SBIR Rules to Include Venture Backed Companies

Starting January 28, venture- backed companies will once again be able to compete for government grants. The Small Business Administration approved rules in the beginning of January that allow companies that are majority-owned by multiple domestic venture capital firms to receive 25 percent of Small Business Innovation Research funds from NIH, the National Science Foundation and the Department of Energy, as well as 15 percent of funds from other agencies.

Genetic Engineering & Biotechnology News reported on January 24 that the new rules are intended to draw more small businesses in biopharma and other technologies to SBIR and its companion Small Business Technology Transfer (STTR).

Biopharmas would be a relatively small slice of the total roughly 24,000 U.S. businesses estimated by the U.S. Small Business Administration (SBA) to be “impacted” by the rule changes. That number included businesses locked out of the program until now, though SBA did not say how many were included in its estimate.

One key change to SBIR sets percentages for funds that can be awarded to businesses that are majority-owned by multiple venture capital firms, hedge funds, or private equity firms: 25% of SBIR funds from NIH, NSF, and the U.S. Department of Energy; and 15% for all other agencies.

Those percentages, proposed by the Senate, are well below the 45% and 35%, respectively, offered by an investor-friendlier House of Representatives two years ago—but still better for such companies than having no set-aside. And nothing says the percentages can’t change overtime. In a policy paper last April, Foley & Lardner lawyers Frank S. Murray, Jr., and David T. Ralston, Jr., said the agreed-on percentages are “effectively creating a pilot program to see how the new eligibility rules actually play out in practice.”

STTR still bars companies majority-owned by investor firms from participation. And while allowed by SBIR now, the investor firms must have a place of business located in the U.S. and be created or organized in the U.S.

Read the complete article here.