this empirical analysis addresses two key questions that bear on the policy issue at hand. These are:

  • How many firms have been or are likely to be excluded by the ruling from participation in the NIH SBIR program?

  • What is the likely effect of this exclusion on these firms and on the NIH SBIR program?


The Academies’ study finds that between 4.1 percent and 11.9 percent of firms that won SBIR Phase II awards from NIH between 1992 and 2002 have been excluded, or possibly excluded, from the program because of the SBA ruling. (See Table 3-4.) While the evidence is narrowly based and is by no means precise, it does also suggest that the impact of the ruling falls disproportionately on the most promising firms—i.e., those firms that have repeatedly been selected by both NIH for their promising technologies and by venture investors for their commercial potential. Firms that are venture-funded are somewhat less likely to commercialize but are much more likely to generate substantial sales from their SBIR-funded projects when they do commercialize than are firms that receive SBIR funds but are not venture-funded.

Restricting access to SBIR funding for firms that benefit from venture investments would thus appear to disproportionately affect some of the most commercially promising small innovative firms. To this extent, the SBA ruling has the potential to diminish the positive impact of the nation’s investments in research and development in the biomedical area.

It is important to note that the task of identifying firms that have received venture funding is a challenge. SBIR-funded firms, which are in most cases privately held, are not required to reveal whether they have received third-party investment. As a result, this information is not collected and stored by SBIR-funding agencies or SBA. Chapter 2 of this report explains the study methodology.

By selecting out some of the most commercially promising innovative small firms, the SBA directive appears to limit opportunities to exploit the nation’s substantial investments in research at NIH. This is contrary to one of the four key goals of the SBIR program, which is the commercialization of federal research.5 Although the evidence is not definitive, the implementation of the SBA ruling

(NASA), the Department of Energy (DoE), and the National Science Foundation (NSF). For an overview report of this assessment, see National Research Council, An Assessment of the SBIR Program, Charles W. Wessner, ed., Washington, DC: The National Academies Press, 2008.


The goal of private-sector commercialization was moved in priority from being listed fourth when the program was initiated in 1982 to second in the 1992 reauthorization of the SBIR program.

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