SBIR Update: ARCH Venture Partners Managing Director Keith Crandell Participates in Senate Roundtable

June 16, 2009

CHICAGO - “ U.S. Sen. Mary Landrieu (chairwoman of the Senate Committee on Small Business & Entrepreneurship) on June 4, 2009 called to order a roundtable discussion on the reauthorization of the Small Business Innovation Research (SBIR) program.

The program is now going through Congressional modernization review. Participating in the discussion was Keith Crandell. He's a managing director at IVCA member ARCH Venture Partners and a former chairman of the IVCA. Crandell was also there in his role as a director at the National Venture Capital Association (NVCA).

The SBIR was established in 1982 essentially as a grant and loan program for small business entrepreneurs to continue - œgarage tinkering-  on innovative technologies and new products that could offer stimulus and jobs to the economy. In its current language, it hasn't been updated in more than 10 years.

At issue in the roundtable that Keith Crandell participated in was an administrative law judge's ruling in 2001 in which venture capital companies were excluded from receiving SBIR grant awards. To be eligible for an SBIR award, at least 51 percent of a company must be owned and controlled by one or more - œindividuals-  who are citizens of the United States.

The decision was that VC companies are not considered - œindividuals- . The ruling said that - œindividual-  should indeed mean - œnatural persons- .

- œGiven the tremendous challenges faced by this country today in energy, clean tech and health care that require the best ideas from our innovators, it seems like a particularly bad time to arbitrarily exclude venture capital companies that have historically contributed to the very best ideas,-  Crandell wrote in an e-mail to the IVCA.

During the discussion, the point was emphasized from Crandell and the NVCA that it's important to understand that venture capital investment does not equate to corporate investment. In their advocacy to protect the individual, the ruling lumped VC companies into that corporation definition.

According to the NVCA, typical VC funding comes from private and public pension funds, endowments and foundations and individuals. Only 2 percent is represented by corporate dollars. This demonstrates a minor role in total venture capital dollars invested.

- œAt this point, the NVCA was interested in having our views heard and building the record,-  Crandall said. - œThe Senate Committee on Small Business & Entrepreneurship has crafted language that would limit VC-backed companies to an arbitrary percentage of SBIR awards.- 

He added: - œA recent National Academy of Sciences (NAS) study concluded there is no evidence of VC-backed companies crowding out non-VC entities from the SBIR. It's not even clear what imagined problem the Senate committee believes they are solving with this language.- 

The NVCA supports the NAS recommendation to restore the de facto status by allowing - œventure-controlled firms-  to participate in the SBIR program. The NVCA is working closely with the Senate committee in reauthorizing the program.