.... Meteor burst communications and other low frequency systems. Even though MBC systems would be enhanced by the increased meteor flux, the variability in flux, particularly if there is strong latitudinal dependence, needs to be understood and modelled accurately. Chemical processes that convert atomic ions from the ambient atmosphere at higher altitudes into molecular (meteoric) species need to be included in the model, as the molecular ions will be quickly neutralized by reaction with ambient electrons, leading to the depletion of the latter. 2) Phase I product will be software that provides density profiles of the major meteoric metal ions (Fe, Mg, Ca, and Na) as a function of altitude, increases in these densities due to shower activities. The model should include the effect of electric fields and winds. In addition Phase I should lead to a roadmap for proceeding to phase II: a software package that the above, incorporation of meteor orbital mechanics, including those of their parent comets, incorporation into a sky map that allows the user to display a region of the sky, expected howers at a particular date, and views from different parts of the earth. It is expected that the roadmap should lead to the description of a software that can be used on a PC.

Massachusetts stocks lagged the market overall in 1997 by nearly 10 percentage points, as small technology companies here suffered more lows than highs. The Standard & Poor's 500 index gained 31%. By comparison, Bloomberg's Massachusetts index posted a return of 22%. The Nasdaq index was up 22%. ''Tech's gotten killed, and Massachusetts is tech.'' said one Boston stockbroker. Indeed, 70 of the 161 stocks that make up the Bloomberg Massachusetts index are biotechnology companies or computer hardware, software, networking, and other high-tech companies. Many are the relatively young companies proliferating around Route 128.[Kimberly Blanton, Boston Globe, Jan 1]

Platinum Technology moved into the national spotlight Tuesday when Intel Corp. announced it will make an equity investment in the computer software maker. Although both parties declined to specify the amount, a person familiar with the situation said the investment was more than $40 million. News of the deal sent Platinum stock up 17% percent. [Platinum] expects $600M revenues. ,not exactly an SBIR candidate but a sign that strategic partners can be found. [Chicago Tribune, Dec 31]

More R&D Spending
(Dec 31) Big business is undercutting SBIR again as it budgets a 4.6% rise in R&D for 1998 on top of a 4.2% growth in 1997. Says Battelle Memorial Institute. As industry does R&D, the case for government's doing it diminishes. Government will still need to fund R&D for its own internal purposes in the mission agencies, but the case for NSF's SBIR gets weaker as industry funds commercial R&D. Don't worry, though, there is still the fantasy that SBIR increases funding for small business in federal R&D. Which actually would make some sense if the agencies would use small business for what it does best - entrepreneuring new ideas - than just mimicking what large entities can do as well or better - research.

NASA Phase 2s (Dec 29) NASA funded 101 SBIR Phase 2s (of 320 proposals) for $59M in 87 firms. Triple wins to Physical Sciences (one of the top four SBIR winners since day 1) and Triton Systems (an escapee from Foster-Miller). Double wins to ATMI, IAI, Nielsen, Pixelvision, Creare, Nanomaterials Research, Scientific Systems, Sensors Unlimited, Stotler-Henke, and Xinetics. Only a handful of companies sound like they have any serious chance of commercializing even though all have probably waved their hands somewhere in the proposal about a commercial fantasy. On balance, a conservative lot of projects. If you are thinking about proposing SBIR to NASA, think incrementally and think about direct NASA use of the product. Any commercial intent is at your own risk. Think also how you can schmooze the NASA project selectors at the centers. Return to Index

What conclusions about NASA'a approach can be drawn from the titles, just the titles? 1) We would rather have defensive analysis than new ideas with disruptive innovation as evidenced by such stuff as: THE ORIGIN AND SIGNIFICANCE OF ELECTRICAL STRATOSPHERIC PHENOMENA; A GRAPHICAL INTERFACE TOOLKIT FOR NETWORK BASED CFD; BOUNDARY AND FINITE ELEMENT METHODS FOR THE APPLICATION OF NEARFIELD ACOUSTICAL HOLOGRAPHY; SIMULATORS FOR CHEMICAL AND PHYSICAL VAPOR TRANSPORT CRYSTAL GROWTH; MULTI-DISCIPLINARY THERMAL-CFD MODEL DEVELOPMENT; REAL-TIME HEALTH MONITORING OF FLIGHT CRITICAL SYSTEMS USING FUZZY CMAC; AN INTELLIGENT INFORMATION SEARCH AGENT FOR THE AERODYNAMICS ENGINEERING PROCESS; and A PILOT CENTERED TURBULENCE ASSESSMENT AND MONITORING SYSTEM. 2) We like old comfortable shoes that don't jump very high with such winners as Foster-Miller, Scientific Systems, Creare, Lynntech, Space Power, Stottler-Henke, SPEC, Thermacore, Charles River Analytics, EIC Labs, Fiber & Sensor, Physical Sciences, and IAI. These guys have had years of SBIR and still win the same sounding projects. 3) One-off, NASA-peculiar projects are loved because they directly support some NASA mission: stratospheric phenomena, drifting ocen station (Ice Station Zebra), planetary exploration, dinitramine monopropellents, and Mars in-situ propellant production.

Two DOE SBIR Spectrometers.
A key requirement for efficient distribution of natural gas is automated real-time monitoring of its BTU (i.e.caloric) content and composition. This project will develop a spectrometer based on multispectral measurement of the optical absorption of the natural gas components. Phase I will demonstrate the potential for accurate low-cost BTU sensors based on this approach and will collect the necessary spectral and technical data required to project system performance. In Phase II, a field deployable prototype will be developed and tested. Commercial Applications and Other Benefits as described by the awardee: This effort should lead to the commercial production of a low-cost, on-line BTU/ composition sensor to meet the market requirement for cost-effective automated monitoring in the natural gas transmission and distribution industry. Hear any innovation grabber? Sound like something that should first pass an ROI test? If it passes the ROI test, the private sector should be doing it; if not, then it should have some compelling reason for government intervention. Spectrometers hardly qualify as breakthrough invention, especially for a company that has been in the gas sensing business for years. Note there the abstract gives no hint of the nature of the innovation being exploited in the new instrument.	And from a hardy SBIR veteran. Real Time Monitor for the Laser-Based Coatings Removal System. Pulsed-CO laser systems are used to remove contaminated lead-based paint and two-part epoxy coatings from the surface of DOE facilities. These systems have the advantage of complete coatings removal with prompt capture and disposal of ablated material. Because highly variable coating thicknesses are encountered, it would be economically beneficial to incorporate an on-line sensor with a feedback control when thicker layers are encountered, or, if needed, to stop, reverse and reclean a spot. This project will develop an on-line sensor for Pb, U and Pu to be integrated with a laser-based coatings removal system. In Phase I, a prototype single element monitor (Pb) will be integrated and tested for active feedback control with the coatings removal technology. A spectrometer system will be used to characterize the plasma for optimum detection of lead and uranium. The combined experimental results will be used to develop a design for a multi-element sensor. Assembly and testing of the multi-element sensor will be the focus of Phase II. Commercial Applications and Other Benefits as described by the awardee: The developed multi-element on-line spectral sensor package would be an integral part of the laser-based coatings removal technology. One of these sensors would be incorporated into every field-deployed system.
Such projects flow naturally from selection committees who try to satisfy many objectives including a "fair" distribution of the money. Committees hate risk and technical experts don't care much about the role of government in subsidy. Your problem in competing with these guys for this kind of project is that they know where the DOE knobs are. To beat them, you need a much better mousetrap and a dynamite story. On the other hand, if you are that good, go to BMDO where you have more chances for the right kind of Phase 2 than a cookie-cutter product of timid bureaucrats and committees.	Compare BMDO. A breakthrough Compact High Torque Density Motor with an ultra-high resolution operates at high (50%) efficiency by using a PZT charge recovery module and switching amplifiers, and can be low cost (modest machining tolerances). 1.90 rpm and 30 ft-lbf ultra-high resolution, with no backlash. Operation at 10 rpm and 1 ft-lbf load. In Phase II, tested and certified at the Phase III sponsor's facility. Three distinct commercial and military applications. Note the contribution from the Phase III partner during Phase 2. BMDO wants parallel, not sequential, market preparation. And so should you.

Energy Soliciting SBIR (Dec 18) Telling phrases from the DOE FY98 solicitation that closes March 2. cold fusion will be declined, enhance or augment the current research being done in the Department, To effectively address these concerns. In FY97 the Energy SBIR reeked of the usual names that do good research for whichever government lab has money. Phase 2s went to such veterans as SRL, MER(2), Spire, POC, Lynntech, PSI, EIC Labs, Mission Research, AFR, companies that have had enough SBIR subsidy to be public and thriving. The Phase 2 list has a similar, and partly overlapping litany. The message to potential proposers is be conventional and don't worry that poor commercialization will be held against you.

Maybe Energy could use some advice from Eric Schmidt who went from being chief technical guru of Sun Microsystems to CEO of Novell (staggering from disastrous purchases of WordPerfect and Borland) but stayed in Silicon Valley. Po Bronson writes (Wired, Jan 98) that part of Schmidt's method has been to give the stable, dedicated corporate culture on Provo a fresh breath of Silicon Valley's aggressive, risk-taking style. Return to Index

If you want to compete with these veterans, you've got to carry to battle to them. Since you can't compete with them on exploiting the DOE process, you want to spend your energy telling Energy how your idea has an overwhelming competitive advantage. Names the names and cite the numbers, especially competitive market economics. You will lose if you just say that your research is valuable.

Krauthammer thus lauds immigrants and entrepreneurs (often combined) and says that politicians are along for the ride. Occasionally, politicians try to steer the boat on the white water with programs like ATP and SBIR. Unfortunately, such programs do little except give the beneficiaries the illusion of success for which they are expected to thank the politicians with re-election. Meanwhile, the politicians do what they can to impede hard evaluation of the programs. Typically, the have hearings wherein beneficiaries testify about what they gained. Join the beneficiary crowd for 1999-2000; join Small Business Technology Coalition.

The Voice of Learning we have completed a [Phase 2 NASA SBIR on] high temperature superalloy composites. [It] was a mistake that cost us dearly in opportunity costs. We won't be doing any more high temperature work. NASA got what it wanted - its hands on the technology and a tap into the brains of the smart scientists. Was that enough to make a fair SBIR bargain for the small company? Or does the company have only itself to blame for being left nowhere?

Howard County [Maryland btw Wash & Balto] may open a business incubator to lure young technology companies. "More and more, high-technology start-ups are critical to our economy," said County Executive Charles I. Ecker. Howard has indeed become a mecca for high-tech firms during the 1990s. The number of information-technology jobs in the county mushroomed from 1,450 in 1990 to an estimated 4,100 by 1996, ... The economic development authority has hired the Rockville-based High Technology Council of Maryland to perform the incubator study. The council already operates the Montgomery County technology incubator in Rockville and will manage another in Gaithersburg. [Baltimore Business Journal, Dec 29]

The I-4 High Technology Corridor Council plans to ask state lawmakers for $925K to fund this coming year's efforts to lure high-tech companies to Central and Gulf Coast Florida. That's the same amount of money the group asked for -- and received last year.[Tampa Bay Business Journal, Dec 29]

There is no social or economic problem of which a president can say, "That's not the government's responsibility." And so, naturally, the government is blamed when problems are not solved. This irritates everyone. People who opposed the government's intervention in the first place are irritated, but so are the people whom the intervention was intended to help, because whatever the government does is never enough. [Charles Murray, wall Street Journal, Dec 23] So, want more SBIR because if a little but is good a whole lot is better? Or because not enough companies get to participate (whose fault is that?)? If you want to get political about SBIR join SBTC

Murray also notes that the proportion of people who think government officials ignore what ordinary people think rose from 35% in 1952 to about 60% in recent years. Part of that comes naturally from the rising expectation that government can solve problems that, in fact, it cannot solve. If you remember that last presidential campaign, you'll notice that even the less-government candidate wanted the government to solve social problems like schools and teen-age drug abuse, and to intrude into prayer and abortion with, of course, 15% fewer taxes paid. Politics, they are what we let them be.

Whistling Past the Graveyard: We Have No Competition. Commentary at Silicon Investor chat room: In reading the latest S-3 filing for Kopin's secondary offering, I couldn't help but notice the fact that Kopin states that they have no competitors to their particular technology. What? I am fairly sure that this comes as a great surprise to the many micro-display companies out there, Colo. Microdisplay, SVision, Siliscape, TFS/NSM, to name but a few. I liken it to a small company coming out with a titanium-bodied automobile and telling their potential investors that they have no competition. Whatever you're doing, you have competition and to say you have none in your SBIR proposals or SEC filings brings a snicker to anyone whose judgment you would trust on your proposal. SBIR proposers do it regularly, at least those who even bring up the subject of competition.

Buffalo SBIR: Good News or No News? Buffalo area high-tech companies received more than $6 million from federal agencies for research and development last year. Fifteen companies in Western New York participated in SBIR program. Several area companies received multiple awards in 1996. Laser Photonics Technology at the University at Buffalo Foundation Incubator at the Baird Research Park in Amherst received three awards worth $916K. Amherst Systems received nine SBIR awards totalling $1.8M; Advanced Refractory Technologies (ART)received five awards worth a total of $900K; and PCB Piezotronics received two worth a combined $900K. Akers Associates, Analysis and Simulation Inc., Appolo Research, Immco Diagnostics, Lyotropics, Material Solutions I, Snyder Seed Corp., SR Environmental Monitors, Taylor Devices Inc., The Electrosynthesis Co., and Veritay Technology Inc. [Buffalo Business Journal, Dec 22] How are these companies doing as investments? Amherst Systems, has had something like $15M of SBIR and still has sales of only $17M, mostly more government R&D - sign of a nice research house. Since government R&D sales carry only about a 6% profit margin, Amherst investors (your tax money) must be getting a terrible ROI. Other notable lifetime totals: ART $5M and Veritay $6M.

Glass: Industry of the Future. Having convened an industry panel of 38 experts from industry and academia, the Department of Energy is going to help with - you guessed it - a subsidy. Four R&D contracts (of 50 proposals) because Naturally, new technology plays a pivotal role in helping US glass manufacturers compete effectively in the world market, says Theodore Johnson, who helped spearhead the workshop. [Technology Business, Nov/Dec97] Aren't buzzwords grand? Does the glass industry need a subsidy because it is an infant industry in an infant country? If the US government subsidizes commercial industry, what moral standing does it have in arguing against government subsidies by its trading competitors? Will the government invest in the most efficient projects? Of course not, private capital has already done that. Why the Energy Department to succor the glass industry? On the rationale that glass uses energy, the Treasury Department could just as well have been the manager. Should the nationalistic free-market Republicans love or hate this subsidy? You can bet the four recipients will find a way to love it.

Wonder why the government sometimes funds basic research with its SBIR? Because it can claim high risk while actually taking no risk since it has a can't-fail objective - knowledge. And, indeed, the risk is high, not that the project won't gain the intended knowledge, but that anyone will care afterward. Remember, the government wants to pick your brain and doesn't care whether you survive as a company. Why should it? You gave up rights to the technology for government purposes. Lots of companies are waiting to fill any void left by your death.

Schwartz Electro-Optics (Orlando, FL) has 150 employees and $20M annual revenues split 70-30 government-private. Bill has had $17M in 100 SBIR contracts from which he has derived $25M of product sales and spends no more than $750K a year of his own money on R&D. Anyone wanna calculate Schwartz's rate of return on the SBIR investment since 1986? Think it'll look like something any sane investor would sink money into? If not, there's something awry in the government's running SBIR as an investment vehicle. But, of course, both politicians and beneficiaries call any subsidy an investment. [facts from Milton Chang's column in Photonics Spectra, Dec 97]

Scott Wallsten's full critique of SBIR is now public. His data verify his hypothesis that government funds stuff that would have been funded anyway and therefore plays no useful role in advancing the cause of new technology. The champions are screaming foul but they have not produced an economically credible counter-case. They have limited themselves to the argument that some good has been done with the $7B and avoid anything like a control group. There is a counter-argument to be made based on the knowledge that most of government does not act as hypothesized by Wallsten who assumes that the SBIR officials follow the spirit of the law which most do not.

Heroes or Hogs
(Oct 24) Speaking of the hooked....

The top 1996 winners 1.$10.3M....Foster-Miller (1) 2.....9.3M...Physical Optics (3) 3.....7.1M...Creare (2) 4.....6.0M...Spire (4) 5.....5.9M...ATMI (18)

6......$5.7M.......HYPRES (32) 7......$5.5M......CFD Research (40) 8......$5.3M......RadiationMonitoring(7) 9......$4.6M......Lynntech (33) 10....$4.6M......SDL (435)

Number in parenthesis is the firm's ranking thru 1994. Which raises the question: what is the government's intent that would keep any firm on the top of a list that in principle gives only start-up money?

Utah's Centers of Excellence Program helped create seven new companies and more than three dozen new jobs during its budget year ending in June, according to a report issued this week. The program aids in the commercialization of technologies developed at colleges and universities in Utah. It funds individual R&D centers at the University of Utah, Brigham Young, and Utah State and Weber State universities from which new private companies emerge. Since 1986, it has helped create 123 companies and 1,050 jobs that pay an average of $35K a year, according to the report. The state has allocated $26.8M to the program. ... For every dollar of state funds the individual centers receive, they must then receive $2 from private and federal sources, he said. In the fiscal year ending in June, centers attracted much more than that: $20M of outside funding, or $8.40 for each $1 in state funds it received. [L Mitchell, Salt Lake Tribune, Dec 17] Which raises the usual questions: did the state money really have any effect on state economy? Or would all the jobs have happened anyway? And is it just a subsidy to the university?

Tech is a four-letter word. Everywhere you look in high-tech land there are bodies. On Friday, Electronics for Imaging crashed 62% after saying it would not meet analysts' expectations. Among the Massachusetts tech stocks, Teradyne and PRI Automation, both test equipment makers, have seen their shares cut in half; Unitrode is down 60%; Digital Equipment down 27% since early November. The list goes on. The Morgan Stanley high-tech index was down a stunning 13 percent in four ugly days last week. There's money to be made in this panic. Clearly scared investors are sometimes dumping the baby with the bath water on their way to the exits. But how to separate opportunity from a painful tax writeoff a year from now? [Steve Bailey & Steven Syre, Boston Globe, Dec 16]

At this moment in history, there is nothing in our financial world that it's better to be than a venture capitalist. There are perhaps a thousand VCs in the world and tens of thousands of VC wannabes. These days VCs condescend to mere Wall Street investment bankers. Investment bankers, they say, don't understand business. The condescension sticks mainly because venture capitalists make more money than Wall Streeters. A lot more. [Michael Lewis, Slate, Dec 17]

The politics of subsidy reform is always contentious. The beneficiaries are well organized, and many of the subsidies go to western states where there is bipartisan agreement to defend them, to the death - in the name, ironically, of the rugged independence said to be typical of the western way of life. [The Economist, Dec 13] An exact analog of SBIR in the land and water subsidies to the Western miners and ranchers.

Bill Gates always believed that the role government should play in helping high-tech companies is to leave them alone. ... The company employs just four people in its Washington government affairs office. ... And McChesney writes that "The overriding lesson of the [economic] rent-extraction process is that politicians are interested in any stock of immobile capital or wealth from which they can extract a share." Companies have little choice but to pay extortion money to the political powers. [J Glassman, Washington Post, Dec 16]

DOD's STTR Open (Dec 3) The Defense Department released its 1998 STTR solicitation for the Phase 1 part of its $30M spending (oops, investing). As a vehicle for getting non-profit new technologies into commercial markets, it gets a mixed review. The four Army topics must have been written by the people who fund universities; they seek the usual university research with little prospect of any commercial impact; just the usual happy words about a better world from research. Most of the Navy topics smell the same. Air Force has an interesting melange that could actually turn into something commercial IFF Air Force picks the right kind projects (in all SBIR/STTR, the acid test lies not in the topics, but in the winners picked). DARPA, like AF, has many good options for dual-use technology (including one so useful and so specific that Hewlett Packard must be already doing it and indeed one reference is HP's handbook). BMDO has its usual open call for innovation in the broad fields of sensors and electronics and photonics. Proposals due April 15 and be sure not to send them to the IRS with your taxes. Return to Index

When is it irresponsible to spend too little on research? Most corporate executives will give you a blank stare if you ask them this question. That's because they probably think it is irresponsible to spend anything on research. [N Myrhvold, Fortune, Dec 8] So, you think Microsoft just sells software. Microsoft has a research department to rival the best in America and hires only the best to staff it. The DOD people who decide SBIR think it is responsible to spend money on research, provided somebody else does it. DOD tried the same attitude when SBIR was being invented in 1982 - nice program; include us out.

An SBIR "winner" asked Milton Chang a question: I have developed, with SBIR funding, a technology for industrial diagnostics. In three years I predict annual sales of $3M, and I plan to make these instruments for $45K a pop. I can't convince anyone to fund me to develop the product. Where do I go from here? [Laser Focus World, Nov 97] Milton ended his gentle answer by suggesting teaming with an existing company in that market. A classic case of how companies go wrong with SBIR, with government abetting. This winner believed the linear model: research, development and productization (all funded by OPM), followed by sales, profits, and wealth. And the government let him do it by handing over the money without any business reality checks.

Scott Wallsten's full critique of SBIR is now public. His data verify his hypothesis that government funds stuff that would have been funded anyway and therefore plays no useful role in advancing the cause of new technology. The champions are screaming foul but they have not produced an economically credible counter-case. They have limited themselves to the argument that some good has been done with the $7B and avoid anything like a control group. There is a counter-argument to be made based on the knowledge that most of government does not act as hypothesized by Wallsten who assumes that the SBIR officials follow the spirit of the law which most do not.

Said one federal SBIR overseer about whether SBIR should be doing MULTIMEDIA NUTRITION EDUCATION FOR CAREGIVERS, don't be too quick to dismiss the value of caregiver education. Caregiving involves ever greater numbers as our population ages and lives longer. The answer implies that anything good done by a small firm merits an SBIR. What the answer does not say is how such a project got to be one of the top SBIR proposals. Most SBIR overseers in any agency would have given the same answer; their purpose, after all, is to rationalize what the reclusive decision-makers do. The answer also implies that economic return doesn't dominate that agency's SBIR criteria.

A DARPA SBIRWhile interest in parallel computing systems remain high, widespread proliferation and acceptance of these systems has not occurred. The basic problem facing parallel computer users is a lack of a common, portable parallel programming system that spans the diverse MP systems now available....This proposal will research and investigate the issues regarding a retargeting of these PGI compilers for the JVM environment. ... Discovery as to any performance trade-offs will be the most critical factor in the analysis. In other words, DARPA so wants parallel computing to be adopted that it will spend its money on such fishing expeditions while it waits for some breakthrough that makes parallel computing economic enough for the real world. Such tenacity pervades DOD. For hopeful proposers: working on the technology du jour carries more weight than degree of innovation in some other technology. If you think otherwise, just try sending a breakthrough proposal in a topic not listed in the solicitation. DARPA's award list for last year also has several of the usual commercialize-is-always-in-the-future-tense suspects which means a premium on knowing how to tweak DARPA's knobs.

What's the Air Force looking for in its SBIR? Among other things: service with a smile, yours. Sometimes, one-off service such as from last year: A Design Improvement Study for the CFTF Centrifuge: The CFTF Centrifuge at Armstrong Laboratory will be a useful tool for crewmember training and human factors research for future high performance aircraft. ... This proposal presents a plan for a preliminary design of modification for the centrifuge and a software model capable of predicting the effect of the modifications on the rider. But, once again, selections govern program success, not topics, as the AF wangled a one-off, in-house project for engineering. If you want such a service contract, though, you will have to schmooze the AF engineers.

OSD SBIR Awards (Dec 1) Out of its 49 Phase 1 SBIRs, OSD made 21 awards of the usual simulation and software stuff with little or no commercial potential. (OSD is a subset of DOD.)

The topic writers and proposal judges in OSD could stand to understand the culture of the software world as portrayed in such books as Po Bronson's novel The First $20M is Always the Hardest and RX Cringley's Accidental Empires. Some of the other 28 awards (which include many usual suspects including the ever-present Foster-Miller) could have commercial value, although such value does not emerge easily from the published abstracts. Proposers leave it to the government technical expert's view of the competition which is often colored by the briefings heard from those proposers who schmooze the experts. Return to Index

For the next go-round (solicitation 98.1) OSD says: The Army, Navy and Air Force hereafter referred to as DoD Components acting on behalf of the Office of Technology Transition in the Office of the Director, Defense Research and Engineering .... The DoD Program presented in this solicitation strives to encourage technology transfer with a focus on advanced development projects with a high probability of commercialization success, both in the government and private sector.. So, in principle, OSD seeks transitionable technology - a claim hard to square with its selections unless you believe in rubber dictionaries. To bolster its claim, DOD has forced the services to predict the commercialization in the solicitation, a job that inverts the roles of government and company. In practice, the Services capture the money and pick the proposals they like that fit their R&D objectives, commercialization notwithstanding. Meanwhile, OSD pretends it is doing commercialization without having to pay the price of picking winners and making enemies.

If One is Good, Two is Better
(Nov 25) 13 As an illustration of Wallsten's point, consider NSF's awarding an SBIR for a new version of PersonalNews that includes a new adaptive feedback mechanism incorporating the user's explicit and evolving preferences. The research will focus on designing the prototype and user-testing the new functions. The results from this testing will be used to develop a specification for the next phase incorporating scalability and performance requirements. The approach will be to build upon the success of a prototype of a personalized information agent called KidSource OnLine PersonalNews. . Sounds suspiciously like a government sponsored competitor to push technology vendors like Point-Cast, an already highly competitive industry.

Government confusion about government's role. It hands high-tech innovation money for a product improvement of a product that could easily respond to market demand if there were any. It will almost surely succeed technically, and then the only question will be whether a market can be found. Since the first version is already extant, won't the second be targeted at the same market? And if all that is true, why does the government need to get involved at all except to provide free money as a substitute for true capital investment. NSF and the company will exclaim in some future Congressional hearing about all the wonderful benefits that are flowing from the SBIR. No one except the curmudgeons is likely to note that it was a waste of government's power.

Typical Navy SBIR . Foster-Miller has conceived of an innovative approach to grow uniformly doped large diameter PMT-PT single crystals either by itself or encapsulated in a porous single crystal sapphire skeleton.... Foster-Miller's process has the capability of growing single crystals at relatively low temperatures not possible with current crystal growth processes.....The Phase I program will involve growth of PMN-PT single crystal specimens and characterization including X-ray diffraction, dielectric and piezoelectric measurements. The Phase I team includes key researchers from Penn State University who are doing pioneering work in PMN-PT materials development under Navy funding. Foster-Miller will provide five specimens to the Navy as deliverables. Some clues from this typical abstract of the national champion SBIR winner: 1) modification of existing process (lower risk), 2) "will involve" as a Phase 1 objective (bureaus love process), 3) deliverables (Navy loves touchy-feelies); 4) no mention of any commercial motivation (especially cost). FMI won three of the 72 awards by NAVSEA last year. The abstracts for the other two awards repeat the formula except for the deliverables. Wanna stroke the Navy? Study the veteran's moves and moan as the grey-beard veteran keeps repeating grades in the SBIR nursery school and occupying seats that you might have had.

Smaller than a TokamakWhen the AF asked for ideas in space craft power, it got a question through SITIS Are you interested in a new approach toward energy generation through nuclear fusion? The new approach would lead to a device far smaller than a tokamak. A: ...pending reply... Optimists everywhere. The first problem is that the full size tokamak doesn't deliver fusion and the second is the minimum weight of a device for just the first watt and the third is "how gullible do you think the government experts are?". Expect a polite AF reply. Same apparent source asked about fusion for rocket propulsion topic Last year we submitted a proposal under this topic for a fusion based energy source. Is there interest this year in a similar proposal? A: I am not aware of the submission or our response. Such a proposal must relate to safe, scaleable, and affordable propulsion. A convenient memory loss. If you are thinking about such grand ideas, you need a convincing figure of merit and some credible way to get there. Grand theoretical schemes don't convince military experts. They've heard lots of fusion dreamers; don't you sound like one.

New NSF Power Technology.. PowerWorld Corp. will develop a new software package to help the electric power industry understand the issues involved in market power, the ability to raise rates profitable over a period of time. This is a key issues in the deregulation of the utility industry, which will result in an unbundling of the traditionally vertically integrated untilities, into relatively independent entities. Hear anything new there? Think the electrical power industry can't do or commission such work by itself? Can NSF find a power industry executive to stand up in public and claim the inability to do or commission the analysis? The cozy arrangement of a company in a university town exploiting a university modeling project funded by a government organization whose mission it is to support university research. Is that what Congress had in mind for SBIR?

As a contrast to the NSF SBIR for profit margin analysis in the electric utility industry, consider a typical Phase 2 from BMDO. The Phase II program is in two parts: 1) Demonstration, using BMDO funding; and 2) Development, in which BMDO funds are matched 1:1 by commercial investment into Picolight's facility. Part 1 forms a sequence of growth and fabrication advancements that will establish the long-wavelength VCSEL manufacturability. Part 2 will develop the long-wavelength VCSEL into a manufacturable pre-production model. No blather about redeeming social value, just prove it works in Part 1 and then move toward economic markets in Part 2. If Part 1 fails, bye-bye Part 2; why pursue something proved not to work (except to keep hobbyists in groceries)?

Army's Muddled SBIR
(Nov 24) The Army gave 199 conservative Phase 1 SBIR awards to 167 companies. The favored theme was calculation - 49 models and simulations - which can hardly fail since they take neglibible risk. Unfortunately, the rewards will be only incremental advances. The usual suspects also did well: Foster-Miller and Cybernet Systems, five each; American GNC, POC, CFD Research and SPEC three each. Those guys know the Army's conservatism. Models of modesty will do things like: Aircrew management device software, , and assist the Battle Damage , and a basic research project that will develop a conceptual model for soldier decision- , and This proposed research draws on classical Bayesian Inference combined with powerful new tools called Quasi-Axiomatic Theorem (QAT.	Innovation? What's the Army doing with its SBIR? With its 9% selection rate after 14 years it keeps proposers in the dark about what it wants. By and large it's mostly ordinary R&D: slogging away at such as battery components, speech recognition, specialty (and dear) composite materials for specific Army uses, gun barrel erosion from high speed projos, POC's long string of optical products after $30M of SBIR already, combustion studies, and systemization of existing technology to exploit advances in chip compression. Return to Index
But there are some bright spots in the gloom. Cree Research (whatever it does), an improved process for red cell glycerolization prior to freezing utilizing a closed, sterile disposable set, and New Acousto-Optic (AO) sensors will be produced that will 1) offer at least a 5x increase in the field-of-view of current AO sensors and 2) cover a wide range of frequencies (500kHz-l5MHz), and the application of gray scale mask technology to etching high-efficiency DOEs in InSb and InAs substrates.	What should an Army proposer do to increase its chances? Hire a spy to find and parse your Tech Area Chief. These elusive and omnipotent creatures live in the dark. They make their decisions on criteria that proposers are not allowed to know, like "program balance". Nor do they have to defend their decisions in any public forum, nor do they debrief the 91% losers.
Wait! Let's judge by results and not by Phase 1 selections which is just input analysis. The Army has results - a glossy pamphlet Commercialization 1997 which lists $240M sales resulting from Army SBIRs. But only five companies have had sales over $10M and $242M sales doesn't economically justify something like $1B of Army SBIR to date. If the average profit margin were as high as even 20%, that's only $50M return or 5% in 14 years or about 0.4% per year to the company, with a much lower return in tax dollars to the investing government, in a world where the average VC gets a 40% annual return.

The Law Doesn't Suit Politics Sen. Hollings wants the White House to block Westinghouse's sale of its gas turbine business to Siemens of Germany for $1.5 billion, saying the technology was developed with taxpayer subsidies and that he fears the sale could threaten national security and economic welfare. [Wall Street Journal, Nov 23] Economic nationalism. SBIR winners, beware of the same treatment. Even though the law says you own the rights to your technology even though the government paid to develop at least art of it, politics can try to override the law without ever passing a new law (which is very hard to do.

Government's Crystal Ball says Vigorous demand for computers and other high-tech goods should keep the U.S. economy growing next year despite consumer fatigue and a deteriorating trade balance, the government forecast Friday. In addition to computers, hot industries for 1998 are likely to include aerospace, dental equipment and management consulting, the Commerce Department said. [LA Times, Nov 22] What's the biggest stumble in government forecasts? Extrapolation and conventional thinking, by people with no money at stake and no penalty for getting it wrong.

Having claimed victory with its technology policy of sponsoring business with state subsides, Maryland now wants $3.5M to train workers to for the new high-tech jobs. But says the Maryland official, we don't have a labor shortage, we have jobs needing people and people needing jobs and we just need to train them first. No doubt the official would deny adding fuel to a fire with the first subsidy. [story from Baltimore Business Journal] Ah, well, state officials have to be seen doing something.

Double Your Money The research community has the answer - more money. A coalition of research orgs says the US should double its research spending in the next ten years. Of course, what do such coalitions always say? And where is the money to come from? Not our problem. They could try the pennies-a-day line from late-night TV advertising. The three paragraph sermon from the mount Unified Statement on Research uses the usual words "lifeblood", "essential", "secure health and prosperity", and "Twenty-First Century" to make its case for dipping into the federal trough. Somehow, pleaders think the world will change on Jan 1, 2001. Every public pleader says the same thing and leaves it to Congress to find the money. They could at least have made some defensible offering of the investment merits of such spending instead of treating scientific research like a religion. Congress needs no help with worthy causes on which to spend money.

New NSF Power Technology.. PowerWorld Corp. will develop a new software package to help the electric power industry understand the issues involved in market power, the ability to raise rates profitable over a period of time. This is a key issues in the deregulation of the utility industry, which will result in an unbundling of the traditionally vertically integrated untilities, into relatively independent entities. The software package developed will contain effective visualisation techniques designed to facilitate the comprehension of market power issues by those who do not have a background in electrical power engineering, and will be based on a user-friendly and highly interactive simulation package developed by researchers at the Univ. of Illinois Power and Energy Systems Group under the direction of Prof. T. Overbye. Hear anything new there? Think the electrical power industry can't do or commission such work by itself? Can NSF find a power industry executive to stand up in public and claim the inability to do or commission the analysis? And that's just Phase 1; think how long such a project can be dragged out in Phase 2. The cozy arrangement of a company in a university town exploiting a university modeling project funded by a government organization whose mission it is to support university research. Wanna guess that NSF is already supporting the university professor who developed the model that this project will improve? What improvement will come next? Is that what Congress had in mind for SBIR?

What's the Air Force looking for in its SBIR? Among other things: service with a smile, yours. Sometimes, one-off service such as from last year: A Design Improvement Study for the CFTF Centrifuge: The CFTF Centrifuge at Armstrong Laboratory will be a useful tool for crewmember training and human factors research for future high performance aircraft. The centrifuge features an acceleration of performance that is unmatched by other Air Force facilities, however, it lacks a set of powered gimbals that would allow positioning of the rider with respect to acceleration. With these additional degrees of freedom, riders could be exposed to an acceleration environment more representative of high-performance aircraft. To provide the additional degrees of freedom, this proposal presents a plan for a preliminary design of modification for the centrifuge and a software model capable of predicting the effect of the modifications on the rider. The software would enable scientists to specify a time history of desired crewmember accelerations and compute the required CFTF joint motions and actuator signals to best create a desired motion. At some point in the AF's solicitation, it had to get its topics cleared by the Secretary of Defense's Office which, in principle, vets topics for commercial potential. But, once again, selections govern program success, not topics, as the AF wangled a one-off, in-house project for engineering. If you want such a service contract, though, you will have to schmooze the AF engineers.

OSD SBIR Awards (Dec 1) Out of its 49 Phase 1 SBIRs, OSD made 21 awards of the usual simulation and software stuff with little or no commercial potential. (OSD is a subset of DOD.) For example, The Defense Modeling and Simulation Office (DMSO) has developed the High Level Architecture (HLA) as one of the principle components of a DoD-wide Common Technical Framework for modeling and simulation (M&S). Unlike previous distributed simulation technologies such as DIS and SIMNET, HLA provides federation developers, via the Object Model Template (OMT), the means to define the structure and format fo the messages passes between the HLA federation members (federates). This flexibility of HLA, along with its support for dynamic multicasting, transfer of ownership of object attributes and other advanced capabilities, presents the consumers of HLA not only with unprecedented power, but also a new set of technical challenges in planning and building distributed simulation systems. In order to provide the HLA user community with a complete suite of tools for performing HLA federation design and planning, AEgis Research wil investigate developing tools under this SBIR for supporting concept Analysis and Federation Design. In addition to these two tools, AEgis will inestigate augmenting the Object Model Development Tool (OMDT) with a powerful scriptable editing tool that allows users to specify their own rules for automatically editing HLA object models. Sense any life in such prose, even allowing for a need to protect real secrets from competitors even if it is public money at stake? No doubt the company believes its blather and hopes to convince its Phase 1 funders that if a little it is good, a whole lot is better.

The topic writers and proposal judges in OSD could stand to understand the culture of the software world as portrayed in such books as Po Bronson's novel The First $20M is Always the Hardest and RX Cringley's Accidental Empires. The people who pick these projects for SBIR either have no strategic vision for linking SBIR to commercial markets or they don't care. The internal forces in bureaus actually work against strategic vision since the easiest route for all involved is to de-centralize the SBIR and let the various low level offices do whatever they want. Even in the Secretary's Office (OSD) this decentralization overrides any market-oriented strategy for SBIR. Some of the other 28 awards (which include many usual suspects including the ever-present Foster-Miller) could have commercial value, although such value does not emerge easily from the published abstracts. One mentions a Fast Track intent which implies market value. Abstracts typically do not discuss competitive advantage mostly because proposals do not do so. Proposers leave it to the government technical expert's view of the competition which is often colored by the briefings heard from those proposers who schmooze the experts. Return to Index

For the next go-round (solicitation 98.1) OSD says: The Army, Navy and Air Force hereafter referred to as DoD Components acting on behalf of the Office of Technology Transition in the Office of the Director, Defense Research and Engineering .... The DoD Program presented in this solicitation strives to encourage technology transfer with a focus on advanced development projects with a high probability of commercialization success, both in the government and private sector.. So, in principle, OSD seeks transitionable technology - a claim hard to square with its selections unless you believe in rubber dictionaries. To bolster its claim, DOD has forced the services to predict the commercialization in the solicitation, a job that inverts the roles of government and company. In practice, the Services capture the money and pick the proposals they like that fit their R&D objectives, commercialization notwithstanding. Meanwhile, OSD pretends it is doing commercialization without having to pay the price of picking winners and making enemies.

An SBIR "winner" asked Milton Chang a question: I have developed, with SBIR funding, a technology for industrial diagnostics. In three years I predict annual sales of $3M, and I plan to make these instruments for $45K a pop. I can't convince anyone to fund me to develop the product. Where do I go from here? [Laser Focus World, Nov 97] Milton ended his gentle answer by suggesting teaming with an existing company in that market. A classic case of how companies go wrong with SBIR, with government abetting. This winner believed the linear model: research, development and productization (all funded by OPM), followed by sales, profits, and wealth. And the government let him do it by handing over the money without any business reality checks. Sucka. The question didn't mention competitive advantage, ROI for the customer, ROI for the investor, all questions to which the government should have forced an answer before handing out the money for what it looks like will be nothing more than a hobby. DOD started doing so with its Fast Track for 10% of its Phase 2 money, a procedure attacked by the hobby shops who win regular SBIR and go nowhere. When it comes to SBIR, be careful what you ask for, for you could easily win an award that lures you down a dead-end road. Get some reality checks on your vision.

DARPA's SBIR Winners
(Nov 26) DARPA awarded 69 heavily systems Phase 1s in its spring 97 SBIR. Old ideas rehashed, a couple of entrepreneurial companies, and a search for a quick answer dominate. Only one multiple winner; you guessed it - Foster-Miller with three. Topic 51 tries with three awards to beat the second law of thermodynamics with low temperature energy harvesting. Five awards in Topic 88 says DARPA wants an answer for buried things like facilities in Iraq but either got no innovative proposals or ignored them in picking well-worn companies with well-worn concepts. Two of the three awards in Topic 81, robotic navigation, went to government-minded public companies - Irvine Sensors and SatCon Technology - for relatively straightforward applications of existing technology. Many more SBIR veterans than rookies which suggests that schmoozing DARPA's managers pays a bonus. The bad news for DOD is that if DARPA isn't reaching beyond its grasp for new ideas, who will? Where will the new concepts of the next decade come from? The private sector? BMDO? Europe? Recognizable entrepreneurs in Aguila Technologies, ATMI, CCVD, and potentially new ones in Terabit Technology, Piezomax Tech, Murray Hill Devices, and Anivk Technologies, if one judges by the sound of the technologies.

Army's Muddled SBIR
(Nov 24) The Army gave 199 conservative Phase 1 SBIR awards to 167 companies. The favored theme was calculation - 49 models and simulations - which can hardly fail since they take neglibible risk. Unfortunately, the rewards will be only incremental advances. The usual suspects also did well: Foster-Miller and Cybernet Systems, five each; American GNC, POC, CFD Research and SPEC three each. Those guys know the Army's conservatism. Models of modesty will do things like: Aircrew management device software, based upon USAARL code and information contained in the "Leader's Guide to Crew Endurance" will be refined and optimized for inclusion in an improved existing activity monitoring device, and to assist the Battle Damage Assessment (BDA) operator in performing timely damage estimates for physical and functional damage assessment, develop an Automatic Battle Damage Prediction System (ABDPS), which will have the following features: ABDPS will not only predict physical damage and functional damage independently, but will also predict the coupling of physical damage and functional damage, and a basic research project that will develop a conceptual model for soldier decision-making in urban settings and use it to create individual training programs, and This proposed research draws on classical Bayesian Inference combined with powerful new tools called Quasi-Axiomatic Theorem (QAT) to provide a comprehensive and adaptive situation analysis decision aid.	Innovation? Isn't any R&D innovation? Commercial appeal? Not our problem. What's the Army doing with its SBIR? With its 9% selection rate after 14 years it keeps proposers in the dark about what it wants. With its conservative and military projects it says it does not believe that small business can make innovation happen (or that it doesn't want disruptive innovation anyway). You can just hear the General Officer Steering Committee telling the Tech Area Chiefs not to threaten Army doctrine with innovation. By and large it's mostly ordinary R&D: slogging away at such as battery components, speech recognition, specialty (and dear) composite materials for specific Army uses, gun barrel erosion from high speed projos, POC's long string of optical products after $30M of SBIR already, combustion studies, and systemization of existing technology to exploit advances in chip compression. It has the smell of Army using SBIR for that part of its regular R&D that can be done by small business, which is good for the particular winners (and bad for the real innovators) but a nothing for any other objective. The only economic contribution is all that money spent uselessly by the 91% who lost. Return to Index
But there are some bright spots in the gloom. Cree Research (whatever it does), an improved process for red cell glycerolization prior to freezing utilizing a closed, sterile disposable set, and New Acousto-Optic (AO) sensors will be produced that will 1) offer at least a 5x increase in the field-of-view of current AO sensors and 2) cover a wide range of frequencies (500kHz-l5MHz) (if Brimrose and Ciencia haven't already done it), and the application of gray scale mask technology to etching high-efficiency DOEs in InSb and InAs substrates.	What should an Army proposer do to increase its chances? Hire a spy to find and parse your Tech Area Chief. These elusive and omnipotent creatures live in the dark. They make their decisions on criteria that proposers are not allowed to know, like "program balance". Nor do they have to defend their decisions in any public forum, nor do they debrief the 91% losers. Actually, it's the lack of honest debriefings that induces the low selection rate. Treat selection probability as a random variable (result unconnected to input) and calculate your expected value on a wholly probabilistic basis.
Wait! Let's judge by results and not by Phase 1 selections which is just input analysis. The Army has results - a glossy pamphlet Commercialization 1997 which lists $240M sales resulting from Army SBIRs. Which sounds good to a Member of Congress on a Small Business Committee. But only five companies have had sales over $10M and $242M sales doesn't economically justify something like $1B of Army SBIR to date. If the average profit margin were as high as even 20%, that's only $50M return or 5% in 14 years or about 0.4% per year to the company, with a much lower return in tax dollars to the investing government, in a world where the average VC gets a 40% annual return. So, as long as the new Phase 1s have no tangible prospects for economic return, the 0.4% compound return will continue. The Army would have done a lot better investing its SBIR in Treasury Bonds which would have had about an 8% compound annual return over the life of SBIR. Maybe one standard for SBIR ought to be an economic return that beats Treasury Bonds.

A 33% ROI
(Nov 26) If the government had taken an equity position in ATMI Inc (Danbury, CT) proportional to its SBIR over the last decade, it would have a 33% internal rate of return, says a calculation by ATMI. Of course it's hypothetical because the government doesn't take equity. But it is a measure that SBIR could use to evaluate itself. ATMI has had about $36M of SBIR and the present market value of the 8.5M shares the government would have acquired would have been $212M at $25 a share at the end of 1997. Today the stock is at 34 which puts government's virtual-value near $300M. Such a return is far higher than Treasury Bonds or even the S&P 500. Maybe the GAO or the next round of Stanford or Harvard economists to look at SBIR will use such a measure. (Fat chance of having GAO, SBA, or federal agencies do it since the result would make the government look like an economic moron.) The government could at least require companies to do such a calculation and submit the result with every SBIR proposal. (Fat chance of that, either, after the small business lobby shrieked to Congress.) It could, however, require it for all firms exceeding a minimum total of SBIR funding, say $5M.

North Carolina Capital

Southeast Interactive Technology Funds has unveiled plans for a $50M VC fund and brought aboard some prominent advisers to help it become the Triangle leader in financing information technology deals.... Southeast has gotten most of the money for its first fund from wealthy individuals. It began investing in June 1995. The new fund would be five times the size of Southeast's largest fund to date, and nearly as large as a $60 million fund planned by Durham's Intersouth Partners. However, unlike Intersouth and other prominent area VC funds, Southeast will focus on information technology.... Southeast has invested in 13 companies, including Virtus Corp. of Cary, Interactive Magic of Morrisville, HAHT Software Inc. of Raleigh, BuildNet Inc. of Durham, Accipiter Inc. of Raleigh, Total Ltd. of Raleigh and Alternate Realities Corp. of Morrisville. [Raleigh Business Journal, Nov 24]

Angel investors are becoming more and more popular among entrepreneurs, prompting a Raleigh-based effort to link the two over the World Wide Web. The new effort is an outgrowth of the US Investor Network, a 2-year-old non-profit organization founded by Peter Bechtel, president of the Cactus Group of Raleigh and a former president of the Council for Entrepreneurial Development. Bechtel and partner Linda Leake are organizing a web site they're billing as a central resource center for entrepreneurs. Visitors will be able to listen to an interview with a securities lawyer, chat with fellow entrepreneurs about hot topics, bone up on the legalities of incorporation, or study winning business plans. US Investors Network, which has 106 accredited investors, will also attempt to link angel investors with entrepreneurs. The web site to come should be online by the end of November initially at $8 a month. [Raleigh Business Journal, Nov 24]

The Law Doesn't Suit Politics Sen. Hollings wants the White House to block Westinghouse's sale of its gas turbine business to Siemens of Germany for $1.5 billion, saying the technology was developed with taxpayer subsidies and that he fears the sale could threaten national security and economic welfare. [Wall Street Journal, Nov 23] Economic nationalism rears its head when political points can be made, especially in the nationalistic South. SBIR winners, beware of the same treatment. Even though the law says you own the rights to your technology even though the government paid to develop at least art of it, politics can try to override the law without ever passing a new law (which is very hard to do). If you get DOD SBIR, you will also find nationalists among the military agencies who think the law is wrong and will try to halt the export of new technology either by refusing to give you the money or by imposing some restriction, even something outside the law for as long as they can prevail.

The [Mid-Atlantic} region's new IPOs created still another group of software millionaires, as entrepreneurs at two firms reaped rewards from corporate seeds they planted 15 years ago. [Tech Capital, Winter 97]

NSF First Winners
(Nov 19) Ten of the first 25 winners of NSF Phase 1 SBIRs go to the usual suspects, the firms with an already long list of awards over the years, from Foster-Miller down. One that reveals NSF's attitude is to Scientific Systems Inc for a combustion model. What's wrong with such good stuff? Doesn't everyone want more combustion efficiency? Wouldn't combustion efficiency reduce global warming? Sure, BUT. Every university has at least two professors doing the same thing; SSI has had $9M of SBIR already for algorithm development; combustion efficiency is an endless research subject limited to incremental improvement. IF SBIR is for innovators with high impact ideas likely to make new markets, endless research, however well motivated, isn't the place to invest the money. Return to Index

Mr Army SBIR Speaker. Why after 14 years is the Army's Phase 1 SBIR acceptance rate still only 10%?, asked a heckler. Answer: Because the program's competitive, and the 10% proves it. Baloney! The Army is doing too much work to evaluate so many hopeless proposals and the small businesses are spending a lot of useless time and money writing them. Naturally the Army doesn't care how much time and money small companies waste. But even in its own interest it could cut down the criticisms of seemingly arbitrary selection criteria and the number of disgruntled public criticizers by clarifying what it really wants in a way that the prospective proposers can decently judge their chances. A clear public knowledge of the real rules would probably raise the acceptance rate to at least 30%. While such clarity probably will never appear from a system driven by frequent shifts of favor for programs and technologies, Army could for example decouple its SBIR from such gyrations and focus SBIR on its long-term interests. Fat chance.

A record number of Triangle companies raised a record amount of venture capital in the third quarter of this year, according to a new study. that 14 Triangle firms raised a total of $28.7 million in the quarter - a sign that young Triangle companies are making a case that their technology is worth betting on. ... Sixty percent of the Triangle's third-quarter venture capital went to technology-oriented firms. [Raleigh Observer News, Nov 20]

The [special tax exemption] tactic has exacted a heavy moral price, as Americans who seek tax relief are encouraged not to demand lower rates but to beg for this or that special favor from Congress - and then to show their gratitude once they receive it. [David Frum's review of Chris Howard's "The Hidden Welfare State", WSJ, Nov 19] Just like SBIR. Instead of a fair and open field for small high-tech companies in federal procurement, the companies want a set-aside program. Unfortunately, the joke is on them for despite the set-aside, they get no more business than they did before and they just find themselves shunted from one bidding window to another. Still the present beneficiaries applaud when Congress passes the SBIR and STTR laws and howl when anyone suggests how silly the SBIR law is.

In Silicon Valley alone, 11 new companies are created every week. Last year, on average a Silicon Valley company went public every five days, minting dozens of millionaires in the process. [SB Shepard, Business Week, Nov 17] Think NSF SBIR pickers consider the implications of such wealth creation? Or that private valuations for high-tech and health care companies are up 83% in the last year? Or that an avalanche of new money flowing into private finance has been pushing up price tags for the sexiest deals [Business Week, Nov 17]? If NSF did actually think about it, what SBIR policies would it adopt? Pushing more money to the already top winners still living on the handout? Depends on what NSF thinks SBIR is.

Capital Flowing to High-Techs

Georgia Deals Just Keep Coming Georgia firms get VC influx in Southeast, writes Brendan Murray [Atlanta Business Journal, Nov 17] Emboldened by the stock market and bursting with dollars, venture capital funds are raising Georgia's status as a magnet for private equity deals. Venture capitalists invested a record $87M in 24 Georgia companies in the third quarter this year, compared with $57M poured into eight Georgia companies in the third quarter of 1996, according to the Price Waterhouse National Venture Capital Survey. As a region, the Southeast vaulted past traditional heavyweights New England and metropolitan New York to the No. 2 position, behind Silicon Valley. In the third quarter, the Southeast was the beneficiary of $334M in VC, compared with $283M in venture capital funding in the second quarter this year. Among the 24 Georgia companies funded during the third quarter, 15 were categorized in the "start-up" or "early" stages. ....Nationwide, venture capital investments hit an all-time quarterly record -- $3.57B -- in the third quarter. Seven VC deals in North Carolina. Magnetic Imaging Technologies Inc. $8.5M; Newtonian Software $4M; Novalon Pharmaceutical $6M; Lambda Technologies $2M; Xanthon $1.7M; SciQuest $0.7M; Epigenesis $0.2M. [Triangle Business Journal, Nov 17]

Coopers & Lybrand just ranked Washington fourth among the 50 states in money committed by venture funds. ... Three software-industry veterans have raised $28M for a new regional venture capital fund that's ready to nourish money-hungry young firms in the information-technology sector. [Puget Sound Business Journal, Nov 17] VC firms pumped about $107M into 17 Washington [DC}-area companies during the third quarter, surpassing the totals of $62M in the second quarter and $35M in the first quarter. [Washington Business Journal, Nov 17] When it comes to raising money for start-ups, Arizona has broken into the top 10. Not bad for a state that didn't even rank in the top 20 a year ago. Venture capitalists and other investors poured a whopping$90M into Arizona start-ups in the third quarter. [Arizona Republic, Nov 14]

filling the 19,000 vacant technology jobs in Northern Virginia. The center is involved in that effort as part of the Northern Virginia Regional Partnership, which recently received $2.4 million from the state to combat the technology worker shortage. [Washington Business Journal, Nov 17] Wanna bet some Virginia and Maryland agencies want to create yet more jobs by doing what government does best - spend other people's money?

Oh, Happy Day, More STTR
(Nov 17) some VERY GOOD NEWS, says the Small Business Technology Coalition. Reauthorization of the STTR has just passed [the Congress] until the year 2001.... These champions think they actually got something. But I have yet to see any evidence of any group gaining anything. The mission agencies have fewer options on how to invest the money they would spend in small business anyway. No economic study has ever showed that the SBIR awardees did any better as a group than similar companies who never heard of SBIR. The beneficiaries, supported by SBTC, offer no useful measure of goodness (other than the target constituency got money which it would have gotten anyway). However, continues SBTC, another major challenge is just around the corner. The $1.2 billion SBIR Program comes up for renewal again in the year 2000 and Congressional hearings are expected to begin next year - we must be organized and ready. As you know, the SBIR Program is much, much larger than the STTR Program and we anticipate substantially stronger opposition from opponents of these programs. Well, fine; why should I complain of economics's being trumped by politics when I can benefit from helping companies get their spoons in the pot?

TOP 10 RECOMMENDATIONS from the 1997 Arizona Governor's Conference on Small Business: 1) conduct a small-business equity study to include women, minorities and small business. (and do what as a result?) 2) Institute judicial reform to eliminate frivolous lawsuits (against us, not by us). 3) Reduce corporate income taxes. (let somebody else pay for the state's operations) 4) Provide alternative training opportunities, such as co-ops, apprenticeships and internships, and vocational training from junior high through community college. (train our workers for us) 5) Eliminate the business personal property tax. (let somebody else pay) 6) Reduce regulatory costs for small business and create a business-friendly compliance process with an assumption of innocence. (and who will police the bad actors and clean the filthy results?) 7) Establish a mechanism to ensure that subcontractors are paid when contractors are paid by state agencies. (that's what courts and anti-fraud laws are for; we want the police for payment but not for environment protection; would the contractors see that as excessive regulation?) 8) Use state budget surplus money for development of freeways and transportation systems. (use the state's money for our benefit; how about cutting taxes instead?) 9) Equalize benefits and opportunities for small business as compared to those afforded large businesses. (and we want to be more equal than they are; equalize tax rates, too?) 10) Establish public/private partnerships for public transportation. (whatever that means) [Arizona Republic, Nov 4] What happened to the idea of a free-market economy where government provides stable taxes and laws and banking, protection against fraud and monopoly, and open trade provisions? Then the private businesses compete as best they can, each which its peculiar advantage that gives it a market position. Not for us; we want our cake and eat it too. We want subsidies while we elect solid Arizona Republicans like Goldwater and Kyl. New venture firms in Austin Two venture capital firms plan to open offices in Austin early next year. Both InterSouth Partners of North Carolina., and Murphree & Co. of Houston provide early-stage financing to high tech companies. Intersouth, which focuses on early-stage life science and technology companies, $50M. Murphree, which also has $50M, focuses on high technology, health care, energy, telecommunications and financial services.... "We're very willing to work with companies that need $1 or $2M." [Neil Orman, Austin Business Journal, Nov 3] It's good news for Austin start-ups and bad news for the market-failure blather that underpins subsidies like SBIR. When VC's national total was $1B in the late 70s, there was some semblance of a case for SBIR (which the government fumbled away anyway in execution) but now that VC is $12B a year, the market-failure case dissolves.

Richardson high-tech incubator The Richardson (TX) Chamber of Commerce is launching the Metroplex's first incubator for technology startups. The incubator, run by a for-profit chamber subsidiary called the TelCor Technology Development Center Corp., or Startech, will make available services from at least 11 "stakeholder" companies in the enterprise. .The stakeholders, all companies either based in the Metroplex or with significant presences here, have agreed to contribute $125,000 apiece over five years to help fund Startech. After five years, officials say, Startech should be able to stand on its feet financially. Frank Kozel Jr., chairman of the chamber's board, said that while the Metroplex has attracted successful tech companies, it hasn't done as well with tech startups as other areas, such as California's Silicon Valley. Startech stakeholders will not get to decide which companies get in. Five venture capital firms, including Sevin-Rosen, CenterPoint Ventures and InterWest Partners, plan to put together a $3 million seed fund. Firms in the incubator will be able to apply for financing of about $100,000 to $250,000 from the fund. The venture capitalists, who are not stakeholders in Startech, will decide independently where they want to invest. Startech will retain 31/2% to 4% equity in each participating company to help fund itself. Startech is also slated to receive $3 million of a $78 million bond offering that the city of Richardson was to announce this week. [Jeff Bounds, Dallas Business Journal, Nov 3] 3900 New Corporations Not Enough . According to the 1997 Entrepreneurial Vitality Scorecard, nearly 3,900 for-profit and professional corporations were formed in the region in 1996, more than the area has seen in the last 15 years, says a recent study by the Center for Economic Development at Carnegie Mellon University and The Enterprise Corp. of Pittsburgh. But it is less than half the rate at which companies were formed nationally. Since businesses need to grow to a significant size before seeking commercial credit, the number of starts reflects the more successful incorporations. In 1996, the Pittsburgh metropolitan statistical area reported roughly 1,351 business starts -- 87 percent of the national rate and 95 percent of the state rate. "We're doing better, but we still need to see dramatic improvements if we're going to catch up to national norms," said Don Smith, executive director of the Center for Economic Development. The study noted two positives. A recent surge in seed financing has put the region nearly on par with the rest of the nation in money available to very young companies. And increased research and development activities at local universities, such as Carnegie Mellon University and the University of Pittsburgh, may serve as a catalyst as well. [Karen Kovatch, Pittsburgh Business Journal, Nov 3]

Inc 500 List
(Oct 31) Hardly an SBIR firm on Inc's 500 annual list. TPL (Albuquerque, NM) and E-Tek Dynamics (Palo Alto, CA). Let's see if the federal agencies or the SBA or the Small Business Technology Coalition have any excuses on how few SBIR companies make such honor lists. Scan the list.

30 Firms over $2M
(Oct 16) The rich got richer in 1996. The top names in SBIR hauled in the top amounts handed over by government. Foster-Miller (Waltham, MA), the all-time leader by a wide margin got $10.3M. At $75K per staff-year, that's about 130 people doing just SBIR. Second goes to Physical Optics (Torrance, CA) at $9.3M. Third was Creare (Hanover, NH) at $7M. In all, 30 firms got more than $2M each. Only 3 of the 30 firms are public and therefore open to public scrutiny. For the other 27 we'll have to trust government to tell us whether the investment produced the intended economic growth. And who will tell us? The people whose jobs depend on the program's continuing.

All DARPA Blue-ficiaries
(Oct 29) Xerox Corp.'s PARC says it made a blue diode laser for laser printers with 2-4x the resolution of today's 600 dots-per-inch machines to rival the world best laser printers. The lasers, expected to be commercially available as early as the end of next year, will also further transform consumer markets for audio, video and computer data storage. The Xerox announcement follows announcements by Cree Research (Durham, NC), and UCSB, all supported by DARPA. This is the Holy Grail,'' said John Day III of Strategies Unlimited, a market research firm. [facts from San Jose Mercury, Oct 28] SBIR also chases blue diode lasers with GaN and SiC in companies that should be more nimble than Xerox whose advantage is its market presence not its ability to capture innovation.

A Lively Congressional Debate on SBIR/STTR

An Economist Goes to Washington. (Sep 5) Scott Wallsten went to a House committee hearing and sprayed the vested interests from the cold spring of truth - SBIR does no good as a business development/investment program. When attacked en masse by the administration, the beneficiaries, and the committee members, he held his ground. A mere PhD student. It was the most open public debate on what SBIR is and ought to be. When he said that the data don't support the program's claims, the program defenders said that something good happened. No, they offered no analysis of the alternatives nor any metrics for overall program evaluation. Scott said, so what, the good would have happened anyway. After all, he said, the Defense Department knows what it needs and would have bought the great product anyway. (What could the administration say then? Oh no, we wouldn't?) The defenders then shifted from commercial spinoff to a revisionist history of the program's goals. Better R&D for the government's needs, said SBA rep Dan Hill and long-time program advocate Ann Eskesen. Well, Mr Hill, asked Mr Davis (VA), since it's such a good program, how many agencies have voluntarily started an SBIR or STTR program? None. Right, said Scott, every agency that could pulled out and the agencies have argued against the program whenever they were let loose. Well Ms NIH, asked Chair Morella, would NIH have an STTR program if the mandate were removed? Mumble.

Prospects? Don't worry, Wallsten didn't do much damage to STTR's political prospects. Subcommittee chair Morella predicted a re-authorization of STTR and a re-look at the rationale. Wallsten didn't undermine STTR except by analogy to SBIR. But SBIR was put on notice that it must clean up its rationale before reauthorization just before the next presidential election. Not a word about more money. Instead, the advocates must now argue that SBIR does a lot of good while dodging questions about cost/benefit just as Republicans hound other programs about cost/benefit. Does it do $1M worth of good for every $1M spent, or where does the law of diminishing returns overtake it? Would doing nothing do just as well? Next time, the free-market Republicans may invite some other people with hard data instead of just market theorists. The more such data appear, the harder time the advocates will have sounding like more than "my fair share". And if it is just "my fair share" how can they avoid pressure for devolution to the states? Their case for national competition only washes if there is clear national benefit with accountability for ALL the SBIR money and not just the good results.

A Perfect SBIR Investment
Our first product has been introduced by BIGINS at a semiconductor trade show. It diagnoses chips in semi-conductor fabs with a signal gain of about 20X over a conventional instrument. This intro caused OTHERINS who would previously never show us any interest to decide to send their R&D manager from their country and two others from California to discuss applications of our technology. It has been tough to get these companies to see the possibilities but BIGINS now wants us to also begin making what we developed under the BMDO SBIR to allow their detectors to obtain about 5-12X previous. This will be our second product line directly resulting from the SBIR. We have also developed another novel device much smaller than any other of its kind with large gain and a lot of other capabilities. We used the equipment from the SBIR to develop a technology for making precision molds for injection molded optics. Our largest customer for this is currently LARGEOPT but we have also done work for REALLYBIG for making fiber optic card connectors. We have had no time to consider writing any more SBIRs. We have even been considering an offer by another company to buy us. We are not yet at the point of being totally weaned from our government contract but if BIGINS lives up to our agreement, we will be by next year. I'd like to thank you for your faith in us. This company started with one guy dissatisfied with his former SBIR company's disdain for commercial markets. He got a BMDO award as much for his gumption as for his new technology. [Customer names are pseudonyms for real companies.]. Return to Index	Yet, he says, we could easily fail in the next year, for example, if BIGINS reneged on their purchase obligation. This is why I am keeping OTHERINS on the hook for now. On the other and, I would like to see BIGINS renege because I could then sell more things to OTHERINS and other such companies BIGINS is not aware that OTHERINS has expressed any interest. Business is filled with twists, failures and opportunities. Yesterday, a major collaboration with another company involving a disposable blood test sensor fell apart because they could not get their part to work. We had thought that sales from that project would finance almost anything we wanted to do for the next few years so now we have to rethink our position and maybe borrow more. In May, we had a fire in the lab which nearly wiped us out. I had to borrow money to rebuild equipment. The financial set-back was not so bad but the extent of the psychological blow was unexpected. Last week we inadvertently developed a new type of wire with the conductivity of copper, the tensile strength of Kevlar, and a very high ratio of surface area to cross-sectional area. In previous years my first reaction would have been to look through the SBIR solicitation for a related topic. Now, my first reaction was to look up specialty wire companies but I called my patent lawyer and we are filing a preliminary patent first. I cannot yet call my company a commercial success but work is far more interesting than ever before. It is sort of like the Chinese curse of "May you live in interesting times." There is no time for boredom or anything other than trying to survive but I am having a lot of fun in an odd sort of way.
As for my old company, I almost never hear from them. I know they have won several SBIRs but six months ago, they told me they had no commercial prospects. Three years ago I could not have worked without getting the Commerce Business Daily. Now I do not ever look at the CBD and cannot work without contacts from the Thomas Register. Three years ago my business card file was entirely filled with government or quasi-government contacts. Now it is filled with industrial contacts and the government business cards are relegated to a box somewhere in my desk.	So, with that track record, why is the government still handing SBIR to the old company that would fail any ROI test the government could devise to evaluate SBIR? Why isn't all the SBIR money going to start-ups like the two guys in San Francisco with a new software for engineering visualization? Because most of the government agencies reject the underlying premise of SBIR - get technology entrepreneurs launched toward a future market; government leans instead to competence and predictability for a world they do understand rather than alien world of entrepreneuring.

Maryland Sees a Profit (Oct 27) "We see a lot of technology ideas come in here that will knock you over with the `Gee whiz' factor. But when we get right down to it, we want assurances that there's marketability in the technology. Maryland's handout (investment) program for promising high-tech start-ups has ,of course, job creation as one of its rationales. (Wanna bet it's the prime goal?) Now Maryland says its $5.2M investment is worth $12.2M. Like a good VC fund, most of the gain comes from just one company. Most of the numbers, I suspect, are mere hope and state only the input.

All VC funds have the same accounting problem. How the programs stack up in terms of job creation and other criteria when compared to one another is not clear, however, because they haven't been well studied, said Daphne Clones, a senior policy analyst with CED. Maryland so far tops all states in amounts of such VC-like investment. The venture capital bar is high -- the state requires a three-to-one match. The companies: Antaeus Group, Intellivax, CytImmune Sciences, QRSI, NetSolv, MetaMorphix, HT Medical Systems, Lion Pharmaceutical, Gene Logic, Meridian Medical Tech, DMV Net, Anthem Capital L.P, Osiris, Therapeutics,CIP Capital L.P, HealthWare Solutions, Visual, Guilford Pharmaceuticals. [Facts from Baltimore Sun, Oct 26]

Money Everywhere Small companies are bursting at the seams. Banks and other financial institutions are climbing all over each other to lend money. Put them together, and of federally guaranteed loans being made to Arizona small businesses. Arizona banks and other lenders made 1,194 such loans, totaling $374.7M in fiscal 1997,according to new statistics from the SBA. [Jane Larson, The Arizona Republic, Oct. 21] Every such story cuts the ground from under SBIR's market-failure argument.

An SBA economics official said: I don't know how many SBIR award winners become public companies Then how can SBA claim to know anything about the economics of small business innovation in a competitive market. If SBIR's goal is not to attract public capital to new technology, then what is the goal? It smells like SBA sees SBIR as having failed to induce commercialization and now wants to redefine SBIR success as having provided good service to the federal agencies.

Another Technology Park If you want to start a high-tech business, some public entity wants to help you on the theory that you are the future of their job force. They've heard that you are the economic engine of job creation. Albuquerque has joined the adherents of the theory, abetted in their belief by the threatened collapse of their fifty-year economic engine - nuclear weapons. A landowner group wants to make about 200 acres available for a proposed technology research park - Albuquerque Public Schools, the Department of Energy, the state of New Mexico and a private landowner. The park would serve as an incubator for high-tech companies hoping to for technology transfer with the labs. It would also serve as a home to larger research operations set up by many of the major corporations already involved with the labs. It would also serve as an political excuse to keep the labs open as a "rich source of ideas and expertise for the spin-off of new American technology, blah, blah, blah". The politicians will no doubt be expected to find the money to build the park as an "investment" when private sources don't get caught up in expensive civic boosterism. . [facts from Aaron Baca, Albuquerque Journal, Oct 16]

Albuquerque acts like many jurisdictions, trying to activate high-tech industry, even though critics say that states do not know how. Says Bill Archey president of the American Electronics Association, Governors who would fight for a Japanese auto plant by cutting taxes have no idea how to work with homegrown high-tech industries. Tom Donlan [Barron's, Oct 19] says High tech has become a national driving force -- and the largest industry in America. Politicians act as though they are getting some of that pie for their voters despite gaping ignorance. They will have some big trouble, though, getting start-ups started with the policies that attract Motorola or GE. An entrepreneur in Dayton won't move to Albuquerque to start a shoestring high-tech company. Bill Gates doesn't list incubators as one of the prime ingredients for tech business though. He listed a top-flight university, open-minded large business, state government friendly without suffocating, and an educated work force. The education is something the governors could work on - and keep the federal government out of it although it would do no harm for the national parties to keep posturing.

Another myth prevalent among some agencies of the US government is that a small, poorly capitalized but technically innovative company can, with a little government help, partner with a large corporation to produce a new product. The manufacturing of the new product will result in jobs and tax revenues, goes the theory. [Claude Hayes, Technology Business, S/O97] Hayes got a little SBIR money to supplement his shoestring development of an endothermic device to stabilize temperatures. He sold the idea to Pizza Hut for delivering pizza across town at just-out-of-the-oven temps. Hayes rates BMDO- NTTC as a good tech transfer operation while he rates his hometown San Diego Regional Technology Alliance as a loser.

Politics Ever in STTR The House Science Committee wants more STTR in the have-not states (under 20 grants in 2 years). Elected representatives don't think easily of a composite national good. Meanwhile, the STTR and SBIR advocates (Rob Risser, of the Small Business Technology Coalition) want more money everywhere because they are spawning new technology for use by federal agencies. Let's do a cost-benefit analysis on these programs. Unfortunately, even now, virtually all of the grant money goes to universities rather than small businesses, despite the fact that small firms are commercializing products at a much faster rate. The SBTC trotted out some winners to testify how much good the government funds for their companies. Nor do beneficiaries think nationally, but they're not elected to a national legislature.

Money From Maryland (Oct 9) Maryland passed out $50K each to five firms to develop new products in MD's Challenge Investment Program for early-stage technology companies in telecom, info tech, life sciences, electronics, and precision engineering. One state official said competition was strong: 30 proposals. Note: he didn't say how many proposals were really competitive. The companies are: Columbia Bioscience Inc (Frederick) -. analytical instruments to be improved and sold to commercial and research markets, plus marketing a line of market a line of instruments by an Austrian firm, which has had difficulty in the US market. ... LearnScape Corp (Annapolis) -. a portfolio of computer software packages for the educational and business and professional training markets.... Plan It! LLC (Columbia) - software that graphically details infrastructure of large computer databases and another software package that can determine and display the financial effect of alterations to database systems. ... Solution Technology International Inc (Oakland) - software packages for the insurance industry to allow workers' compensation claims to be processed over the Internet.... Wisdom Builder LLC (Ellicott City) - software for federal intelligence agencies, such as the Central Intelligence Agency, and law enforcement. Si