Under a bill reported out of the Senate Committee on Small Business on July 30, small businesses that are majority-backed by venture capital (many of which are producing biotech therapies and cures) will be eligible for a portion of Small Business Innovation Research (SBIR) grants. The bill reauthorizes the SBIR program for 14 years.

In 2003, the Small Business Administration reinterpreted SBIR eligibility criteria to exclude companies that are majority-backed by venture capital. Because of the long and expensive process of bringing biotech innovations to market, venture capital often comprises the majority of their funding stream. 

Historically, the SBIR program has provided critical financial support to biotech companies, while its rigorous review process has conferred a high level of credibility. Of the 252 FDA-approved biologics, 32 percent of those companies received at least one SBIR/STTR award.

The SBIR/STTR Reauthorization Act of 2008 passed by the Senate Committee on Small Business contains the following provisions:

Reauthorization – the program would be extended for 14 years.  Venture Capital Investments:   The Department of Health and Human Services (NIH) – Companies majority-owned and controlled by multiple venture capital companies can compete for up to 18 percent of that agency’s SBIR funds. All other agencies – Majority-backed VC companies can compete for up to 8 percent of SBIR funds. Companies whose backing by a single VC comprises more than 49% percent would remain ineligible for SBIR grants at all agencies. Award Levels: Phase I awards are increased from $100,000 to $150,000. Phase II awards are increased from $750,000 to $1 million. No agency will be allowed to exceed the award amount by more than 50 percent. Oversight – There are numerous provisions requiring each agency to track how many majority venture capital company proposals are received and the amount of venture capital a company has when it receives an award.

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