affect the transparency needed to determine program eligibility as well as the intent of the program to benefit businesses that are small. Further, any changes to SBA’s size standards could potentially affect SBA’s other programs. SBA is unaware of any meaningful distinction between VCCs and other business entities that would allow greater VCC participation in the SBIR program without affecting important ownership restrictions in other SBA programs.
SBA is particularly concerned with possible changes to its affiliation provision. Affiliation is a key concept in defining a small business. Along with a numerical measure of the size of business, the Small Business Act includes the criteria that a small business must also be “independently owned and operated.” Without a consideration of affiliation, Federal assistance targeted for small businesses could be inappropriately provided to a business concern that is part of a large business. Accordingly, SBA advises Congress to proceed with the utmost caution in this key concept of defining a small business.
The Administration is concerned with the proposed legislative change to the definition of small business for the purposes of venture capital investment. While recognizing that venture capital investment is crucial to small business growth, the Administration is nevertheless concerned that the committee print offers too broad a definitional change to the affiliation standards. SBA is currently reviewing these rules, and believes that the current change may not reflect the appropriate balancing required in development of size standards. In particular, any redefinition that alters the elements of independent ownership and control that identify small business ownership under current law has the potential for great harm to all small business programs.
It is also of concern that there are certain potential conflicts in the proposed legislation. For instance, SBA has noticed that there is a conflict between the definition of a VCOC which includes patent and licensing organizations affiliated with institutions of higher education and the clause requiring that VCOCs not be controlled by any business concern that is not a small business concern. Under the Small Business Act institutions of higher education are generally not considered small business concerns. Such definitional conflicts present potential inequities and SBA would hope we could work with the committee to clarify this language, consistent with what we believe is a mutual overarching objective: appropriately define the term “small business” in a manner that effectively minimizes ineligibility of actual small businesses while also minimizing the eligibility of large businesses.
Despite our differences of opinion on the affiliation rules, SBA is committed to the continued improvement and expanded monitoring of the SBIR program. In particular, the Administration would like to work with the committee to create performance goals for the program. These goals and metrics will provide useful information on the successes and strengths and weaknesses of the program in its goal to support innovative research.