promising, but too new to validate its commercial potential and thereby attract the capital necessary for its continued development.4

SBIR is an important source of early-stage funding in the United States. Although business angels and venture capital firms, along with industry, state governments, and universities provide funding for early-stage technology development, the federal role is significant. Overall, SBIR awards provided over $2.3 billion in research and seed funding in 2007 to the nation’s innovative small businesses. In comparison, private venture markets provided $1.2 billion in seed stage funding in 2007 in the course of only 414 deals.

There are often useful synergies between angel and venture capital investments and SBIR funding. In many cases, small business entrepreneurs use SBIR awards in close conjunction with funds from other sources, often at the most vulnerable stages of their firm’s development. Reflecting this synergy, an initial NRC review showed about 25 percent of the top 200 NIH Phase II award winners (1992-2005) have acquired some venture funding in addition to the SBIR awards.5 In addition, angel investors often find SBIR awards to be an effective mechanism to bring a company forward in its development to the point where risk is sufficiently diminished to justify investment.6

Today, venture capital markets are retrenching as a result of the current financial crisis.7 Venture capital firms are undertaking fewer investments, especially at


As the September 24, 1998, Report to Congress by the House Committee on Science notes, “At the same time, the limited resources of the federal government, and thus the need for the government to focus on its irreplaceable role in funding basic research, has led to a widening gap between federally-funded basic research and industry-funded applied research and development. This gap, which has always existed but is becoming wider and deeper, has been referred to as the ‘Valley of Death.’ A number of mechanisms are needed to help to span this Valley and should be considered.” See U.S. Congress, House Committee on Science, Unlocking Our Future: Toward a New National Science Policy: A Report to Congress by the House Committee on Science, Washington, DC: U.S. Government Printing Office, 1998. Accessed at <>. For an academic analysis of the Valley of Death phenomenon, see Lewis Branscomb and Philip Auerswald, “Valleys of Death and Darwinian Seas: Financing the Invention to Innovation Transition in the United States,” The Journal of Technology Transfer, 28(3-4), August 2003.


National Research Council, An Assessment of the SBIR Program at the National Institutes of Health, Charles W. Wessner, ed., Washington, DC: The National Academies Press, 2009.


See the presentation “The Private Equity Continuum” by Steve Weiss, Executive Committee Chair of Coachella Valley Angel Network, at the Executive Seminar on Angel Funding, University of California at Riverside, December 8-9, 2006, Palm Springs, CA. In a personal communication, Weiss points out the critical contributions of SBIR to the development of companies such as Cardio-Pulmonics. The initial Phase I and II SBIR grants allowed the company to demonstrate the potential of their products in animal models of an intravascular oxygenator to treat acute lung infections and thus attract angel investment and subsequently venture funding. Weiss cites this case as an example of how the public and private sectors can collaborate in bringing new technology to markets. Steve Weiss, Personal Communication, December 12, 2006.


See The New York Times, “In Silicon Valley, Venture Capitalists Turn Cautious,” January 5, 2009.

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