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INTRODUCTION

Responding to a paucity of evidence about the impact of the Small Business Innovation Research (SBIR) program, recent studies document the fact that the SBIR does make a number of positive economic contributions. Most notably, research has found that

  • the growth rates of SBIR firms exceed those of comparable small firms not receiving SBIR support (Lerner and Kegler, 1999),

  • the social returns from SBIR-funded projects exceed the private returns (Link and Scott, 1999), and

  • the SBIR program influences the entrepreneurial behavior of scientists by changing their career paths and inducing them to commercialize (Audretsch, Weigand, and Weigand, 1999).

Although these studies conclude that the SBIR program makes a positive contribution to the commercialization of knowledge, they are somewhat limited in their scope of coverage.

One of the more controversial aspects of the SBIR program was the introduction of the Fast Track Initiative in 1996. Under this initiative, firms winning Fast Track designation have priority for the funding of the Phase II award because additional outside funding is committed to the research. It is conjectured that this Fast Track option bestows at least three main advantages to firms. First, it provides a mechanism for avoiding, or at least reducing, the funding gap that often occurs between Phase I and Phase II research. The significance and impact of this funding gap is made clear in the case studies by Audretsch et al. (1999), Feldman (1999), Link (1999), and Scott (1999). Audretsch et al. (1999) report examples related to funding-gap problems in their Indiana-based case studies. For example, the cofounders of a new startup developing genetically based rats experienced a funding gap between Phase I and Phase II research. The turnover of key personnel that resulted from the lapse of funding forced the company to incur retraining because of key personnel turnover. One purpose of the Fast Track is to assist small firms in avoiding such redundant cost burdens.

Second, the Fast Track program may reduce complications arising during the normal review process. For example, Audretsch et al. (1999) report in their case studies that Anthony Hubbard, founder of Endotech, Inc., noted from his non-Fast Track experience that

[t]here was no continuity of reviewers between our Phase I and Phase II proposals. It was like the Phase II review board ignored our Phase I results and overlooked that we had met our Phase I goals.

A third possible gain from the Fast Track program comes through certification. As Kegler and Lerner (1999) point out, there is a growing body of empirical research that suggests that new, technology-based firms are burdened with asymmetric information between them and external financing institutions. The certifi-



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