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Are SBIR Programs Meeting Their Goals?

risk than comparable non-SBIR projects. For example, a NASA project
officer commented that a project to predict rotary wing (helicopter)
hover performance had made a very great contribution by providing
new technology that would not otherwise have been obtained because it
was too risky and too expensive to have been supported without the SBIR
program. He reported that the new analysis is being used to support a
variety of research efforts in NASA and other agencies as well. In con-
trast, project officers in HHS, NSF, and DOE regarded their SBIR projects as
having about the same level of risk as non-SBIR projects.

In our interviews of SBIR program managers, they identified several ways in which their SBIR programs seek to meet needs that were not being met by other agency R&D programs. SBIR programs can be used to support research in technologies for which few immediate benefits appear likely. For example, between 1983 and 1986, DOD, DOE, and NSF supported some SBIR projects on superconductivity, a research area regarded at the time as having little immediate payoff.

In addition, the NSF program manager stated that the SBIR Solicitation
process, through simplified proposals and expedited review can allow
an agency to respond rapidly to new developments. For example, when
the discoveries of high temperature superconductivity were confirmed
in December 1986, SBIR solicitations allowed agencies to respond quickly
by expanding support in this area. DOE had included superconductivity
as a topic in its solicitation for proposals due November 1986 and
decided to fund a much larger share of those proposals as a result of the
developments.

SBIR funding has also been used to support a wide array of technologies. In particular, DOD has used the SBIR program to examine a wide variety of alternative technological approaches as part of the strategic defense initiative.

Private Sector
Commercialization of
Innovations From
Federal R&D

The 1986 SBIR reauthorization directed GAO to make a comprehensive study of SBIR commercialization by December 31, 1991. Accordingly, we did not at this time seek from firms with SBIR projects the information needed to make a thorough analysis of the extent and nature of commercial products and services that have resulted from the projects. We focused instead on how agencies seek to meet the goal of commercial innovation in their selection of projects for their SBIR programs and have also provided some preliminary information concerning the relatively small number of SBIR projects that have completed Phase II.

Are SBIR Programs Meeting Their Goals?

Selection of Projects With
High Commercial Potential

We found that agencies with SBIR programs differ in the emphasis they place on commercial potential in selecting SBIR proposals for funding. However, in response to our questionnaire, SBIR project officers stated that about half of the SBIR projects have high potential for commercial development. Preliminary information on commercialization indicates that some completed projects have resulted in the sale of goods and services and that firms are taking steps to commercialize the results from other projects.

According to their responses to our questionnaires, SBIR project officers
believe that about half the Phase II projects have high potential for com-
mercialization. Although all agencies have procedures for considering
the innovativeness and commercial merit of SBIR proposals, they differ
in the emphasis they place on commercialization potential, especially on
the existence of commitments for follow-on funding when selecting
Phase II projects.

SBIR project officers, according to their responses to our questionnaires,
believe that many of the Phase II projects they manage have high poten-
tial for commercial development. They rated about half of the SBIR
projects as having high or very high potential for commercialization.
When the project officers compared individual SBIR projects with other
agency research activities, 53 percent of the projects were assessed as
having more likelihood of leading to the inventing and commercializing
of new products, processes, and services, while 12 percent were judged
to have less potential for development. Overall, 62 percent of the project
officers said that their agency's SBIR program definitely or probably
encouraged the private sector to commercialize the result of federally
funded R&D, while only 10 percent thought the SBIR program was
unlikely to do so. The remaining 28 percent were uncertain or believed it
was too early to tell.

When asked to compare SBIR projects to other research for which they were responsible, project officers identified 53 percent of the SBIR projects as having somewhat better or much better likelihood of leading to inventing and commercializing new products, processes, or services. At NSF and HHS, about two-thirds (67 percent) of SBIR projects were judged more likely than other research to lead to commercialization, while about half (53 percent) of the projects at DOD, NASA, and DOE were rated the same way. (This information is analyzed more extensively in ch. 3.)

Are SBIR Programs Meeting Their Goals?

As noted earlier, agencies with SBIR programs differ in the emphasis they place on commercial potential in selecting SBIR proposals for funding. For example, in making awards for Phase II, NSF places very heavy emphasis upon a proposal's plan for commercial development. In contrast, when NASA selects projects for Phase II, it emphasizes whether the proposed research will meet the agency's research needs and uses commercial potential as a tie-breaker. Unlike NSF, NASA can and does provide the opportunity for follow-on funding by other agency R&D programs.

SBIR legislation requires that when two Phase II proposals are of approximately equal scientific merit, agencies give special consideration to those proposals that submit a nonfederal follow-on funding commitment with their proposal. In funding Phase II SBIR projects, NSF places heavy emphasis on whether the project has a follow-on funding commitment. NSF considers all proposals rated as "very good," its second highest rating category, to be of equal merit and requires these proposers to submit nonfederal funding commitments. These commitments consist of agreements by industrial corporations or other organizations to provide additional development funds for the project if it successfully completes Phase II. For a group of projects initiated in response to a fiscal year 1984 solicitation, 45 of the 49 proposals that received Phase II awards had follow-on funding commitments that had been reviewed and found acceptable by NSF officials.

At other agencies, follow-on funding commitments are much less important in making Phase II awards. Most SBIR program managers stated that they did not have tie-breaking situations and any commitments that proposers submitted were simply used as additional information in the selection process. At DOE and HHS, for example, follow-on funding commitments and other plans for commercial development are given some consideration in deciding which proposals to fund in Phase II, but many projects are funded without such commitments. At DOD and NASA, SBIR program managers said that funding commitments are rarely considered in making awards. NASA's SBIR program manager told us that Phase II proposals are evaluated by headquarters staff to determine whether the project will meet specific NASA needs for research and technology and only rarely was a follow-on funding commitment used to decide on funding a Phase II project. DOD program managers could not remember ever using follow-on funding agreements in selecting proposals.

Are SBIR Programs Meeting Their Goals?

In our June 1987 report,2 we found that all agencies consider the innova-
tion and commercial potential of their SBIR proposals in their SBIR evalua-
tion and selection processes. However, officials at most agencies said
that research needs and priorities are usually given emphasis over these
factors.

Preliminary Information on Commercialization

Commercialization Activities

As noted earlier, we did not seek the information needed to make an analysis of the extent and nature of commercial products and services that have resulted from SBIR projects. We will report on Phase III commercialization activities in 1991, when more SBIR projects have entered that phase. However, some preliminary information is available. We asked firms to provide information on commercial products resulting from completed Phase II projects. SBIR firms responding to our questionnaire report that 285 projects have completed Phase II out of 604 that were selected for that phase. The projects selected for our questionnaire were started during fiscal years 1983 through 1985, the first years of the SBIR program. SBA officials told us that very few of the projects begun since fiscal year 1985 have completed Phase II.

For 24 percent of the projects that have completed Phase II, firms report that the resulting products and services are now being sold, but we did not obtain any information on the extent of these sales. Agencies differ concerning the percentage of completed projects resulting in products and services that were being sold commercially. For HHS projects, 48 percent were being sold commercially, while the rate for DOE, NSF, NASA, and DOD ranged from 24 percent to 16 percent.

Questionnaire responses indicate that for most projects that have com-
pleted Phase II, the level of commercial activity has remained fairly
small. Over half (54 percent) of the projects that had sales were by firms
with 25 or fewer employees; and for most projects (78 percent), the
firms had 1987 revenues of less than $5 million. For 45 percent of these
projects, less than 25 percent of the firms' revenues derived from SBIR
awards. These proportions are similar to those for all respondents to our
questionnaire: 56 percent of all projects were by firms with 25 or fewer
employees; and for 78 percent of the projects, firms had revenues of less
than $5 million.

2(GAO/RCED-87-63, June 2, 1987).

Are SBIR Programs Meeting Their Goals?

We also obtained information on some activities that indicate efforts by firms to commercialize the results of projects that have completed Phase II. For example, firms reported that they were market testing results from 16 percent of the projects and that production rights had been sold or licensed for 11 percent of these projects. Firms had formed strategic partnerships, such as joint ventures, and R&D limited partnerships as a result of 18 percent of the completed projects. (Because the same project may be included in more than one of the above categories, these percentages cannot be added together.)

During fiscal year 1988, SBA began a multiyear study to assess the extent to which SBIR participants have commercialized, or are attempting to commercialize, the results of Phase II SBIR projects. On the basis of a sample of completed projects that were begun in fiscal year 1983, SBA reported preliminary results that indicate that some commercialization has occurred-for about 10 percent of the projects, sales have actually resulted from R&D conducted in the SBIR program. For an additional 10 percent of the projects, SBA reports that commercialization is likely because the company has received capital, or a commitment for capital, or signed an agreement for assistance in commercialization. In another 20 percent of the projects, companies were actively pursuing commercialization possibilities.3

In addition, SBA reported that for 45 percent of the projects, companies were interested in commercialization but had taken little or no action toward that goal. Commercialization was not expected in the remaining 15 percent of the projects.

Follow-On Funding Commitments We asked firms about follow-on commitments from nonfederal sources

to provide funds after Phase II. Overall, 34 percent of the projects in our
survey selected for Phase II had obtained follow-on commitments. The
largest number of these commitments (27 percent) was in the range
from $100,000 to $250,000. The most common source of these commit-
ments was the firm's own internal funds, followed by other firms and
venture capital institutions. The percentage of Phase II projects with
nongovernment follow-on commitments ranged widely by agency, from
68 percent at NSF to 18 percent at DOD.

Of the projects that had completed Phase II, 31 percent had received follow-on funding commitments. Of the completed projects with follow

3Fifth Year Results, SBA (Washington, D.C.: June 1988).

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