07 Nov Wisconsin firms urged to pursue federal SBIR dollars
Milwaukee, Wis. – Wisconsin is slowly getting over its shyness about asking for federal dollars, and a gathering of Wisconsin and Midwestern small business executives is learning more about how to ask during the National Small Business Innovation Research-Small Business Technology Transfer Conference at the Hilton Milwaukee City Center Hotel.
The two congressionally mandated programs, one (SBIR) designed to foster small business innovation, and the other (STTR) designed to encourage collaboration between small businesses and research organizations, are funded to the tune of $2.2 billion annually. They are designed to support small businesses that are developing scientific and technological innovations, but they don’t support any business that doesn’t have the nerve to respond to program solicitations and seek Phase I and/or Phase II funding.
That point is not lost on Milwaukee Mayor Tom Barrett, a former Congressman, who said areas of Wisconsin outside of Madison have to more aggressively go after federal money. One thing Barrett said he learned in Congress is that regions and states like West Virginia are “backing up the truck” to get their share of federal dollars.
“If I could leave you with one thing, it’s to ask for the money,” Barrett said. “I can assure you there are areas of this country where these programs are aggressively pursued.”
A show of hands at the conference’s opening session indicates that one-third of the people in attendance represent companies that have never been funded before, and that’s about the percentage of new SBIR-STTR applications received by the federal government each year.
The programs are broken down into three phases: Phase I grants, typically for $100,000, are used to study the feasibility of the technology, and are granted to the best among thousands of 25-page proposals. Those judged to have the best technical merit, commercial potential, and societal benefit receive the initial 100,000.
Although the awards are not loans and do not have to be paid back, receiving a Phase I award is the most frightening part of the process, said Department of Transportation program manager Joe Henebury, because “now you have to deliver.”
Recipients that pass the feasibility test can apply for larger Phase II grants of up to $750,000 for full research and development. Although $750,000 is the maximum grant, each of the 11 federal agencies that distribute money – including Health and Human Service, Department of Defense, and the Department of Homeland Security – have their own solicitation requirements (available on the Internet) and their own maximum award level.
Unsolicited applications are a waste of time, Henebury stressed.
The third phase takes the grant winners into commercialization, at which point they can pursue private equity. While winning the awards conveys recognition that makes angel and venture investors take notice, a company’s ability to win grants from SBIR, STTR, and other sources does not necessarily translate into corresponding valuation.
Devin McGlenn, CEO of the Madison-based NeoClone Biotechnology International, said a common mistake that early-stage companies make in assessing their valuation is to assume that because they raised $3 million in grants, their company is worth at least that much. Investors have a much different calculation, McGlenn said.
“Investors look at grants as non-repeatable income,” he explained. “Any investor will tell you they would rather see commercial money than grant money.”
Failure to land SBIR-STTR funding should be seen as a temporary setback, especially if businesses take time to learn from the summaries provided to them by grant reviewers, according to program manager JoAnne Goodnight. Even companies that receive Phase I grants might have shortcomings spelled out in the summary that can be of value when they compete for “the big bucks of the Phase II piece,” she added.
One of the newest trends in the competition for federal dollars is the government’s special emphasis on collaboration, whether organizations are competing for SBIR or STTR grants. Dr. Joseph Hill of the Medical College of Wisconsin served as planning committee chairman for the SBIR-STTR conference. He said businesses in the Midwest have an opportunity to be a lot more competitive in attracting the funding, but they can become even more competitive by seeking partners.
“The kinds of research and development going on in the Midwest certainly is top-notch and high quality,” Hill said, “and businesses need to think about collaborating with universities or other businesses in order to put together the best possible packages for these types of awards.”
• Matt Storms: Raising capital through placement agents
• Venture-backed firms could become eligible for federal SBIR grants
• Wisconsin to host SBIR Conference
• Innovation expert says Milwaukee has all the tools
• Michael Rosen: The challenge of financing today’s Midwest life science companies