In the March 19, 2008 Issue:

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 House SB Committee Releases Draft SBIR Bill at Hearing; SSTI Testifies
A brief two-year reauthorization, bigger award sizes, VC eligibility clarification, and a $10 million grant program for state/local outreach assistance are included in the draft SBIR reauthorization bill circulated by the House Committee on Small Business Chairwoman Nydia Velazquez during the third hearing on the topic, held March 13.
 
The SBIR program will sunset Sept. 30, 2008, if reauthorization legislation is not passed by Congress and signed by the president before then.
 
Bigger Awards, Fewer Winners
The draft legislation doubles the award sizes for both Phase I and Phase II, authorizing awards of $200,000 for Phase I and $1.5 million for Phase II. In addition, the committee draft authorizes agencies to award “sequential Phase II awards” for testing and evaluation of promising technologies. The award sizes have not been increased since 1992, although some agencies have exceeded the current limits, as needed, for particular projects.
 
Since the bill does not increase the 2.5 percent set aside requirement for SBIR, the result will be fewer awards, thus increasing competition for small businesses and decreasing the number of innovations supported through the program.
 
Venture Capital eligibility
The most controversial element, as Digest readers following SBIR know, is whether or not small businesses owned by venture capital firms are eligible to compete for SBIR funding. Most of the testimony and questions during this third full Committee hearing focused on the issue. Steven Preston, administrator for the Small Business Administration (SBA), was subpoenaed to participate as the sole member of the first panel of the hearing to present the rationale for SBA’s current eligibility interpretation. 
 
Preston expressed concern with the draft language, stating in his written testimony that “the committee print offers too broad a definitional change to the affiliation standards.” SBA is concerned about carryover of the redefinition of SBIR eligibility into all small business programs, potentially harming them inadvertently.
 
In addition, in his testimony, Preston illustrated the problem that arises with definitions of venture capital-owned companies “which includes patent and licensing organizations affiliated with institutions of higher education.” He expressed an interest in working with the committee to clarify the language.
 
The alternate view on the VC eligibility issue was the dominant topic of the testimonies of the first three witnesses during the second panel: Jim Greenwood, president of BIO; Mark Heesen, president of the National Venture Capital Association; and Mark Leahey, executive director of the Medical Device Manufacturers Association. The VC issue has been most prominently discussed in the industries associated with life science research and biomedical development.
 
All three witnesses appreciated the committee’s commitment to addressing the eligibility issue in the draft language. Heesen outlined how SBA’s definition was being applied in practice, taking some exception to Preston’s explanation. He also referenced the recent SBIR assessment by the National Academy of Sciences, as he described the formerly complementary relationship of SBIR and VC, stating “the NAS report found that there are useful synergies between venture capital investment and SBIR funding in terms of selecting the most promising companies.”
 
Greenwood and Leahey explained the specific impact of SBA’s current definition on the biotech and medical device communities, respectively. Both witnesses cited the steep three-year decline in SBIR grant proposals to NIH as evidence of how SBA’s definition is negatively affecting biomedical research at its earliest stages. NIH applications declined 11.9 percent in 2005, by 14.6 percent in 2006, and by 21 percent in 2007; SBA’s Final rule on eligibility became effective Jan. 3, 2005. The current definition is slowing U.S. health-related innovation rather than increasing it, they contend.
 
Reauthorization of FAST
Authorized for the first time in the current expiring SBIR legislation and funded for only three years, the Federal and State Technology Partnership (FAST) is included in the committee draft bill at the same authorization level of $10 million. The SBA-managed program would provide grants of up to $250,000 per year to state and multistate initiatives dedicated to broadening SBIR’s reach geographically and/or increasing SBIR participation among women and minority small tech firms. Grants, limited to one per state, would have to be matched on a one-to-one basis by nonfederal sources and would be for performance periods of up to three years to allow greater continuity for states in planning, staffing and delivering services to client companies. 
 
Reauthorization and improvement of FAST and explaining the important role state and local TBED efforts play in nurturing SBIR participation and innovation were the central points of the written testimony submitted to the hearing by the fourth panelist, Mark Skinner, SSTI's vice president.
 
“SBIR over the past 25 years has evolved into a state-federal-industry partnership in ways that I do not believe are fully realized by the federal agencies and perhaps even Congress,” Skinner wrote. The testimony explains state and local technology-based programs – now present in nearly every state – have become the de facto marketing and outreach arm of the federal program, filter potential applicants for SBIR appropriateness, and move SBIR technologies closer to commercialization by providing linkages to angel and venture capital groups, production partners and, in some cases, direct financial assistance toward Phase III.
 
The fifth and final witness on the second panel of the hearing was Dr. Charles Matthews, professor of entrepreneurship and strategic management at the University of Cincinnati. Dr. Matthews emphasized the importance of the federal SBIR program in creating a leveraged economic impact on regional economies, providing specific examples of the integral relationship that exists between the public-private TBED initiatives of southwest Ohio, SBIR funding, and the region’s small technology firms.
 
In addition to SSTI’s support for FAST reauthorization, Greenwood stated in his oral testimony that BIO supported FAST. Preston, when asked directly by Committee Chairwoman Velazquez whether or not the SBA supported FAST reauthorization, gave a qualified endorsement, adding that he wanted to talk with his staff more about the particulars of the program as included in the reauthorization draft.
 
Same Time Next Year?
Committee markup for the draft bill had not been scheduled at the time of the hearing, but the process is anticipated to pick up speed, now that a draft has been prepared. After clearing the House Committee on Small Business, SBIR reauthorization moves to the House Committee on Science, which shares SBIR oversight.
 
The current draft only extends the SBIR program for two years – the shortest extension in the program’s 25 year history. As a result, the next reauthorization process would need to begin next spring to avoid the current pressures to renew the program prior to its pending sunset in six short months.
 
The written testimonies of all six witnesses for the hearing are available at: http://www.house.gov/smbiz/hearings/hearing-03-13-08-sbir/hearing-03-13-08-sbir.htm
 
The draft SBIR reauthorization legislation is available at: http://www.ssti.org/Publications/Onlinepubs/Draft_SBIR_Legislation.pdf

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West Virginia Legislature Approves “Bucks for Brains”
Witnessing the success experienced by its neighbor, West Virginia is creating a university R&D matching endowment program similar to Kentucky’s. The legislature approved $50 million for Gov. Joe Manchin’s “Bucks for Brains” initiative to be allocated from lottery surplus funds (see the Jan. 16, 2008 issue of the Digest). The West Virginia Research Trust Fund will receive $50 million to match research endowments at the state’s two research universities, West Virginia University (WVU) and Marshall University. Another $30 million will fund the “Training Bucks” program establishing two community-college affiliated training centers throughout the state.
 
Lawmakers appropriated more than $200 million in budget surplus funds during a special legislative session that adjourned Sunday, including $10 million for economic development loans and $7.1 million for expansion of allied health programs recommended by the governor.
 
Not all of Gov. Manchin’s proposals survived the legislative process. The effort to transform the Promise Scholarship into a loan forgiveness program for students who remain employed in the state was tabled. Instead, the governor is directing the West Virginia Higher Education Policy Commission to form a committee to evaluate the program over the next year and recommend alternative methods for retaining college graduates.
 
The fiscal year 2009 approved budget for the West Virginia Development Office within the Department of Commerce includes $235,783 for the West Virginia High Tech Consortium Foundation - the same level recommended by the governor - $200,000 for the National Youth Science Complex, and $176,783 for the Mid-Atlantic Aerospace Complex.
 
Additional Commerce appropriations include $1.9 million for Partnership Grants, $519,800 for the Robert C. Byrd Institute for Advanced/Flexible Manufacturing Technology Outreach and Programs for Environmental and Advanced Technologies, and $144,000 for the West Virginia Manufacturing Extension Partnership – the same funding level as FY08.
 
The Division of Energy was allotted $730,000 each for WVU and Southern West Virginia Community and Technology College for the Mine Training and Energy Technologies Academy, a career training program in advanced processes of mining and energy technology fields.

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$12M SEED Initiative Proposed in Minnesota Supplemental Budget
Aiming to resolve the state’s projected $935 million deficit in its current two-year budget, Gov. Tim Pawlenty introduced a plan that closes Minnesota's budget gap and invests additional funding in rural entrepreneurship and teacher training initiatives for K-12 math and science educators. 
 
Under the governor’s plan, state spending would be cut by $341 million and the state would tap into the budget reserve and surplus funds within the Health Care Access Fund for another $500 million.
 
The fiscal year 2008 supplemental budget recommends $12 million in FY09 for the Strategic Entrepreneurial Economic Development (SEED) initiative, focusing on rural areas of the state by facilitating business development through support of new and existing programs (see the Oct. 3, 2007 issue of the Digest). The following are among the governor’s recommendations for the SEED initiative:

Gov. Pawlenty recommends $2.7 million for a two-tier math and science teacher training program in K-12 education. The first tier of the program provides intensive math and science content training for 500 existing teachers annually through a five-day summer institute. The second tier, which was partially funded by the legislature in 2007 (see the June 6, 2007 issue of the Digest), is a “train the trainers” program for math and science teachers to bring new instructional content and strategies to their districts and classrooms. The governor’s recommendation would establish the first tier and increase funding for the second tier.
 
Gov. Pawlenty’s proposal would reduce the Office of Higher Education’s appropriation for administrative expenses by 4 percent each year and reduce Minnesota State Colleges and Universities general fund appropriation by 3.85 percent each year. Universities are directed to reduce administrative costs and reallocate funds as an alternative to increasing tuition.
 
Within the Department of Energy and Natural Resources, the governor recommends reducing by $2.6 million the one-time appropriation from 2007 for the Renewable Hydrogen Initiative. Budget documents state that the governor prefers to focus on projects that may yield benefits in the nearer term, arguing that marketable solutions in hydrogen technology may be years away.
 
Gov. Pawlently’s General Fund Balance Analysis is available at: http://www.budget.state.mn.us/budget/summary/fba/080308_fba_summary.pdf
 
The FY 2008 Supplemental Budget Recommendations are available at: http://www.budget.state.mn.us/budget/operating/200809/supplemental/detail_080308.pdf

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Dual Reports Show Perceptions, Benefits to Higher Education in Georgia
An overwhelming majority of residents in Georgia see higher education as vital to the state’s economic growth and quality of life, as more educational attainment is aligned with higher incomes, higher levels of entrepreneurship and less government spending. These conclusions are proclaimed in two reports – one poll-based and the other created from econometric data – by the Atlanta Regional Council for Higher Education (ARCHE) titled Georgians’ Perceptions of Higher Education and What Does Georgia Gain by Investing in Its Colleges and Universities? For example, 75 percent of Georgians believe higher education is “very important” for the state’s economic growth, compared to 21 percent stating it is “somewhat important” and 3 percent deeming it “not important”.
 
Like a stepladder, Georgians’ per capita income gradually increases with education attainment, ranging from $18,410 on average for those without a high school degree to $78,440 for those with a master’s degree or higher. An inverse effect can be seen for unemployment, as 8.5 percent of those without a high school degree are unemployed in the state, compared to 1.2 percent with a master’s or above. According to the report, educated residents provide the “heart of funding” for Georgia’s operations and programs. Whereas less than high school-educated households contribute $2,780 on average in state and local taxes, households with a master’s degree or higher pay $6,950 in taxes. Alternatively, 76 percent of state spending on direct public assistance in the state is allocated to Georgians with a high school diploma or less.
 
The data presented also show parents with more education have children with less disciplinary problems in school and achieve greater academic success themselves. Suspension and expulsion rates of the children of parents with less than a high school degree were 18.7 percent, gradually decreasing into the single digits if the parents had a bachelor’s or above. The SAT scores of children showed on average 200-point disparities between the offspring of highly educated parents and parents who did not graduate from high school.
 
The report also provides a glimpse into the backgrounds of those with entrepreneurial experience in Georgia. Whereas 1.5 percent of adults without a high school degree incorporated a business, those attaining a bachelor’s degree or at least a master’s degree did start a new business at 4.4 percent and 5.7 percent, respectively.
 
So what strategies should Georgia use to push education in a state where 146 of its 159 counties have bachelor’s degree attainment levels lower than the national percentage? According to the poll provided, 55 percent of Georgians believe a higher quality education is more important than providing statewide access to college. Comparatively, 34 percent of state residents believe providing access to all Georgians wanting four-year degrees is more important, even it means lowering the quality of education the state provides.
 
What Does Georgia Gain by Investing in Its Colleges and Universities? is available at:
http://arche.org/archereports/cpsreport.asp
 
Georgians’ Perceptions of Higher Education can be found through ARCHE at:
http://arche.org/archetype/1-24-08/ARCHE_HigherEdPeachStatePoll_FINAL.pdf

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Is VC Growing More Concentrated or Dispersed?
Though Silicon Valley and New England still dominate the U.S. venture capital landscape, several other regions - whether through local initiatives or the natural evolution of the economy - have emerged as respectable national hubs of investment over the last decade. Some areas, like San Diego, have seen greatly expanded investments and have joined the top tier of venture markets as VC firms turned their attention toward biotech.
 
A new report from the National Venture Capital Association (NVCA) and PricewaterhouseCoopers highlights five regions – New Mexico, Pittsburgh, Seattle, Los Angeles and the Washington DC metroplex – that are not typically counted among the country's venture capital hotspots, but which have experienced remarkable growth in venture investment since 1997.
 
The report cites the five U.S. regions that have grown the most in sheer number of venture deals and total dollars invested since 1997. Areas that received less than $100 million in investment last year were excluded from consideration, but none of the final five ranked in the top tier for total investment in 2007. The top two high-growth regions, New Mexico and Pittsburgh, remain relatively small venture markets. All of these areas, however, have managed to attract substantial investment from venture capital firms located outside of their immediate vicinity. In fact, only four of the 106 most active U.S. venture firms from the 2007 Moneytree Report are based in one of these regions, providing evidence that money will travel.
 
All five of these regions outpaced the already-impressive growth of the overall U.S. venture market, which has doubled in size over the past 10 years. The top five areas also have managed to increase their share of national venture capital investment over a period in which Silicon Valley and New England also expanded their leadership in the market. In 1997, those two regions accounted for 42 percent of U.S. venture investment, according to Moneytree data. In 2007, the figure had inched up to almost 47 percent. Silicon Valley's investment level grew by 113 percent since 1997, putting it just shy of the top five regions.
 
New Mexico experienced the most growth out of the group, increasing its total investment by 375 percent and its number of deals by 650 percent. Though the state accounts for less than a half a percent of the country's venture investment, heavy investment in R&D has helped the region generate a healthy stream of high-quality deals. The report cites the State Investment Council program as a successful initiative that has improved New Mexico's business climate for entrepreneurs. The program has allowed the state to invest in venture firms with a full-time office in New Mexico and to invest directly in in-state companies through the New Mexico Co-Investment Partnership.
 
The National Association of Seed & Venture Funds (NASVF), taking exception with some of the conclusions in NVCA’s account, compiled a table showing the 1997 and 2007 data by state. The table shows real increases in VC investments by both dollar amount and number of deals were experienced by 21 states and the District of Columbia. Fourteen states saw increases in dollars invested but not in the number of companies. Another three states had more deals for less cash. Eleven states experienced drops in both the number of deals and the amount of VC funds invested.
 
As the regions highlighted in the report were increasing their share of the total VC pool of investments, it must mean other regions were receiving a smaller percentage of the total, even while their actual investments were increasing. The result? It appears venture capital is becoming increasingly concentrated but in more areas of the country.  
 
But whether or not those conclusions can be drawn with any confidence would require deeper analysis than looking at only two years in snapshot. For example, one large deal can skew the figures for any state in one year. SSTI will look at the issue in more detail in coming weeks.
 
Read the NVCA/PricewaterhouseCoopers release at: http://www.nvca.org/pdf/Fast_Growing_07Q4.pdf
The NASVF table is available here: http://www.nasvf.org/web/allpress.nsf/pages/17631

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SSTI Seeks TBED Initiatives with Proven Impact for 2008 Excellence in TBED Awards
On the heels of SSTI’s successful inaugural year awards program, recognizing exceptional achievements in approaches to improving state and regional economies through science, technology and innovation, we are pleased to invite applications for the 2008 awards cycle.
 
The purpose of the awards program is to showcase best practices across a broad spectrum of categories encompassing several elements that have been found in successful technology-based economies. The categories are:

Recipients will be selected based on their ability to clearly define a need for the initiative, demonstrate results, and describe how the impact is communicated to key stakeholders. Award-winning initiatives will also stand out among others in its field.
 
As an Excellence in TBED Award winner, you are provided with a forum to showcase your accomplishments during dedicated breakout sessions at SSTI’s annual conference in Cleveland, Oct. 15-16, 2008. Winners are highlighted in the SSTI Weekly Digest and in a press release issued by SSTI. An awards ceremony honoring the recipients will also take place during the conference.
 
Any TBED program or practitioner is eligible to apply, and winners are selected by a committee of distinguished current and former practitioners with knowledge and experience within a given category. The deadline to apply is May 16, 2008.
 
For more information on the 2008 Excellence in TBED Awards, including a downloadable brochure and application form, visit www.ssti.org/awards.htm.
 
To learn more about the 2007 award winners, please visit www.ssti.org/Awards/07winners.htm.

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People & TBED Organizations

Publisher's Note: SSTI notes with much sadness the March 5 passing of Indiana State Sen. David Ford, following a battle with pancreatic cancer. David was a good friend not only of SSTI's, but also of the tech-based economic development community across the nation. In addition to being a tireless and cheerful advocate for investing in science and technology, he was also a gentleman in the true sense of the word, and we miss him greatly.

David Abbott, executive director of the George Gund Foundation, was elected the new chairman of the Northeast Ohio-based Fund for Our Economic Future. Abbott replaces Robert Briggs of the GAR Foundation, who had served as chairman since the Fund was formed in 2004.

Birgitte Ahring has joined Washington State University as the director of the Center for Bioproducts and Bioenergy and as the Battelle Distinguished Professor, based at WSU Tri-Cities.

Eddie Ashworth, president of Research Park Corp., the managing entity of the Louisiana Technology Park, is resigning to become undersecretary of the state Department of Social Services.

The Tucson-based BioIndustry Organization of Southern Arizona, known as Bio-SA, has merged with the Phoenix-based Arizona BioIndustry Association, called AZBio.

Pamela Crowell was named the new vice president for research at Idaho State University.

Monica Doss announced she will step down as president of the Council for Entrepreneurial Development to pursue other opportunities, effective May 31, 2008.

Gov. Donald Carcieri announced his decision to consolidate the Economic Policy Council into an advisory council for the Rhode Island Economic Development Corp. (RIEDC). The advisory council will remain in place and the board will be chaired by Gov. Carcieri.

Kurt Faulhaber has accepted a new position with Macquarie Funds Management (USA) Inc., where he will be joining the Carlsbad, Calif., team to help raise and invest a Cleantech fund.

Gov. Rod Blagojevich has named former Speaker of the U.S. House Dennis Hastert and Southern Illinois University President and former U.S. Congressman Glenn Poshard as co-chairs of the newly created Illinois Works Coalition.

WESST Corp has chosen Doug Lee as the managing director of its new WESST Enterprise Center.

The Mason City Economic Development Corp. and the Clear Lake Economic Development Corp. will expand their partnership under the auspices of the North Central Iowa Growth Partnership, which promotes economic development for Cerro Gordo County.

John Poate, vice president for research and technology transfer at the Colorado School of Mines, has been appointed to the inaugural class of fellows for the Materials Research Society.

The Indiana Economic Development Corp. (IEDC) has selected Brook Steed as the director of its Northeast Regional office in Fort Wayne.

Dennis Thompson was appointed the new president and CEO of the Doyle Center for Manufacturing Technology. Thompson had been the senior vice president of Catalyst Connection, a nonprofit.

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