BOX 1-1

How Small Biotechnology Firms Typically Use SBIR

Small biotechnology companies usually have three to five research projects ongoing at one time. The venture capital funding that they raise is usually tied to specific research milestones for a given project.a

SBIR often plays a key role in providing small biotechnology firms funding for other research projects that are more early-stage and higher-risk and are, thus, not yet attractive to venture or even angel capital investors. Such research projects may include new alternate applications of a lead project or a completely new project. Given the extraordinary high risk of biomedical product development, SBIR provides an avenue for small companies to create a more diversified pipeline that can be essential for the success of small biotechnology businesses.

Most small biotechnology companies do not base their business plans on the SBIR program alone. Their goal is to raise capital in order to advance product development to the point of becoming a publicly traded, acquired, or stand-alone company with actual products in the market. The SBIR program is an important part of this process, but the focus of the business model is to commercialize a product—and to graduate out of the SBIR program.

  

aFor a perspective of a small innovative business, see testimony by Douglas Doerfler of Maxcyte, Inc., before the House Committee on Small Business, January 29, 2008. For additional perspectives on the role of SBIR in the development of innovative products and businesses, see the case studies in National Research Council, An Assessment of the SBIR Program, Charles W. Wessner, ed., Washington, DC: The National Academies Press, 2008. Appendix C.

the early stage, and conserving capital to preserve existing investment portfolios.8 In this environment, small innovative businesses find SBIR awards to be a stable and less cyclical source of early-stage innovation funding. Easing, rather than restricting access to capital is essential for economic recovery and would be consistent with other actions now being taken by the federal government to address the current economic crisis.

1.2
SBIR PROGRAM STRUCTURE

Eleven federal agencies are currently required to set aside 2.5 percent of their extramural research and development budget exclusively for SBIR awards. Each year these agencies identify various R&D topics, representing scientific

8

See Rachel Metz, “Venture Capital Investments Fall 33 Percent in 4Q,” Associated Press, January 24, 2009.



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