Monday, September 21, 2009

Sprouting Seeds

My friend, the SBIR Coach, recently posted reflections from attending the Conference of the National Association of Seed and Venture Funds (NASVF). He mentioned a recent conversation he had with Laurence Briggs, CEO of a private investor network:
What they look for is a proved-out concept for a product or solution addressing a significant market with scalability, and a good coachable team appropriate for their stage of development.
I read those words, and wonder at the first requirement for private investment: a proved-out concept. The image that comes to mind, reasonably enough I presume, is that of a seed, for a seed undoubtedly predates such proof.

Last I checked my botany, a seed by itself is anything but proved-out, especially the seed of a new hybrid or an untested variety. But what a wonderful package it is! All potential and for explosive growth at that. A seed is quite resilient, enduring a great many torments, even years of neglect. But a seed needs a few things to realize that potential.
  1. A seed needs warmth and moisture to sprout, which provides proof of its viability.
  2. But a viable seed may still die without the proper nurturing. Once we've obtained proof of viability, the seed needs the suitable conditions to root and leaf and grow. This is the testing stage, where a viable seed is coaxed into a relatively mature specimen, a prototype if you will of the field or forest it might become. Now we have a plant, but what sort of fruits will it produce?
  3. If a mature specimen warrants our further interest, we need to attend to the task of reproducing it, distributing it, continuing to examine and study it to discover the ideal conditions and create them in field or farm or greenhouse.

You may notice something in the image: It mirrors the process of seed capital as represented by SBIR.

  1. Phase I is the seed-sprouting stage, where we take an unproven concept and prove it out.
  2. Phase II is the stage where a viable seed is taken to prototype.
  3. Phase III is the stage where a prototype is brought to commercialization in a broader market.

It would seem then that Phase I, the true seed stage, is the untouchable part to private investors. The greatest value of SBIR is its ability to leverage public funding, through a highly competitive process to identify the most promising kernels of ideas, along with the appropriate team to take it from unproven concept, through proof, prototype, then commercialization.

If SBIR is transformed--as many in the House Small Business & Science Committees are intending and entrenched to do--to preference the later stages of business development and growth (the stages preferred by Angels and VCs), then what source would remain for the true seed stage of innovation?

Some might argue that seeds are in too great abundance to be sorted by non-experts. Surely, it is the risk factor involved that stays many Angels and VCs from entering the fray at this early stage. Yet innovative science and technology take time, sustained effort, and commitment: often more of these three than most realize or would care to support.

This is perhaps the genius of SBIR: it allows Program Managers to define high priorities for their particular programs, to solicit proposals that address those specific priorities, have these proposals evaluated by experts, if not experts in the fields of research at least expert in the problems that need resolution. It permits federal agencies that spend billions of taxpayer dollars to reserve a small portion of those funds for work by small businesses, to serve the greater good, to stimulate innovations that might otherwise sprout and die on the sidewalks of neglect and indirection, ones which large corporations and universities have not or could not achieve.

It focuses the minds of innovative researchers to solve realworld problems, fertilizing the growth of the entrepreneurs who will create and lead new industries built on new technologies that remain unimaginable today. Innovation by definition has no peers. Again, I ask, if SBIR will no longer support this earliest stage, then who or what will?

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