Pretending to be small

From Lisa C Box Houston, TX

I have to say I am very discouraged after researching and applying for funding all over the board. I worked for 6 months on a Business Plan b/c I was told it necessary. So for total of 3 years of being a workaholic, sacrificing everything and more, struggling with a business plan and barely surviving I now have consistent sales but have gone through $250,000 to get here with a sound foundation only to hit a wall. I read only 1 in 200 entreprenuers obtain funding. Those are terrifically tragic odds. Any suggestions, please? http://www.SmartSpacingHangers.com

From Lee Reid Blackfoot, Idaho

I believe there should be an alternative for start up business financial sources. The small business
administration is weak and provides
lip service only. Venture capital
financial should be capitalized by the
GSA and private entity. Profits to be limited to an average amount for either source.
America grows when entrepenural people want to better theirselves. Our country needs the Venture Capitalist as well as government monies to increase the startup business growth.
Presently neither want to do anything except pass the buck.
Lee Reid

From Brian Javeline

I think it is very unfair to let VC controlled firms grab federal grants since they already have their own money to work with. Independant businesses should be able to compete for VC funding separately from government funding. Both processes are already complex challenges and this would just further add challenges to the entreprenurial spirit.

From John Davis, General Manager

David, Amy:

Although I loved the article — it was right on target (a rarity these days), it included an important error. In it you stated
"Today, by law, 11 federal agencies earmark 2.5% of their R&D budgets for grants meant to encourage innovation among small businesses.

But that is not accurate. The 11 largest R&D agencies set aside 2.5% of ONLY their "extramural" R&D budgets. This is less than 2% of any agency's whole R&D budget and ONLY 1.5% of the whole federal R&D budget. Moreover it is less than .08% of the Federal Budget. And that is the pittance allocated for the one group that creates most of the jobs, most to the medical and scientific advances in America. Just 0.08% — not 2.5% of the budget as the article implied to the reader.

Few realize the short-shrift received by small businesses because the government, and large business, likes to "spin" the numbers. And you fell for it here.

Thank you for you good work here, but please watch out for this obfuscation tactic often used against small business in the future.

Sincerely.
John Davis, General Manager
SBIR Resource Center

From Dr. John Bell, Los Angeles, CA

It can take one year or more to secure any type of VC funding. It takes roughly one month to submit an SBIR proposal. If most SBIR winners are limited to those that are VC funded, the innovation cycle is likely to slow down.

From Dr. Estuardo Aguilar-Cordova

This letter is in response to your recent article entitled "Pretending to be Small" (by David Robinson and Amy Haimeri; April 11, 2008; http://money.cnn.com/2008/04/03/smbusiness/pretending_small_SBIR.fsb/index.htm ). The article addresses the current debate on the re-appropriation of the Small Business Innovation Research (SBIR) legislation. It presents the polemic as between "VC backed" vs. "small-business". This distinction is artificial since the two are not mutually exclusive. Presenting them as such is inaccurate and tends to perpetuate a misdirected debate. The Small Business Association (SBA) establishes criteria for "small" for different industries. For the SBIR program the SBA defined small as having a maximum of 500 employees and being owned and independently controlled by at least 51% individual U.S. citizens or permanent residents. It is only the portion referring to "individual ownership and control" that causes heated debate, and mostly, just for private companies.

For public companies the percentage of U.S. non-institutional stock holders determines eligibility. That is to say, the financial beneficiaries if the company is successful.

For private companies, however, ownership is not based on the financial beneficiaries. Qualification has somehow gotten contaminated by whether or not the equity investment is directly from individuals or through organized Venture Capital funds. This is an unnecessary, fictitious distinction that has fueled and confused the debate.

Objectively applying the existing criteria to public and private companies alike would dissipate the apparent "VC controlled" demons. Without the artificial distinction about the funding vehicle, small business could fulfill the current standards and have some VC investments. This is because VC funds are not all the same: some represent mostly individual investors while others may represent large institutions. The financial beneficiaries of the former are individuals, no different than a group of angel investors pooling resources for expertise, due diligence, etc. The financial beneficiaries of the latter are primarily large, ineligible entities. For public entities the composition of financial beneficiaries, stock holders, owning and controlling the company determines eligibility. There does not seem to be any logical reason to use a different set of criteria for private companies. The stakeholders, not the vehicle used for investment, should determine eligibility.

Similarly, the terms of investment are not all the same: some exert more control than others. If the control represents individual investors, not institutional investors, a public company qualifies. This should be the same for private companies.

These criteria are quantitative and independent of the investment vehicle, composition of the board, the market capitalization of the company or the type of research it performs.

The SBIR program supports an important National resource of innovation and creativity and thus National competitiveness. It should be supported and adjusted to maximize that effect, independent of any special interest groups, or subjective evaluations. At the same time, consistent with the stated goals of the original bill, the competitive equality of new and existing small entrepreneurs need to be protected. It needs to be recognized that in different fields typical "small" may differ. The needs of those in computer research may be significantly different than those in agricultural research which in turn may be different than those in clinical research. Thus, their "typical" equity compositions may also differ while still being small in their respective fields. The SBIR program should continue to support the best innovative entrepreneurs, in all fields, with an objective approach to qualification.

From Larry Steele

Hands off of SBIRs for VCs. I mentor second phase grantees through the
CAP program run by LARTA.

Why don't you solicit opinions from entrepreneurs who start these businesses
and vector them to the appropriate political authority where they will be
seen?

From LB, Austin, TX

AND the VC's will try to get you to feel sorry for them by confessing that "out of 10 investments we make 5-6 will fail outright, 3-4 will be walking dead (i.e. break even) and only 1 is a hit that makes us money." So with a track record of 90% failure, why should they steal the bread money of entrepreneurs that they already rejected. Funny, when I started my last company, the VC's would belittle SBIR grants and the companies that went after them.