The Small Business Innovation Research Program An Assessment of the Department of Defense Fast Track Initiative (2000) / Chapter Skim
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IV. Papers: Fast Track: Is It Speeding Commercialization of Department of Defense Small Business Innovation Research Projects?
IV. Papers: Fast Track: Is It Speeding Commercialization of Department of Defense Small Business Innovation Research Projects?
Pages 41-103
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From page 43... ...
, 127 Ballistic Missile Defense Office (BMDO) co-investment projects awarded from 1992 to 1996, and a BMDO control group representative of the 1992-1996 DoD SBIR population (143 projects)
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From page 44... ...
Twenty percent of Fast Track firms have received venture capital compared to 3 percent of all SBIR firms. · Although only 14 percent of Fast Track projects have completed Phase II, their average sales are already over $100,000.
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SBIR legislation describes three phases for SBIR projects. Phases I and II, funded by the SBIR Program, develop the innovative idea.
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Since 1997, not less than 2.5 percent of external R&D funds have been set aside for SBIR. Each agency with an SBIR program is unilaterally responsible for targeting research areas and administering its own SBIR funding agreements.
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From page 47... ...
Federal agencies are required to report key data to SEA, which in turn publishes annual reports on the progress of the program. According to SBA's SBIR program policy directive, to be eligible for an SBIR award, a small business must be · independently owned and operated, · other than the dominant firms in the field in which it is proposing to carry out SBIR projects, · organized and operated for profit, · the employer of 500 or fewer employees (including employees of subsidiaries and affiliates)
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From page 48... ...
. DARPA gauges success of an R&D project (including SBIR projects)
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reports to the Air Force SBIR program manager and the second tier (at lab level) reports to the first tier.
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The Director of the Army Research Office heads the Source Selection Board for Phase I The Army SBIR process is not as formally connected to its acquisition community as is the case in the other Services.
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Prior to any mailings, the 80 DoD offices that manage SBIR programs reviewed and updated SBIR firm addresses. After seven months of survey effort, one out of seven potential respondents still could not be located.
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From page 52... ...
Starting with the 1996 SBIR solicitations, DoD initiated a two year pilot policy the SBIR Fast Track under which SBIR projects that attract matching funds from third-party investors have a significantly higher probability of SBIR award, as well as expedited processing to reduce the delay in reaching the market. The purpose of the Fast Track policy is to concentrate SBIR funds on those R&D projects most likely to result in viable new products that DoD and others will buy.
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From page 53... ...
The life cycle for a typical SBIR project from the FY 1996 solicitation is shown in Figure 1. The prior studies of SBIR commercialization by GAO in 1991 and by DoD in 1996 showed that it often takes several years after completion of Phase II before significant sales are achieved.5 There were no Fast Track firms that had 5In interviews of 150 firms representing the majority of the DoD SBIR projects that had achieved sales by 1996, 58 percent said that it took over two years after Phase II to their first sale.
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From page 54... ...
In the case of Fast Track, the willingness of the third party to invest its funds in the project is a strong indicator that the project will be a commercial success. The high likelihood that Fast Track projects will be awarded Phase II serves as a means to attract investors who are thereby provided an opportunity to leverage their investment because the government is matching between one to one and four to one in dollars.
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From page 55... ...
The survey sample included all 127 BMDO co-investment projects awarded from the 1992-1996 solicitations. Determination of whether Fast Track or BMDO co-investment policies result in selection of projects that achieve greater commercialization success than the general population of DoD SBIR projects necessitated selection of a matched control group.
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From page 56... ...
Two related characteristics of the Fast Track winners and the initially selected control group that differed from those of awardees in the program as a whole were the number of prior Phase II awards received and the size of the firm: Thirty-four of the 48 Fast Track firms (71 percent) had had no previous Phase II awards.
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From page 57... ...
Questions that the earlier studies had answered and that were unlikely to yield new information were eliminated. The researchers added 14 new questions to attempt to find leading indicators of potential commercial success or to otherwise differentiate Fast Track firms and projects.
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A targeted third mailing was sent out as well as additional individual mailings. During the final week of the survey, repeated calls were made to the Fast Track firms who had not responded.
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4 Projects reported they did not receive a Phase I FIGURE 2 Survey Response Analysis Phase II Completion The short time frame from the solicitation for Fast Track to the completion of the survey had the expected result that most Fast Track projects had not yet completed Phase II. The 96 Control group fared even worse.
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The DoD database tracked the number of DoD Phase II awards received by each firm. On the basis of this measure, 71 percent of the Fast Track firms had no prior Phase II awards.
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Even the Fast Track firms were not inexperienced in SBIR. Seventy-six percent reported receiving a prior Phase I award.
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Fast Track firms were much younger; half were founded in 1994 or later. i°The 40 respondents of the 96 Control group consisted of 29 respondents originally matched to Fast Track projects and 11 from projects that had been added to make the control group match the population.
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The large number of uncertain answers from Fast Track firms may indicate that they were not sure the third party would have invested without Fast Track. These answers indicate that the SBIR program is clearly funding projects that would not be undertaken without SBIR.
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From page 64... ...
Very few did not expect to achieve a product. This optimism stands in contrast to earlier studies that have shown that only about 40 percent of the SBIR projects achieve product sales.
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From page 65... ...
The performance levels in Figure 8 are consistent with the reported amount of completed marketing activities that are displayed in Figure 9. Fast Track projects reported the highest levels of completed marketing plans and the highest levels of marketing staff hired.
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The percentage of projects that reported a gap in each group is shown in Figure 11. Only four Fast Track projects (9 percent)
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From page 67... ...
FAST TRACK: IS IT SPEEDING COMMERCIALIZATION OF DOD'S SBIR? 67 Funding Gap Between Phases I and 11 30 - 27 1 :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: 9::::::::::::::::::::: 7 ° 5 ~ 12 ~ 1 1 10 24~ 4.7 ~6 9 LIZ 7 o~89 Fast Track 96 Control BMDO BMDO Control I Average gap for projects S u rvey G ro u ps which had a funding gap Average gap for all projects I in that group FIGURE 10 Duration of Funding Gap FUNDING GAP BETWEEN PHASE I AND PHASE 11 100 90 80 70 6050 40 30 20 10 O - 1~ FAST TRACK 96 CONTROL BMDO BMDO CONTROL FIGURE 11 Effect of Funding Gap on Firm [21 FUNDING GAP BRIDGE FUNDING STOPPED WORK
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From page 68... ...
When compared to the coinvestment projects, which also brought money to the table, and to the BMDO Control group, another conclusion emerges. The projects in these latter two groups, on average, were two years older than the Fast Track projects, yet their average additional developmental funding was half that of Fast Track projects.
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From page 69... ...
$1,200,000 1 / $1 ,000,000 - / $800,000 / $ 600,000 - / $400,000 - / $200,000 - / $0 - ~ Fast Track 69 96 Control BMDO BMDO Control Federal Private FIGURE 12 Source and Magnitude of Additional Development Funds 20- / 10- /~ ~1, 7 FAST TRACK 96 CONTROL BMDO FIGURE 13 Percent of Projects with Venture Capital Funding BMDO CONTROL
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From page 70... ...
Three of the 11 Fast Track projects reporting sales account for two-thirds of the sales. All three projects are still in Phase II and are being performed by the same contractor, Digital System Resources.
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From page 71... ...
The level of sales projected to be achieved in two years in that study actually took five years to achieved For Fast Track, the high levels of investment early in the development cycle and the marketing activities already completed add credibility to a projection of much higher than average sales; however, the 8~/2 million dollars in projected average sales is unlikely to be achieved in the next three years. The relative relationship of the projected performance for the next three years of each of the groups is more likely to be valid than the absolute sales projected.
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From page 72... ...
The responses to Additional Developmental Funding (Figure 12) , Total Sales (Figure 14)
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From page 73... ...
. ~ FT '96 BMDO BMDO Control Control Survey Group More than one founder has a business background FIGURE 16 Percent of Founders with a Business Background 70 60 50 40 30 20 10 O 7 One founder has a business background Fast Track 96 Control BMDO BMDO Control 2 or more ~ 1 FIGURE 17 Percent of Firms Where a Founder has Started One of More Other Firms 73
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From page 74... ...
Comparison of the business background of the Fast Track firms to the reported expected sales yielded an interesting result. The 29 Fast Track firms where one or more founders have a business background expect average sales in the next three years of $11.4 million.
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FAST TRACK: IS IT SPEEDING COMMERCIALIZATION OF DOD'S SBIR? 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 o 75 l Fast Track 96 Control BMDO cMnDtrO' FIGURE 18 Average Number of Patents Received 0.14 0.12 0.1 0.08 0.06 0.04 0.02 o Fast Track 96 Control BMDO cMntDrO FIGURE 19 Average Number of Copyrights Received
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From page 76... ...
The first point to note in Figures 18 and 19 is the low average level of activity for all groups. Recall that only 16 percent of Fast Track projects have completed Phase II.
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Finalized agreements and ongoing negotiations are shown in Figure 21. Figure 21 portrays the "cost" to firm owners of Fast Track firms.
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From page 78... ...
Moreover, Fast Track projects have achieved double the additional developmental funding of either BMDO group, and Fast Track projects expect twice as much sales in the next three years. Fast Track has been successful in nearly eliminating the funding gap between Phases I and II.
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From page 79... ...
Whether it is the validation of a third party to the commercial potential, the timing and magnitude of the additional funding, or merely the reduction in funding gap that contributes most to the apparent performance of projects selected for SBIR award under Fast Track, the program is working. Fast Track is selecting projects that should succeed in commercialization, and it is apparently contributing to their success.
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From page 80... ...
DARPA 24 44 5 NAVY 41 36 6 DSWA 2 4 0 OSD 3 5 3 204 204 175 * The 137 BMDO projects are 10 Fast Track projects awarded by BMDO and 127 BMDO co-investment projects.
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From page 81... ...
TABLE A2 Number of Phase II Awarded Prior to the Selected Project Number of Prior PH II # of Projects # of Projects # of Projects Received Expected from In Control In Study By Firm Population Group Group 0 81 86 85 1 25 24 20 2 16 12 16 3 12 11 11 4 9 7 4 5 9 11 7 6 5 6 2 7 4 3 3 8 4 5 1 9 4 2 2 10 3 2 3 11 4 3 2 12 3 1 4 13 3 5 3 14 2 1 15 2 2 3 16 2 2 4 17 2 6 2 18 1 1 1 19-29 3 4 1 30-74 7 7 1 >75 3 3 0 Total 204 204 175
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From page 82... ...
The percentage of BMDO co-investment with no prior Phase II was (85-341/~175-48) equals 40% which is the average (40%)
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From page 83... ...
FAST TRACK: IS IT SPEEDING COMMERCIALIZATION OF DOD'S SBIR? TABLE AS Distribution of Samples by States 83 # of Projects # of Projects # of Projects Expected from In Control In Study States Population Group Group AL 5 6 6 AZ 3 4 4 CA 50 50 42 CO 7 10 10 CT 5 9 9 DE 1 1 4 FL 5 3 3 GA 2 2 2 IL 1 1 0 IN 1 0 0 KS 1 1 1 MA 31 31 25 MD 8 11 8 ME 1 0 0 MI 3 3 1 MN 4 2 1 MT 0 1 0 NC 2 2 2 NH 3 2 1 NJ 9 11 12 NM 5 3 2 NV 1 0 0 NY 9 12 11 OH 8 6 3 OK 1 1 1 OR 1 2 2 PA 7 6 3 RI 1 1 4 TN 2 2 3 TX 6 4 2 UT 2 1 1 VA 15 13 10 WA 3 3 1 WI 1 0 0 WV O 0 1 204 204 175
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From page 84... ...
b. Project completed Phase II.
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ADDITIONAL DEVELOPMENTAL FUNDING AND SALES PLEASE READ THE FOLLOWING DEFINITIONS 85 Additional Developmental Funds: Include funds from federal or private sector sources, or from your own company, used for further development of the technology developed during this Phase II project. Sales: Includes all sales of a product, process, or service, to federal or private sector customers resulting from the technology developed during this Phase II project.
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Under way Not needed Completed Questions 8 to 10 concern actual sales to date resulting from the technology developed during this project.
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9. For you company and/or your licensee, when did the first sale occur, and what is the approximate amount of total sales resulting from the technology developed during this project?
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For your company and/or your licensee, what is the approximate amount of total sales expected between now and the end of 2001 resulting from the technology developed during this project? (If none enter O [zero]
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From page 89... ...
Prior non-SBIR federal R&D c. Venture Capital d.
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From page 90... ...
Number of prior Phase II awards m 22. Please give the number of patents, copyrights, and/or scientific publications for the technology developed during this project.
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27. Did the technology developed during this SBIR project provide knowledge that aided your subsequent research a.
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From page 92... ...
92 SBIR: DOD'S FAST TRACK INITIATIVE APPENDIX C NAS Survey Analysis Responses Received: Fast Track 96 Control BMDO BMDO Control 45 42 77 88 Total projects 252 (excludes four projects where no phase II awarded) Q2 Fast Track '96 Control 16% 2 4.76% 38 84% 40 95.24% O O 0% 0 0.00% BMDO BMDO Control 38 38 1 49.35% 51 57.95% 49.35% 37 42.05% 1.30% 0 0.00% Q4 Fast Track '96 Control BMDO BMDO Control 4 42 93% 38 90.48% 64 83.12% 72 81.82 3 0 0% 0 0.00% 3 3.90% 5 5.68% 2 0 0% 1 2.38% 2 2.60% 1 1.14% 1 0 0% 0 0.00% 3 3.90% 3 3.41% blank/NA 3 7% 3 7.14% 5 6.49% 7 7.95%
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From page 93... ...
FAST TRACK: IS IT SPEEDING COMMERCIALIZATION OF DOD'S SBIR? Appendix C continued 93 Q6-A Fast Track 2 1 2% 1 12 27% 0 32 71% 33 '96 Control O 0.00% 11 26.19% 78.57% BMDO BMDO Control 5 6.49% 27.27% 66.23% 7 18 7.95% 20.45% 63 71.59% Q6-C Fast Track 2 5 0 35 11% c 11% 78% '96 Control O 0.00% 1 2.38% 41 97.62% BMDO BMDO Control 2 2 73 2.60% 2.60% 94.81% 2 84 2.27% 1.14% 95.45% Q6-E Fast Track '96 Control BMDO BMDO Control 2 1 2% 0 0.00% 3 3.90% 1 1.14% 1 6 13% 5 11.90% 11 14.29% 12 13.64% 0 38 84% 37 88.01% 63 81.82% 75 85.23% Q6-G Fast Track '96 Control BMDO BMDO Control 2 1 2% 0 0.00% 5 6.49% 1 1.14% 1 9 20% 3 7.14% 10 12.99% 10 11.36% 0 35 78% 39 92.86% 62 80.52% 77 87.50%
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From page 94... ...
94 Appendix C continued SBIR: DOD'S FAST TRACK INITIATIVE '-A Fast Track '96 Control BMDO BMDO Control 4 0 0% 2 5% 7 9% 3 3.41% 3 10 22% 6 14% 14 18% 19 21.59% 2 21 47% 17 41% 19 25% 31 35.23% 1 7 16% 3 7% 11 14% 11 12.50% 0 7 16% 14 33% 26 34% 24 27.27% Q7-C Fast Track '96 Control BMDO BMDO Control 4 2 4% 3 7% 12 16% 8 9.09% 3 3 7% 1 2% 3 4% 8 9.09% 2 16 36% 14 33% 22 29% 21 23.86% 1 14 31% 5 12% 9 12% 15 17.05% n 10 22% 19 45% 29 38% 36 40.91% Q7-E Fast Track '96 Control BMDO BMDO Control 4 0 0% 3 7% 6 8% 5 5.68% 3 2 4% 0 0% 0 0% 0 0.00% 2 0 0% 0 0% 2 3% 5 5.68% 1 1 2% 1 2% 0 0% 1 1.14% 0 40 89% 38 91% 69 90% 77 87.50%
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From page 95... ...
9BC Fast Track '96 Control BMDO BMDO Control Avg A $19,900 $12,446 $60,918 $68,157 B $74,043 $15,130 $130 $60,514 C $3,885 $8,107 $16,835 $3,636 D $0 $0 $130 $16,563 E $0 $357 $130 $5,331 F $0 $0 $0 $991 G $8,261 $11,905 $390 $41,672 H $0 $0 $0 $11,473 SUM $ 106,089 $47,945 $78,533 $208,337 Ql l-BC Avg Fast Track '96 Control BMDO BMDO Control B $6,546,111 $817,500 $4,445,584 $2,657,500 C $1,895,778 $411,905 $316,883 $384,034 BC $8,441,889 $1,229,405 $4,762,468 $3,041,534
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From page 96... ...
96 Appendix C continued SBIR: DOD'S FAST TRACK INITIATIVE Q13 Fast Track '96 Control BMDO BMDO Control 13-1 13 0 5 1 13-2 19 1 17 0 13-3 3 1 15 2 13-4 7 0 22 7 blank/NA 10 40 37 78 Q15 Fast Track '96 Control BMDO BMDO Control 15-1 6 12 28 23 15-2 5 8 5 13 15-3 2 0 2 1 15-4 3 2 3 1 15-5 14 1 6 3 15-6 10 7 15 25
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From page 97... ...
FAST TRACK: IS IT SPEEDING COMMERCIALIZATION OF DOD'S SBIR? Appendix C continued 15-7 2 15-8 0 blank/NA 18 Q17 98 97 96 95 94 93 92 91 90 89 88 87 86 85 84 83 82 81 80 97 2 1 20 J 3 35 6 3 40 Fast Track o 1 7 3 2 4 o o 1 o pre-80 2 N/A 96 Control BMDO 1 o 2 o 6 2 o o 3 o 1 2 2 3 2 o 1 12 o 2 6 4 6 6 2 2 3 o 3 1 7 o BMDO Control o o 1 5 3 7 11 3 9 2 5 20 o
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From page 98... ...
98 Appendix C continued Q18-2 > 5 5 4 2 o 45 42 Q19 19-1 19-2 19-3 blank/NA SBIR: DOD'S FAST TRACK INITIATIVE Fast Track 1 1 2 12 19 45 '96 Control BMDO BMDO Control 3 1 5 0 1 1 2 3 9 24 42 l 18 44 77 88 o 6 11 16 49 86 Fast Track 39 15 2 3 '96 Control BMDO 32 55 8 26 5 2 BMDO Control 69 23 4 3 Q21-1 >100 75-100 50- 75 40-49 30-39 20-29 19 18 17 16 Fast Track o o o o 2 3 o o o o '96 Control 3 1 4 o 2 4 o o o BMDO 4 2 2 5 3 o o 1 o BMDO Control 6 1 2 4 1 6 o 2 1 1
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From page 99... ...
FAST TRACK: IS IT SPEEDING COMMERCIALIZATION OF DOD'S SBIR? Appendix C continued 15 14 13 12 11 10 9 o o 1 o o 1 o 8 0 7 1 o 5 4 4 1 3 2 3 1 13 0 11 99 o 1 2 o o o o 2 1 1 2 o 3 2 o 7 2 12 6 5 l o 4 3 2 3 1 6 6 11 8 15 2
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From page 100... ...
100 Appendix C continued SBIR: DOD'S FAST TRACK INITIATIVE Q22-A1 Fast Track '96 Control BMDO BMDO Control >10 1 0 2 0 10 0 0 1 0 9 0 0 0 0 8 1 0 0 0 7 0 0 0 0 6 0 0 3 0 5 0 0 1 0 4 3 0 1 0 3 2 1 3 3 2 1 1 11 5 1 8 7 12 18 0 29 33 43 60 Q22-A2 Fast Track '96 Control BMDO BMDO Control >10 0 0 0 0 10 0 0 0 0 9 0 0 0 0 8 0 0 0 0 7 0 0 0 0 6 0 0 0 0 5 0 0 0 1 4 0 0 0 0 3 1 0 0 0 2 1 0 0 0 1 2 0 1 2 0 41 42 76 84
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From page 101... ...
FAST TRACK: IS IT SPEEDING COMMERCIALIZATION OF DOD'S SBIR? Appendix C continued 101 Q22-A3 >10 10 8 7 6 5 3 4 2 4 1 5 0 29 Q23 23-1 23-2 23-3 23-4 N/A Fast Track o 1 40 o Fast Track '96 Control 1 0 o o o o o o o o o o 2 3 5 30 BMDO o o o o 2 2 2 5 3 BMDO Control l o o o 4 7 14 6 47 '96 Control BMDO 0 4 0 1 3 34 2 4 66 1 BMDO Control 4 77 5
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From page 102... ...
102 Appendix C continued SBIR: DOD'S FAST TRACK INITIATIVE Q23-CO Fast Track 5 0 o o 4 2 1 1 o o o o '96 Control BMDO BMDO Control o o o o 3 Q24-Months Fast Track '96 Control BMDO BMDO Control >15 0 1 1 1 7 15 0 0 1 3 14 0 0 3 0 13 0 1 3 0 12 1 1 8 c 11 1 2 2 10 0 0 4 9 2 3 3 8 1 2 10 ~ 7 0 2 1 ]
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From page 103... ...
FAST TRACK: IS IT SPEEDING COMMERCIALIZATION OF DOD'S SBIR? Appendix C continued Q27 Fast Track '96 Control BMDO BMDO Control 27-1 1 2 4 2 27-2 3 1 28 50 54 27-3 31 31 51 68 27-4 0 1 1 3 blank/NA 2 0 2 3 103
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