CFD) applications, utilizing novel algorithms which expand the capabilities of its users. AeroSoft also provides customized solutions for aerospace and military clients which wish to hire the expertise needed to solve individual problems, but with no interest in purchasing CFD software. Company History: As described on AeroSoft’s Web site, the company history is as follows. AeroSoft was founded in 1988 by Dr. Robert Walters. In 1990, AeroSoft developed GASP v1 (structured code). GASP v2 was released in 1992 and in 1995, the company released GASP v3 (parallel CFD solver with GUI). In 1996, AeroSoft’s focus shifted from CFD analysis to CFD analysis and design. Dr. Walters sold the company to Dr. William McGrory in 1998. In 1998, the company released GUST v1 (unstructured flow solver and grid generator). Also, in 1998, the company released SENSE v1 as a sensitivity analysis tool. In 2001, the company released both GASP v4 and GUST v2. Principal Business: The principal business is engineering research and development. It is a government contractor and engineering service provider in the aerospace and defense industries. AeroSoft had total revenue of $1.1 Million in 2005. For AeroSoft, SBIR/STTR funding as a percentage of revenue was 36 percent last year. The company has had no patents or IPOs as a result of SBIRs. It has had 15 Phase I and eight Phase II awards, with five Phase Is and two Phase II awards from NASA The initial Phase II came through NASA Langley, in 1993 with a second one in 1996 from MSFC. More recently, SBIR Phase II awards have come through the Air Force and Navy. The company had no funding at the time of the first SBIR award except for a few small consulting contracts. The faculty member who owned the company at the time funneled the contracts through the company. In 1993, the company had five employees and it currently has eight. The company should be categorized as a “lifestyle company” not a “growth company.” Dr. William McGrory became president of the company in 1998. AeroSoft is committed to accelerating the rate at which it brings new CFD capabilities to the aerospace and military markets. Since its inception, the company has strategically utilized the SBIR program to fund innovative research and development and then teamed with strategic allies and/or utilized internal funding to complete the latter stages of product development. The first commercially available product, GASP v2.2 was released in the spring of 1994. In 1994, AeroSoft completed two Phase II SBIR awards sponsored by NASA which provided support for the development of GASPv3 and its unstructured CFD software, GUST. GASPv3 became commercially available in June 1995. AeroSoft has completed the development work on both GUSTv1 (released in December, 1998) and SENSE (released in December, 1998). GASPv4 was released in mid-1999. All of AeroSoft’s contracts have been completed in a timely fashion and on budget. In addition, various commercial licenses to use AeroSoft software are held by 47 organizations including 9 universities, 14 government facilities, 20
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration commercial entities, and 4 overseas organizations. AeroSoft has been engaged in general consulting and contracting work for some of the major aircraft companies including The Boeing Company, McDonnell Douglas Corporation, General Dynamics, Pratt & Whitney, and General Electric. It has also been team members of the Aero-Thermal Technology Development Program sponsored by the U.S. Army Strategic Defense Command. The company has three related technologies—engineering software packages—that have been developed and in each case, SBIR funding played an important role. Currently, about 50 percent of the revenue comes from SBIR/STTR and other government contracts (with the Air Force currently) and 50 percent of the revenue comes from licenses sales that have been a commercial success. The firm was initially woman-owned but is not currently. Linkage to University—AeroSoft has a strong linkage to Virginia Tech. Several members of the firm’s technical staff were Ph.D.s from Virginia Tech including its CEO. TECHNOLOGY OF THE COMPANY GASP is AeroSoft’s most important innovation. It is an engineering analysis tool (computer software) to predict aerodynamics/gas dynamics with regard to any aircraft or spacecraft. It involves computational fluid dynamics and is a structured solver. The Web site description of GASP is as follows: GASP is a structured, multiblock CFD flow solver which solves the Reynolds Averaged Navier-Stokes (RANS) equations. It is applicable to compressible flow fields approximately Mach 0.1 and greater. This would include flows with finite-rate or equilibrium chemistry, such as combustion problems or reentry type flows. GASP can perform both steady and time accurate simulations. The code has a six degree of freedom (6-dof) motion modeling capability and uses a Chimera overlapping grid system for moving body simulations. Overlapping grids may also be used for complex steady state simulations. GASP is the firm’s most stable, and validated product. A second technology, GUST, is similar to GASP in that it is set up to predict aerodynamics. It is an unstructured solver. The Web site description of GUST is as follows: GUST, in a nutshell is an unstructured version of GASP. It too is a compressible CFD flow solver for anything from perfect gas calculations up to finite-rate chemistry, with non-equilibrium thermodynamics (like GASP). However, GUST operates on unstructured or arbitrary control volumes. Currently the grid generators that interface with GUST generate tetrahedral, pyramids, prisms, and hexahedra (brick element). So, one can run on a GASP type structured grid, but also more grid types. AeroSoft’s third technology is SENSE. This is a designer tool as opposed to
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration an analysis tool. It is for the same applications as GUST and GASP. It provides design sensitivities and determines how performance will change as you vary the property of the vehicle or the flow. SENSE is used in the design phase. The Web site description of SENSE is as follows: SENSE takes a user supplied structured multiblock cfd solution, and will predict the variation about that solution with respect to one or more design variables. For example, it will tell one how the entire solution at a point will vary as one changes the angle of attack. SENSE in not meant to replace a CFD solver, but to augment it. The government determines “Grand Challenge Problems”—that is, the government decides what uses there are for supercomputers in predicting turbulence. GASP is used for some of these applications. NASA and the Air Force uses GASP on the supercomputer and it is licensed from AeroSoft. An important aspect of the product’s success is that anyone using the supercomputer can use GASP. There are licenses with government as well as with Northrup Grumman, some large aerospace firms, and some small aerospace firms. AeroSoft also exports to Japan (to the space industry, i.e., the NASA equivalent and also Japanese contractors), Israel (military applications), and France (military applications). Also, several U.S. universities use GASP. Occasionally AeroSoft will use the software to do engineering analysis but mostly it licenses it. It has not done much to market the product. It is sometimes paid to add features to GASP. This is all a very small part of its activities. COMMERCIALIZATION The impact that AeroSoft’s technologies have on its customers includes reduced cost, additional capability, higher quality, and increased ability to achieve agency mission. Potential software applications (as listed on the company’s Web site) include the following: Configuration analysis. General aeronautical education. Expendable launch vehicles. Aero-thermodynamic analysis. Experimental validation. Basic algorithm research. Re-entry heating problems. Waverider design. Propulsion. Space shuttle analysis. Chemical deposition lasers. Civil transport analysis and design.
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration Shock-boundary layer interactions. X-33 analysis. Rocket analysis. Internal flow analysis. Missile defense. IMPORTANCE OF SBIR The SBIR program was critical to the formation of the firm. AeroSoft would not have existed without SBIR. For the first four years, AeroSoft, Inc. was a paper company to bid on SBIRs and it had no employees. Its first Phase I, through NSF, did not turn into a Phase II. Then the company won two NASA Phase I awards that became Phase II awards. The growth of the company is completely attributable to SBIR (it was 90 percent of the revenue). It took seven years for the technology to get commercialized and then gradually the firm got up to the 50/50 ratio that it now has with SBIRs and other revenue. The firm does STTRs as well as SBIRs. It does not really distinguish between the two since it often teams with universities on SBIR awards. It finds the research goals are about the same for SBIR and STTR. AeroSoft currently has an Air Force SBIR Phase II. Of its Air Force contracts, now two-thirds are SBIRs with the Air Force and the other one third are other non-SBIR Air Force contracts. AeroSoft still sells licenses to NASA but does not currently have a NASA SBIR award. It has licenses for its software with NASA Glenn, Langley, and Johnson. NASA Ames uses a copy of the software but it does not currently support the firm. The company has received SBIR awards from NASA Langley, Ames, and Marshall. NASA and the Air Force use GASP on HPC MSRC facilities.(High Performance Computing Major Shared Resource Center) Anyone who uses these supercomputer facilities can use GASP due to the licensing arrangement. This is a clear positive spillover effect of the firm’s research output. The SBIR awards may or may not have had an effect on securing other financing. It may have been mildly beneficial with banks. The company is not in search of VC funding or other private investors. SBIR did help the company get Air Force non-SBIR contracts. The SBIR gave core engineering technologies to the company. There are fundamental algorithms and physical modeling directly attributable to SBIR. SBIR not only helped the company survive, but more recently, it helped to maintain some of its critical employees. It has also helped with growth, too. In the future, AeroSoft is planning to go with the model it currently has. If it were to expand at all, it would do some applications. AeroSoft has no patents from SBIR project. There are many research publications that came out of the company’s SBIRs. Most are customers. There were approximately 30 publications authored by researchers from AeroSoft.
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration Benson P. Lee, TMI’s CEO, moved to Cleveland 35 years ago. He had been CEO of several startup companies prior to starting TMI. Beginning with zero employees at the time it received its first SBIR award (a 1991 DoE SBIR Phase I), TMI now employs over 20. TMI had no income until 1991. The company used SBIR funding as a critical source of early-stage (seed) funding. SBIR was especially good because it required no matching funding. Now, following a decade’s development of the technology, their record of achievements allow them to compete in open competition with much larger, multinational fuel-cell companies. An example is the $2.8 million ATP award to advance the technology. According to their CEO they “graduated” from being dependent on SBIRs as a primary source of funding, which is one measure of success. Their goal from day one has been to become competitive in the marketplace, not just as a developer of technology. SBIR WAS KEY TO THE STARTUP AND DEVELOPMENT OF TMI’S CAPABILITIES TMI’s first income came from a $50,000 DoE SBIR Phase I award in 1991 (the company was founded one year earlier). This was followed by a second Phase I and then a Phase II. (See Table App-E-5 for a list of TMI’s SBIR awards.) When TMI was formed, they were not familiar with any large sources of seed funds other than SBIR. The company has received a total of $2.7 million SBIR funding since 1991. In the CEO’s view (Benson Lee), they could not have developed the company without the early SBIR seed funds and a $400,000 award from EPRI (the Electric Power Research Institute). These were followed by a $4 million DARPA award. According to Mr. Lee, it is clear this funding would not have occurred without the work performed under their SBIR funding. Although they no longer look to SBIR as their primary funding source, TMI still writes two or three proposals a year, winning one about every 18 months. (They are now waiting on a Phase II from DoD.) They also plan to submit future proposals. Mr. Lee cites two additional advantages of the SBIR program: First, merit competition levels the playing field for small businesses. This aspect of the SBIR program is very important because in open competition corporate scale is a factor as new technology ideas from small businesses must compete against the largest fuel-cell companies, where factors such as matching funds and Washington-based lobbyists as well as in-place manufacturing capability appear to have less risk. TMI considers the SBIR review process to be very good and typically fair and timely. Second, they view SBIR as conferring prestige on the company because the agencies provide a high quality review process. People know that the firm didn’t lobby to get the award. Moreover, many of the program managers submitting SBIR abstracts are the same individuals who manage the largest programs in the agency.
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration PROPRIETARY TECHNOLOGY LIMITS SPIN-IN USES BY NASA TMI describes its market entry product as follows: a compact, multifuel, modular, kilowatt class system, which can be delivered overnight by common carrier. The TMI system operates on common fuels and can be maintained by a single person without specialized tools, equipment or training. TMI’s byline is: “a fuel cell system which can be used anywhere, anytime, by anyone.” According to TMI, no other known company has a fuel cell system with these features. TMI has used multiple laboratory systems to demonstrate these features and is currently raising funds to begin field testing and set up pre-commercial manufacturing for broader field trials. From the CEO’s perspective, TMI is a classic example of planning the work and then working the plan. Whereas many small companies succumbed to being an R&D company surviving on R&D contracts, TMI never lost sight of the fact they were in the business of developing a commercially viable fuel cell system. PATENTS ARE VERY IMPORTANT According to Lee, all of their patents and their know-how, drawn from years of TMI’s generic knowledge base are considered part of a core technology portfolio. Although none of the patents are specifically linked to any specific SBIR research because their patents are viewed as reflecting TMI’s general knowledge, one key issue in evaluating SBIR is: How have SBIR awards shaped the company’s knowledge base? And how has their knowledge base shaped the development of more specific technologies? In addition, for competitive reasons TMI does not publish papers, so there are no papers based on SBIR-supported research. From day one TMI’s goal has been to commercialize the technology and become a manufacturer—not simply a source of spin-in technology. Such firms present a challenge for spin-in uses of the SBIR Program. For example, highly innovative firms focused on commercialization of proprietary technology may choose to constrain spin-in uses of a technology, even when the technology has important mission purpose potential. According to Lee, “These are our crown jewels.” The potential conflict is shown by the fact that TMI did not pursue an offer by NASA to undertake a Phase III project to advance the use of the technology for a space program because it did not present a pathway to a commercial market. Their case raises an important issue, namely that TMI would probably be less likely to receive NASA funding with the agency’s new emphasis on spin-in uses of SBIR/STTR. The CEO stated that TMI would not be attracted by the shift to NASA’s spin-in uses of SBIR if this change would require them to become an R&D consultant and divert them from their goal to pursue commercial products. Their view is that, unless the mission of the firm is to be an R&D consultant or to com-
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration mercialize their technology for space applications, work for NASA could create an opportunity cost and be a distraction from the goal of commercialization into terrestrial markets. According to TMI’s CEO, increased spin-in uses of SBIR will require new mechanisms that foster synergy and collaborations. The challenge is to construct a relationship that benefits the agency while allowing the firm to pursue its main goal—whatever that may be. One question is: How can the topic be written to better align the project with what NASA would like to do? The idea is that NASA would utilize the knowledge developed by the firm using the SBIR award to think in new ways and cultivate innovation by NASA. OHIO LOCATION OFFERS ADVANTAGES TMI’s view is that Ohio is a “superb” location for the development of fuel cell technology. According to the CEO, market success with the fuel cell technology will depend on the manufacturers, which is well suited to the Midwest. In fact, because Ohio is a location for three or four fuel cell, component and systems companies, TMI’s location does not present a problem in recruiting bright young researchers. Ohio scores high in fuel-cell development. Silicon Valley may have a little better venture capital situation, but Ohio provides access to companies in the supply chain: pumps, pump makers, etc. One asset is the membership of the Ohio Fuel Cell Coalition (OFCC), which mostly consists of supplier firms.13 AWARD SIZE IS GOOD BUT PHASE I-PHASE II DELAYS PRESENT A BIG PROBLEM TMI has no suggestions for altering the size of Phase I and Phase II awards. The $100,000 Phase I is ample to prove a concept. But the time gap between Phase I-Phase II often causes cash flow problems for a small business. The CEO didn’t take a salary for the first 2-3 years. Recognizing the problem and with the belief that biotechnology and fuel cell technologies can be competitive in Northeast Ohio, the State of Ohio had a program that bridged Phase I to Phase II. Ohio’s award was part of the state’s fuel cell initiative. 13 The coalition includes business, academic and government leaders. Also as of March 15, 2005, the following organizations are coalition members: NexTech Materials, BIOMEX, Cinergy Ventures, Molded Fiber Glass Companies, ThermalTech Engineering, Inc., Kent State, Sierra Lobo, HydroGen LLC, Graftech, AvMat LLC, Nordson, Primrose, Inc., CSA-International, Catacel, Lorain County Community College, University of Dayton Research Institute (UDRI), FirstEnergy, TMI, Meacham Company, Ohio Cat, PIA Group, Air Force Research Lab at WPAFB, Stark Development Board, Parker Hannifin, Sinclair Community College, City of Lorain, SGL Carbon, Hocking College, Technical Staffing Professionals, Metamateria, Behn Quartz, Refractory Specialties, Inc., Vanner, Inc., and LCP Holding, LLC.
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration TECHNOLOGY MANAGEMENT, INC.—ANNEX CEVEC (CUYAHOGA EAST VOCATIONAL EDUCATIONAL CONSORTIUM) DEMONSTRATION—OCTOBER, 2005 The first public demonstration (October 2005) was a 3kW system at CEVEC using three 1-kW modules connected in parallel and operating on propane. The photo to the right shows the 3kW system (on a transport cart) recharging a fork-lift and providing security lighting. TMI personnel are operating and monitoring the system with interaction with CEVEC staff during the demonstration. TMI believes this demonstration may be one of the very first known to use a multiple module SOFC configuration. The advantages of redundancy are higher reliability, power availability, and built-in back up. Particularly for mission critical applications such as telecommunications, which require continuous power and back up, this system design has the potential for also being extremely cost competitive over the full product life cycle.
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration TiNi Alloy14 Michael S. Fogarty Portland State University and Case Western Reserve University May 5, 2005 OVERVIEW TiNi Alloy was started in 1987 in the Bay Area. SBIR funding has been essential to supporting the R&D that has created successful technology applications of the company’s MEMS technology by other companies. One implication of this case is that an assessment of SBIR’s contribution to TiNi Alloy requires examining both the innovative technologies created with SBIR support and the bulk of commercialization activity accomplished by other firms using the technologies. In other words, the economic assessment needs to allow for different firms playing separate roles: one being R&D and a second being the primary commercialization. TiNi has continued to employ 8-9 people throughout the 19 years since it was a startup. Their founder currently seeks a path that would involve the company’s manufacture of a new product. The TiNi Alloy case illustrates how SBIR was used to fund a startup whose main activity is R&D with most commercialization occurring through licensing of patents to companies successfully using the technology for new products. Specifically, the case illustrates several important features and issues with the SBIR program: (1) SBIR’s current emphasis on shorter-term, less risky projects that meet a mission need would not support TiNi-type technology developments; (2) Evaluation of the economic effects of SBIR must allow for commercialization occurring in at least two steps: (a) the initial R&D and development of early-state technology, which has been TiNi’s primary function; and (b) commercialization by different companies that license intellectual property produced by the SBIR-supported firm; (3) commercialization occurs with uncertainty and over long period of time, indicating the importance of evaluation taking a similarly long-time horizon; (4) location matters a lot, in some cases favoring an SBIR-supported firm (as in TiNi’s case) and in others creating a disadvantage for the firm (a TiNi Alloy would be very unlikely to startup and become successful in a Cleveland, Buffalo, or Detroit). TiNi may also illustrate the importance of multiple SBIR awards from several agencies as essential for developing a technology that at least initially, because of there being no obvious large commercial product market, is not attractive to VC. 14 This case was based on an interview with David Johnson, TiNi’s founder and CEO, San Leandro, California; Web site information; patent data from USPTO; and the DoD’s SBIR database.
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration TiNi represents one potential model for a successful SBIR outcome: use SBIR funds to support highly innovative R&D labs with a potentially important, commercializable technology that can be taken the next step by other firms with manufacturing and marketing capabilities. COMPANY AND FOUNDER BACKGROUND TiNi Alloy was founded in 1987 by A. David Johnson, who owns ninety percent of the company and is the CEO and CTO. TiNi is primarily an R&D lab specializing in MEMS and nanotechnology. They have employed eight or nine people almost from the beginning and produce revenues of $650,000 to $1,500,000 annually. TiNi Has Received 31 SBIR Awards TiNi had three employees at the time the first SBIR award was received. Over the lifetime of the company TiNi has received 21 Phase I awards, ten of which progressed to Phase II. Their Phase II awards have come from several sources, including NASA, DARPA, HHS/NIH, NSF, DoE, the Air Force, and BMDO/SDIO. Four Phase II awards are associated with NASA. The company started by building heat engines that run on hot and cold water. A set of aerospace devices followed. Their recent focus has been microdevices and nanodevices made of TiNi thin film. The company believes that the next stage of their technology will involve nanodevices with implantable medical device applications. The Silicon Valley Location Has Given Them a Key Advantage The main advantages of their Bay Area location is, first, access to others doing MEMS work and, second, the ability to obtain and maintain important equipment that would be difficult elsewhere. In Johnson’s view, “Silicon Valley offers a reservoir of talent, equipment, finances, expertise, and intellectual stimulation.” He thinks that he’s in Silicon Valley because of the factors that cause the region to feed on itself. TiNi summarizes its history as follows: incorporated in 1987; launched TiNi Aerospace in 1995; obtained Lee Co. License in 1999 and a Smart Therapeutics license in 2000. Their current situation is also summarized: They have a technology, which is thin film TiNi microfabrication; they have patented the intellectual property; there exists an opportunity with a major medical device company; and they hope to develop a corneal implant manufacturing facility, with funding either through TiNi Alloy or as a spin-off company.
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration TINI TECHNOLOGY TiNi’s Core Competency Includes Microfabrication and Materials Science TiNi is derived from Titanium Nickel; AKA Nitinol. The company’s strength is Microelectro-mechanical Systems (MEMS). Their core competency includes microfabrication (sputter deposition, photolithography, chemical milling, scanning electron microscopy) and materials science (Shape Memory Alloys, finite element analysis). Their MEMS technology combines silicon microfabrication with shape-memory metals. The result is micro-miniature valves and micro-switches with potential applications to consumer products and manufacturing. Their technologies have applications in four areas: Biotech, Aerospace, Energy, and Medicine. Biotech Applications in biotech stem from increasingly small sample sizes coupled with more sophisticated instruments, which creates a need for miniature valves and pumps. Costly samples and chemicals require conservation of liquids and, therefore, the system’s entire internal volume must be minimized. As a result, valves and pumps must be small and have the capability of controlling pressure up to several atmospheres. Aerospace The trend is toward smaller and more sophisticated space vehicles. TiNi Alloy develops micromachined liquid control and pneumatic valves. Through TiNi Aerospace they also provide separation devices for space vehicles. Energy Battery technology lags behind requirements for compact sources of electrical energy while portable computers and various other instruments require considerable power. One solution involves using fuel cells, which can potentially provide substantially more power density. However, they also require more sophisticated control systems and, consequently, miniature valves. TiNi’s technology includes a liquid control valve to provide this application. Medicine One standard component used to treat cardiovascular disease is the stent. TiNi’s thin film technology (in particular their 3-D devices) give access to the body’s smaller blood vessels and other lumens. TiNi is also targeting their R&D
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration to clot retrievers and aneurysm closures for treating intracranial disease. They are also focusing R&D on implantable drug delivery systems. COMMERCIALIZATION Commercialization of Technology Has Occurred Through Licensing Its Patents to Commercially Successful Companies To summarize David Johnson’s view, TiNi has used SBIR awards to develop valuable technology but they have had limited success with commercialization through manufacturing and sales. Licensing of patents has brought them their largest financial returns. TiNi has received more than 20 patents on its technology and has ten applications on file. TiNi’s business model strategy is focused on technology development and licensing. Their inventions cover thin film technology, devices, and processes. The company has three current licenses: (1) Lee: Pneumatic Valves (an agreement interpreted to include latching valves for NASA; (2) SMART/Boston Scientific (for intravascular stent devices; this acquisition provided TiNi with significant revenue); and (3) TiNi Aerospace (for separation devices used in satellites and spacecraft; the agreement involves inclusion of a “thermal fuse” valve for airliners). The company has two agreements that are being negotiated, one involving a consumer product and a second for a medical product. TiNi Aerospace is located about one mile away. Close cooperation between the two companies continues. As of June 2003, commercialization associated with their Phase II awards produced total revenue of $5,918,000. Their Frangibolt(TM) has become a standard component on satellites (a shape memory alloy powered separation device). The device has been used by TRW, the European Space Agency, and Lockheed-Martin. In addition, TiNi’s pin-puller was used on the Mars Global Explorer, and is scheduled for use in NASA’s STEREO program. Evidence of Technology Benefits to Other Firms Indirectly, TiNi’s technology developments have influenced technology developments by other firms. They pioneered making shape memory alloy in the form of thin film and combining it with silicon to make MEMS devices. Several universities have established graduate research programs in this subject and two medical device companies are currently exploring its use in implantable devices. Part of TiNi’s funding has come from contracting R&D services to several commercial firms: GM’s Delphi division (fuel injectors), JNJ (implantable medi-
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration cal systems), Ford Motor Company (electrical connectors), and SMART Therapeutics (intravascular devices). IMPORTANCE OF SBIR SBIR Was a “Godsend” to TiNi Johnson considers “SBIR as a godsend to him.” When the Superconductor-Super Collider program was eliminated in the early 1980s, his position with the Lawrence-Berkeley lab, where he had been for twenty years, was eliminated. He discovered the SBIR program when talking with a colleague about a Braille computer display. At the time he had no funding, so in 1987 he approached NIH for an SBIR. TiNi Alloy was founded before a proposal was submitted; however, the two first SBIR grants paid salaries for the first year of business. But SBIR Is a Mixed Bag Johnson views SBIR as a mixed bag (both positive and negative long-term consequences): It has been good for conducting experiments in interesting areas and encourages fiscal discipline, but it’s insufficient to grow a company and, even if the concept is proven, a gap still exists. “What’s needed is something that people will buy.” SBIR has permitted TiNi to explore a wide range of technologies that would not have been possible otherwise. This had put them in a strong intellectual property position. However, jumping from one contract to another has prevented them from focusing on one application with sufficient effort to achieve manufacturing and sales of products. Johnson has also co-founded a company that got angel and individual investment funding for a medical product. This company was acquired by a large medical firm, providing operating support for TiNi Alloy for several years. Johnson believes that the technology was the most important factor in getting funding. The SBIR awards did not have a major influence on the decision to fund the work. Although they have done contract work for several companies in the automotive and medical industries, this has not been their major revenue source. ISSUES WITH THE CURRENT SBIR Johnson believes that success comes in several forms: the SBIR firm can license, produce and sell, or be acquired and/or go public. Phase I-Phase II Delays Handled Through Multiple Proposals The delay in funding between Phase I and Phase II funding is a problem which they have handled by trying to have several proposals in the pipeline at the
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration same time. As a result, however, they lose momentum, causing Phase II projects to be less successful. SBIR Phase I Awards Should Be Smaller But with Reduced Goals Johnson’s view is that there should not be a fixed amount for Phase I. In fact, he thinks that it would sometimes be more effective if the grants were smaller and the goals were reduced accordingly. Other times the amount is too little, meaning that it is too small to expect significant results. He believes that the amount should be negotiated, taking into account the proposer’s estimate of the project’s challenge, with the implication that this approach encourages more innovation. He strongly believes that SBIR’s current focus encourages significantly less innovation. Parts of the Selection Process Are Fair But Other Aspects Are Unfair He pointed out that his SBIR experience varies quite a bit by agency: Because each agency has its own objectives, the selection process varies by agency and, therefore, is at least fair from this perspective. He has experienced closer cooperation with NASA than with either NIH or DARPA. However, Johnson views the process as sometimes being unfair, “in particular when a solicitation is written to favor one proposer.” For example, in his view, NIH seems to favor proposers with access to medical expertise—an MD or a university with a name and probably something that has already proven successful. He felt that even a Phase I requires these, and it will make money. This criterion needn’t bear any relationship to the project’s contribution to innovation. Nevertheless, he believes that this approach may not be unreasonable as long as everyone knows the rules. Views SBIR’s Increasing Focus on Less Risky, Less Innovative Projects as a Major Mistake Johnson hasn’t submitted an SBIR proposal for several years and will not submit further proposals unless the subject fits with the direction he wants TiNi to go. He is particularly concerned with the growing emphasis on short-term technology objectives. He views this trend as moving against SBIR’s original purpose and causing less innovation. In his view, Johnson sees the recent SBIR shift to shorter-term mission objectives as a major mistake. (“The focus on mission technology is a subversion of the program’s intent.”) He believes that SBIR should take risks that VC companies won’t.
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An Assessment of the SBIR Program at the National Aeronautics and Space Administration Two Interesting Examples He gave an example of an innovation that stemmed from his idea. One day he got a telephone call asking about thin film. He then wrote a NASA SBIR, which got funded and allowed for demonstration of an application to computer memory. Although it didn’t work, he made thin film. After this step, he created his first Web page. The Web page created contacts. This was followed by SBIRs from both NSF and DARPA. One contact from a person from New York University was about a medical application. After meeting, the NYU person licensed Johnson’s technology and set up a new business, giving Johnson stock in the company. The company was formed as Smart Therapeutics. It developed a product that was sold to Boston Scientific, which provided TiNi Alloy with money. The point is that SBIR funded highly innovative thin film technology that required a second firm to complete the commercialization, indirectly further funding TiNi Alloy through the second company’s sales. None of this was planned. “No one knows where the next good thing will come from.” In fact, Johnson thinks that the best projects didn’t have a business plan. He gave a second interesting example. Shortly after he started TiNi, someone asked: Can the technology be used to make explosive bolts? After putting down the telephone, while walking down the stairs he got an idea: a device that breaks the bolt but not explosively. He made a prototype in a couple of weeks that proved the concept. Then he sought funding from SBIR but failed to get support. A Navy person saw the technology as a means to separate in space and funded it. The technology (the FRANGIBOLT) was used for the Clementine Space Mission. TiNi Aerospace was launched to commercialize the product and has paid royalties back to TiNi Alloy Company. SBIR/States’ Commercialization Support Has Not Been Important to TiNi Alloy Johnson attended only one conference by MDA that was intended to provide commercialization advice and assistance. The effect on TiNi was minimal because there was no follow-up. He believes that people like himself need mentoring: help from people with experience taking things to market. One example involves working with larger companies. Sherwin-Williams, GM, and Gillette were all interested in Johnson’s technology. He wrote proposals but nothing happened. How does a small firm make these connections? He has also talked with VC. But the VC consider his technology too diverse. So he hasn’t gotten VC funds. Does he need a partner to take the next step? TiNi Alloy Company and TiNi Aerospace are planning a spin-off to make a consumer product, and will invite VC investment.