Privately held excluded firms. The privately held firms meet our criteria for being excluded and hence their exclusion is regarded as a direct impact of the SBA ruling. These firms account for about one-third of all the VC-funded firms, or 4.1 percent of all firms receiving NIH Phase II awards 1992-2002.

Otherwise excluded firms. Firms that meet our criteria, but which are also excluded on other grounds, constitute the second group of firms. This group presents a conceptual challenge: These firms would be excluded from the program based on the SBA ruling, although they are, in any event, no longer eligible for the program. However, in seeking to determine the impact of the SBA ruling, we assume that the ruling would at a minimum have had some short term impact on these firms, because it would have excluded them between the time of the ruling and the time at which they became ineligible for other reasons.9

Publicly traded companies—possibly excluded. The third group is made up of publicly traded companies. These firms seem likely to fail the individual ownership criterion, because the preponderance of stock ownership in U.S. capital markets is through institutional owners, pension funds, investment entities of various kinds, and other companies.10 However, there are also cases where publicly traded firms are still owned and controlled by a group of U.S.-based individuals. In addition, some publicly owned firms have continued to apply for and receive Phase II funding at NIH, although it is also worth noting that these numbers have declined substantially in recent years, a trend that may indicate that the impact of the ruling is only now becoming apparent. This point is discussed further in Section 3.4 below.

These publicly owned firms also pose conceptual challenges for the analysis. One question concerns the extent to which their exclusion is in fact based on the ruling. Some firms self-excluded on the grounds that they were not individually owned long before the SBA ruling. Others however may have responded directly to the ruling itself. This distinction is pursued below, in Section 5.1.

Overall, publicly traded firms cannot be assumed as a group to be either included or excluded from the program based on these ownership criteria. To identify firms definitively that specifically breach the individual ownership criteria, it would be necessary to undertake an extensive analysis of each firm’s share ownership structure, including an analysis of the ownership structure of each significant shareholder. This however is beyond the scope of this study.

Conclusions—Excluded firms. Altogether then, we conclude that using our criteria, a minimum of 4.1 percent (63 firms) of firms that received Phase II awards 1992-2002 have been excluded because of the SBA ruling; a further 4.5 percent (69 firms) would have been excluded by the ruling, but were also


Data from Hoover’s covers only 2006—so we know that they were ineligible on other grounds as of 2006. We do not know when they became ineligible.


Carolyn Kay Brancato and Stephan Rabimov, Institutional Investment Report, Washington, DC: Conference Board, 2007, R-1400-07-RR, reports that approximately 64 percent of U.S.-listed stocks were held by institutional investors.

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