An Assessment of the SBIR Program at the Department of Energy (2008) / Chapter Skim
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Appendix D: Case Studies
Appendix D: Case Studies
Pages 165-226
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From page 165... ...
The company's first major commercialized innovation, a fiber optic electrical current This case is based on primary material collected by Nicholas Vonortas and Jeffrey Williams during an interview with the owner and president of Airak, Inc., Mr. Paul Duncan.
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From page 166... ...
Not only would the company most likely not have started had the grants not been awarded, but Airak has continued to use Phase I and Phase II awards to keep the company moving forward. Currently, SBIR awards make up 95 percent of Airak's revenue, totaling $3.7 million.
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From page 167... ...
To that end, the interviewee commented in favor of the ability to devote at least some fraction of the SBIR awards to marketing efforts, though he does understand the government's reluctance to become involved in the marketing matters of private companies. External, nongovernment funding is considered a very important asset by Airak.
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From page 168... ...
Ideally, this would force more innovations out of the workroom and into the marketplace. There should not be a limit to the overall number of SBIR awards to a company, assuming an effort is made to develop the products.
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From page 169... ...
Additionally, SBIR grants have allowed the company to maintain a steady growth, both in employees and funding, over the last five years. And just as is intended by the program, Airak will soon focus almost all of its energy on commercialization efforts, and limit its application for SBIR awards.
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From page 170... ...
Atlantia was founded in 1979 by husband and wife team, Joe and Pat Blanford. The company was created to provide full engineering services related to the design of shallow-water, low-tech platforms in the offshore oil industry.
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From page 171... ...
After the introduction of the SeaStar® TLP, Atlantia focused its marketing to relatively small European oil companies with undeveloped fields in the Gulf of Mexico.
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From page 172... ...
The SeaStar® technology has allowed Atlantia to provide a cost effective alternative for the development of relatively small oil fields in deep water. The SeaStar® TLP provides an efficient, low-cost mechanism to develop fields that would otherwise not be.
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From page 173... ...
While time was needed to prepare proposals, especially given the company's inexperience with SBIR, Atlantia found participation in the SBIR program to be surprisingly straightforward and simpler than other types of research funding, such as acquiring funds in the private sector and other government programs. After receiving its SBIR awards, DoE sent checks for the amount of the awards and required little oversight.
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From page 174... ...
The SBIR awards alone provided at least 1-2 months of revenues that were instrumental in keeping necessary staff employed. Atlantia also benefited from commercialization-stage initiatives in DoE's SBIR program.
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From page 175... ...
Each new project generates a series of technical papers specifically related to it. These papers are frequently presented at oil industry conventions and other meetings, which disseminates new knowledge traced to the original SBIR research.
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From page 176... ...
Of the 40 engineers, 10-15 are active in publishing, external relations with clients, and participation in academic conferences. The company currently employs one MBA to manage administrative matters (though the company has This case is based primarily on primary material collected by Philip Auerswald during an interview at Creare, Inc.
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From page 177... ...
. As Vice President and Principal Engineer Robert Kline Schoder states, "Those of us who are leading business development also lead the projects, and also publish.
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From page 178... ...
Creare was among the first firms to apply for, and to receive, an SBIR award. Elkouh notes that "early in the program, small companies hadn't figured out how to use it.
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From page 179... ...
Additionally, Creare has been awarded "Phase III" development funds from programmatic areas that were ten times the magnitude of the cumulative total of SBIR funds received for fundamental cryogenic refrigerator technology development. However, until the infrared imaging device on the Hubble telescope failed due to the unexpectedly rapid depletion of the solid nitrogen used to cool it, there had been no near-term application of the technologies that Creare had developed.
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From page 180... ...
These new modes of relationship, and some recommendations for the future, are described below. Spin-off Companies The success of the numerous companies that have spun off from Creare naturally leads to the question: Is fostering spin-offs an explicit part of the company's business model?
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From page 181... ...
What accounts for the company's consistent success in winning SBIR awards? Kline-Schoder relates that "I've come across companies that have spun out of a university or a larger organization.
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From page 182... ...
However, the company was unwilling to offer any of the development funds required to get from a prototype to production. Further obstacles to the commercial development of SBIR funded technology are clauses within the enabling legislation pertaining to technology transfer.
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From page 183... ...
The scope of the SBIR funded work at Creare is very broad. The reports of staff members suggest that the firm's competitive advantage relative to other small research firms is based to a significant extent on that breadth.
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From page 184... ...
• Creare's longstanding expertise in computational fluid dynamics (CFD) gave birth to a uniquely comprehensive suite of CFD software that is now m arketed by Fluent (a subsidiary of Aavid Thermal Technologies, Inc.)
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From page 185... ...
12This case is based primarily on primary material collected by Philip Auerswald during an inter view at Diversified Technologies Inc, on September 7, 2004, with Michael Kempkes, Vice President for Marketing. We are indebted to Diversified Technologies, Inc.
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From page 186... ...
That award was the basis for its proprietary solid-state switching technology. The company used later SBIR awards to demonstrate that the technology could be employed reliably in industrial settings, and to develop new technologies and markets.
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From page 187... ...
Potential customers resisted adopting DTI's switches for the simple reason that they had not been proven to work reliably with the tubes, and a failure in the switches could damage or destroy the tubes themselves. As Kempkes notes, "people are nervous about doing anything but what the tube vendor thinks is acceptable.
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From page 188... ...
As the company's focus has become increasingly well defined and its technical leadership better established, it has had increasing success with its applications to the SBIR Program. Of the 19 Phase II SBIR awards DTI has received since its founding, all but three have come since 1999.
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From page 189... ...
DTI's SBIR efforts have remained fairly constant since 1999, with approximately four to five Phase I and three to four Phase II efforts in process at any given time. The percentage of revenues DTI receives from SBIR funding, however, has decreased from nearly 75 percent of total revenues to less than 20 percent today.
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From page 190... ...
Consulting services have focused on cost reduction, accelerated entry into new markets, and removal of technical barriers. Yet as Kempkes notes, a flexible upper limit exists to such corporate consulting contracts: Once the contract gets to be $100,000 or more, a company is likely to take the view that it can hire a full-time staff member internally to do the work, and doesn't require the outside engineering expertise.
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From page 191... ...
Two SBIR proposals written by the company for product development were both declined for funding. Kempkes characterizes the reasoning on the part of reviewers and/or program managers as follows: "The technology exists, and if someone wants it they will fund it." Furthermore, the SBIR process is too lengthy.
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From page 192... ...
Multiple awards from the SBIR program, in turn, allowed DTI both to broaden the application of its technology, and to achieve the ‘critical mass' required to pursue commercialization and grow well beyond the SBIR program. Using the SBIR program in this way, however, required considerable perseverance on the part of the company's founder, as the transition from the garage to viable company took nearly a decade.
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From page 193... ...
There are six areas of focus within Eltron; catalytic membrane reactors, catalysis, fuel cells, materials research, electrolytic processes, and chemical sensors. Catalytic membrane reactors are used to isolate and extract gases, such as oxygen, hydrogen, and carbon dioxide, by simultaneously transporting electrons and ions through nonporous membranes.
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From page 194... ...
SBIR awards have served as seed money to begin new projects, with multiple awards in complex areas allowing the building up of capabilities in more than one complementary technology. Those projects have in turn attracted significant research funding from the private sector.
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From page 195... ...
This technology isolates oxygen and nitrogen through the use of catalysis membranes. Development of the innovation began with a Department of Energy SBIR award in 1995.
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From page 196... ...
While there does not seem to be a clear separation of focus in the type of technological knowledge supported by the SBIR awarding agencies, the NSF is perceived as pursuing proposals for more basic and long-term research, while the DoD may be at the other end, looking for much more specific, solutionoriented proposals. The interviewee stressed the importance of the fact that real technological progress often occurs when a bunch of complementary innovations are pursued at the same time.17 To the extent that this happens in a company, featuring funding from multiple sources to pursue related aspects of research, it complicates attribution of exact return streams to specific innovations and specific research projects, especially when those involve more basic, long-term research.
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From page 197... ...
While the interviewee is aware of the extent of subjectivity involved in selecting proposals for support, this is understood as a general weakness of the peer-review system as a whole that one has to live with, and not as a specific weakness of the SBIR award process. Regarding the actual funding process, the grants usually arrive in a timely manner.
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From page 198... ...
Commercial banks ask for collateral to back up expectations of future knowledge and technology, while venture capitalists demand at least partial control and look for near-term results. SBIR awards fill the vacuum.
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From page 199... ...
The firm came into being with the assistance of SBIR funding from the Department of Energy, granted for the development of a specialized camera to withstand the highly demanding environment that would theoretically exist inside of a fusion reactor. In the early days SBIR grants kept the company alive and allowed it to maintain operations.
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From page 200... ...
Egnal believes that the combination of SBIR awards and extensive commercialization has, historically, allowed IPIX to obtain private funding, and that some combination of these f actors will continue to work to the firm's advantage in the future. Example of an SBIR Related Innovation A combination of SBIR grants, other federal contracts, and private funding has enabled IPIX to expand its technological base.
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From page 201... ...
Mr. Egnal also believed that, at least during the first few years of the firm, personal and professional networking among IPIX and former colleagues at Oak Ridge must have influenced extensively the firm's focus on DoE as the target application agency for SBIR awards.
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From page 202... ...
It must be emphasized that this is not an issue just with SBIR awards, but with all calls for proposals anywhere in the world. For example, it has been an important concern in the R&D programs of the European Union.
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From page 203... ...
Egnal echoed these thoughts by mentioning possible disadvantages for unconnected firms. A second area that requires attention in the SBIR process, in his opinion, would be the time gap between the Phase I and Phase II rounds, as it is difficult for some firms to maintain employees or facilities during the intervening time.
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From page 204... ...
Such a process allows the macroscale material to retain the unique physical properties of its nanoscale base, properties that cannot easily be generated in macroscale materials. The firm was founded in 1998 with three part-time employees, and has since grown to fifty-six employees and has received nearly fifty Phase I and over twenty Phase II SBIR awards from NASA, the Department of Energy (DoE)
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From page 205... ...
R&D-intensive companies were also said to have more opportunities to get to know each others' products through the SBIR process. For example, DARPA has previously hosted conferences for specific areas of technology, at which the prime contractors and smaller contractors displayed their work.
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From page 206... ...
The existence of an SBIR award would mean little in the consideration of financing opportunities. In addition to providing NanoSonic with funding, SBIR awards have helped to build the company's technology base.
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From page 207... ...
Views on the SBIR Process As stated earlier, NanoSonic was first exposed to the SBIR process very early in its history through an Air Force solicitation. According to the interviewees, the SBIR program is so well knows that it is difficult for any lab that performs technical research to miss it.
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From page 208... ...
No changes to the basic SBIR process were recommended. Topic specification, though it may vary in specification level across agency and program, was considered appropriate for each of the agency missions.
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From page 209... ...
One project in Westerville will use fuel cells to generate e lectricity for 250 homes. Fuel-cell materials and components are sold as either individual products, or combined and sold as a completed fuel cell.
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From page 210... ...
It is also currently difficult to accurately predict market opportunities in that area. SBIR awards have assisted the company in attracting other forms of financing, such as funding opportunities from the state of Ohio's Third Frontier Fuel Cell Program and the Commerce Department's ATP program.
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From page 211... ...
NexTech's SOFC's also provide increased operating lifetimes and power output per unit weight over previous fuel cells. Many customers looking to use fuel-cell technology will be replacing traditional, entrenched forms of power generation.
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From page 212... ...
As such, NexTech can be considered a complete manufacturing and development concern built around fuel-cell technology. NexTech's strategy for the commercialization of their low-temperature solid oxide fuel cells has been to remain a free agent.
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From page 213... ...
First, the firm generally applies for SBIR grants to the agency with which the specific technology has the best fit, as each agency has an individual technology focus. As has been also noted in other interviews, NSF tends to look for more basic research, DoE prefers a mix of basic and applied, and DoD looks for more applied technology.
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From page 214... ...
Without having a working relationship with a program manager inside of the granting agency, there is little perceived chance that a firm will earn an SBIR award. This ties into NexTech's view on the overall fairness of the SBIR process.
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From page 215... ...
Building on that last point, Mr. Dawson described the strategy of basing a company's revenues on SBIR awards as a bad business model due to its unpredictable nature.
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From page 216... ...
28This case is based on primary material collected by Nicholas Vonortas and Jeffrey Williams during an interview with the President of Princeton Polymer Laboratories, Inc., Dr. Peter Wachtel.
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From page 217... ...
This product was initially licensed to the Dupont-Conagra cooperative concern. Unfortunately, however, Dupont-Conagra experienced financial difficulties soon thereafter and the new management decided to abandon the specific product development.
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From page 218... ...
PPL relies on its reputation and personal connections to attract clients, of which around 80 percent are repeat customers. Impressions of the SBIR Process Dr.
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From page 219... ...
Often, more research is needed on functionality, affordability, and quality before an idea can develop into a product that can compete in the marketplace. • An information and trust gap between the scientist/technologist and the investor, each with a different understanding of the innovation and with dis 30Lewis Branscomb and Philip Auerswald, Taking Technical Risks: How Innovators, Executives and �������������������������������� Investors Manage High-Tech Risks, Cambridge, MA: The MIT Press, 2001.
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From page 220... ...
220 APPENDIX D similar expectations of what it is to accomplish. The technologist knows what is technically feasible and what is novel in the proposed approach; the investor knows the process of bringing new products to market.
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From page 221... ...
Company founder Swenson recalls his move from Sandia National Laboratory to Manhattan KS in mid-1980s: "I came to K-State primarily for family. My family 31This case is based primarily on primary material collected by Philip Auerswald during an inter view at Thunderhead Engineering on September 30, 2005, with Dan Swenson and Brian Hardeman.
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From page 222... ...
It was an attitude "that really shied us away from commercialization any of the work we had specifically done at K-State." Soon thereafter, however, the two came across a Department of Energy SBIR solicitation with a topic they saw as "tailor-made" for their nascent company. The topic involved using software developed at Lawrence Livermore Lab -- the leading competitor to the software that Swenson and Hardeman had developed
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From page 223... ...
Swenson was due for a sabbatical year, having recently been granted tenure. Kansas State University covered half of Swenson's salary; the SBIR award covered the other half.
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From page 224... ...
They are focused on a higher return business plan. They are really operating like venture capitalists." Accordingly, the pair notes that NSF SBIR topics are much more broadly defined than those in the DoE SBIR solicitation.
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From page 225... ...
The company was on deck to enter a market an order of magnitude larger than that for their geothermal software. At that point, Swenson, states "we believed we could have a self-sustaining business not just a self-sustaining product." The Innovation Element While Thunderhead began with the objective of realizing the commercial value of federally funded research in geothermal simulation software, its continual development of a core product and entry into new markets has required it to innovate new approaches to modeling, simulation, and interface development.
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From page 226... ...
The sales and contracting work that have accrued to the company from its PetraSim software developed with the DoE Phase I and Phase II awards admittedly do not qualify it as "a huge phase III with venture capital," in Hardeman's words. Yet the more $195,000 of sales and $100,000 of contract work that Thunderhead have earned on PetaSim have been enough to seed it as one of the relatively rare viable small technology companies operating in its environment.
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