Saturday, June 27, 2009

Fed prizes for innovation

The Office of Science and Technology Policy (OSTP) blog posted a challenge today to propose ideas for government sponsored competitions, á la the X Prize Foundation. Among their reasons for considering this approach was that it might allow the government to: "Attract new entrants such as small entrepreneurial firms."

Um... doesn't SBIR do that? Don't get me wrong: it's an interesting proposal, and certainly worth consideration as part of the arsenal the government uses to stimulate innovation. But... I'm not sure I see how this would attract "small entrepreneurial firms," at least those without another significant source of funding.

Science and R&D take time, and effort, and creativity, and persistence, and a willingness to endure lots and lots of failure before arriving at a novel solution to a long-standing problem. Thing is, small entrepreneurial firms still need to make payroll. At present, there are two ways to be an innovative entrepreneur:
  1. Be independently wealthy, and therefore afford the leisure to pursue your passions.
  2. Obtain funding from an outside source to cover the essentials (mortgage and utilities and food) long enough to make a breakthrough that's self-sustaining.
At present, what outside sources of funding are available to sustain the majority of us who fall into category 2? Well, let's see, there's Angel Investors and Venture Capital. The latter of these is constitutionally allergic to early-stage pre-prototype research, preferring a significant ROI in general by about the fifth year; the former of these is marginally more open to it, seeking an exit at around 7 years, but represents a vanishingly small pot of funds, and therefore is accessible to only a very few firms.

Then, there's SBIR! Now, just why would we think that shifting the focus of SBIR away from early-stage seed funding would be good for innovation?

And just why is OSTP Director John Holdren writing to the Chair of the Senate Small Business Committee to argue against increasing the allocation percentage for SBIR by contending President Obama "is committed to increasing federal investment in R&D ... which will increase the total funding available to the SBIR/STTR programs" and that the current pathetically low allocation of 2.5% of extramural R&D funding from qualifying agencies to small businesses (which incidentally account for the overwhelming majority of new jobs created in this country) therefore provides "a sufficient floor for agencies to invest in innovation from small businesses”?

Is that where the Administration thinks innovative entrepreneurs belong: on the floor?

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