6

Findings and Recommendations

The findings and recommendations in this chapter reflect the performance of the STTR program against its congressional objective. According to the SBA’s STTR Policy Directive:

“The statutory purpose of the STTR Program is to stimulate a partnership of ideas and technologies between innovative small business concerns (SBCs) and Research Institutions through Federally-funded research or research and development (R/R&D). By providing awards to SBCs for cooperative R/R&D efforts with Research Institutions, the STTR Program assists the small business and research communities by commercializing innovative technologies.”¹

FINDINGS

General conclusions about the STTR program must be viewed with caution. STTR programs are managed and operated differently by each agency and in some cases differently by separate components within the Department of Defense (DoD) and the National Institutes of Health (NIH). Therefore, individual agencies will need to view the findings and recommendations provided herein within the specific context of their own programs. Not all findings will be relevant to all agencies.

In our view, four core questions surround the STTR program:

1. Does STTR meet its congressionally mandated objective to improve linkages between small business concerns (SBCs) and research institutions (RIs), and in the process support the enhanced transfer of technology from the latter?

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¹Small Business Administration, Office of Investment and Innovation, “Small Business Technology Transfer (STTR) Program—Policy Guidance,” updated February 24, 2014.

2. Does the program meet other objectives, notably:
3. • Support of agency mission, including the direct provision of technologies for use by the acquisition agencies;
   • Enhanced participation by women and minorities; and
   • Development of innovative small companies?
4. Does the program provide benefits that are not available—or to a significant degree not as available—through the SBIR program and other funding pathways?
5. What best practices can be identified, and in what areas can the operations of the program be improved?

Sources of Findings

The committee’s findings are based on a range of tools, including a survey of award recipients, case studies of awardee companies, agency data, public workshops, agency meetings, and reports and presentations submitted by the agencies. Information on which to assess these aspects of the program has been drawn from the Academies 2011-2014 Survey, which is described in detail in Appendix A and in Appendix C, company case studies profiled in Appendix E, discussions with university technology transfer officials, a series of ongoing discussions and conversations with agency officials, and the workshop convened by the committee on the STTR program in Washington, DC on May 1, 2015.

The Academies 2011-2014 Survey was sent to every principal investigator (PI) in the population who received a Phase II award from NIH and DoE in FY2001-2010 and from NSF, NASA, and DoD in FY1998-2007. The preliminary population prior to contact was 1,400. Of these, 807 principal investigators were determined to be not contactable at the STTR company listed in the agency awards databases. The remaining 593 awards with their prospective principal investigator contacts constitute the population for this study. From these, 292 responses were received, for a preliminary population response rate of 20.9 percent and a population response rate of 49.2 percent.

1. STTR is meeting its congressional objective of fostering cooperation between small business concerns and research institutions, and does so in some respects to an extent that SBIR does not.
2. 1. Overall, the university connection is much deeper and richer for STTR awards than for SBIR, and STTR addresses its congressional mandate

2. to stimulate partnerships between small business concerns and research institutions to an extent that SBIR does not.²

   • Thirty-two percent of STTR respondents reported that the principal investigator was a university faculty member, compared to only 3 percent of SBIR respondents, across the five major agencies.
   • More than half of STTR respondents reported graduate students working on the project, compared to 20 percent for SBIR.
   • STTR respondents were far more likely than SBIR respondents (18.4 percent vs. 6.9 percent) to report that the technology underpinning the project was licensed from or originated at the research institution.
   • Seventy percent of projects reported that a faculty member at a research institution was a consultant on the project, compared to 26 percent for SBIR.
   • Case studies of STTR companies offer several examples of successful collaborations.⁴ They illustrate a number of different ways in which STTR works to
     • Create deeper links between the research institution and the small business concern;
     • Allow the small business concerns to enter technically new or challenging areas;
     • Identify and collaborate with possible recruits, especially graduate students; and
     • Access research institution equipment and expertise, as well as access alumni and other social networks, including angel investors and alumni commercialization funds.
3. STTR projects generate wider and deeper linkages between small businesses and research institutions than do SBIR projects, according to data from the Academies 2011-2014 Survey.³ Most notably:
   • Forty-two percent of STTR respondents reported at least one patent, almost as many (44 percent) as those reported by SBIR respondents.⁵
4. STTR projects fully participate in the dissemination of knowledge through patents and publications.

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²See Chapter 5 (Quantitative Outcomes).

³See Table G-1.

⁴See Appendix E (Case Studies). See also the discussion in Chapter 4 (Qualitative Assessment: Company and University Perspectives).

⁵See Table G-19.

2. • STTR respondents reported a higher percentage of participation than SBIR respondents in publishing peer-reviewed papers, being more likely to produce at least one peer-reviewed paper and also more likely to produce a larger number of papers.⁶
   1. Program managers at NASA and at DoD (in particular the Army and Navy) see STTR as filling a gap between basic research and acquisition programs.
   2. • STTR is now used by the Navy and Army as a means of addressing potentially valuable technologies at lower technology readiness levels (TRLs) that are not necessarily aligned immediately with the needs of the acquisition programs. In effect, STTR is used to undertake preliminary work on technologies that may eventually become ready for acquisition. It overlaps with the TRLs served by SBIR, but expands the range to include the earliest technology readiness level.
      • This view may now carry more weight as the SBIR program is increasingly aligned with the immediate needs of the acquisition programs at DoD.⁸ As a result, SBIR awards have become increasingly focused on serving the immediate needs of the Army, Navy and other components, and in particular their acquisition offices.⁹
      • NASA also uses different mechanisms to develop topics for STTR, and, like DoD, places the program strategically as focused on lower TRL levels than SBIR.
      • As a result, NASA and DoD program managers view the STTR program as a significant conduit between their agency and leading research universities. Program managers report that the STTR program provides a mechanism through which these procurement agencies can explore cutting-edge technologies in a research environment.
3. Perspectives on STTR use and management vary by agency. Some see it as a link between basic research and acquisition programs; others see STTR as having similar objectives to SBIR and therefore operate the two programs in tandem.⁷

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⁶See Table G-20.

⁷See Chapter 2 (Program Management).

⁸See National Research Council, SBIR at the Department of Defense, Washington, DC: The National Academies Press, 2014, Chapter 2.

⁹Efforts to interview Air Force STTR personnel were not successful.

3. 2. Program managers at NIH, NSF, and DoE do not see an additional value in the STTR program. They see STTR as having similar objectives to SBIR and therefore operate the two programs in tandem.
   3. • All three agencies use the same solicitation for SBIR and STTR.
      • All use the same selection processes and procedures.
      • Pilot efforts at NSF to differentiate SBIR and STTR through different topics failed, and the agency has ended the pilot.
      • DoE allows small businesses to apply simultaneously for SBIR and STTR, indicating that the agency sees essentially no difference between the programs.
   • Forty percent of STTR projects reported that they had made some sales, and a further 28 percent expected to do so in the future.¹⁰ In comparison, 49 percent of SBIR projects reported sales.
   • For most of the ranges of responses, the size of reported commercialization was broadly similar for SBIR and STTR, although the former reported a higher percentage of large winners.¹¹
   • While technologies created by SBIR and STTR programs serve similar markets, STTR projects were more likely to serve export markets.¹²
   • Seventy-one percent of STTR respondents indicated that their projects received additional investment after the Phase II STTR award. Nine percent reported receiving $1 million or more (the same percentage as SBIR).¹³
4. To a considerable extent, STTR fosters private-sector commercialization of innovations derived from federal R&D.
   1. Data from the Academies 2011-2014 Survey indicate that the participation of women in the STTR program is low.¹⁵
   2. • Survey respondents reported that woman-owned firms accounted for 8 percent of all STTR Phase II firms.
5. The participation of women and minorities in the STTR program is low and not actively fostered.¹⁴

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¹⁰See Table G-7. The committee adopts a broad view of commercialization, taking it to include additional investments in technology development from outside the SBIR or STTR program as well as sales and licensing revenues. See Chapter 5 (Quantitative Outcomes) and Appendix G (Annex to Chapter 5: Quantitative Outcomes).

¹¹See Table G-8.

¹²See Table 5-3 and Table G-9.

¹³See Table G-12.

¹⁴See Chapter 5 (Quantitative Outcomes).

¹⁵See Figures 5-7 and 5-8.

5. 2. • Women accounted for 10 percent of STTR principal investigators. Although the percentages of women in some STEM fields have been declining recently, this is not the case in others (e.g., life sciences).
      • Overall figures for minority participation using the SBA definition remain low. The Academies 2011-2014 Survey reported that 9.1 percent of STTR respondents were from minority-owned firms.
      • The survey also found that 14.1 percent of principal investigators were reported to be from socially or economically disadvantaged groups. These included 0.7 percent Black, 3 percent Hispanic, and 0.7 percent Native American.
      • The SBA definition of socially or economically disadvantaged groups is inadequate to reflect congressional objectives. Data reported by the agencies obscures the extremely low level of participation from other disadvantaged groups by including Asian Americans. The Academies survey found that only 1.1 percent of respondents were from Black- and Hispanic-owned firms respectively, and 0.4 percent was from Native American-owned firms.
   3. Data from the Academies 2011-2014 Survey indicate that the participation of Black, Hispanic, and Native Americans in the STTR program is extremely low.¹⁶
   4. Agencies have no outreach efforts or other programs designed to foster such participation specifically in their STTR program.
   1. As described in Chapter 2, topics for STTR solicitations are developed through processes that are either identical to or parallel those used for SBIR awards.
      • For the acquisition agencies (DoD and NASA) STTR projects are selected in large part because their results meet specific technology needs of these agencies.¹⁷
      • For NSF, DoE, and NIH—agencies that do not usually procure the technologies developed by STTR—STTR project selections are
   2. STTR project selections are made with a close view to agency mission.
6. STTR is aligned with agency missions and the take-up of technologies within acquisition agencies.

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¹⁶See Tables 5-6 and 5-7.

¹⁷See Chapters 2 (Program Management) and 4 (Qualitative Outcomes: Company and University Perspectives).

6. • made based on the same criteria used in making all agency awards (including non-SBIR/STTR), which closely reflect the agencies’ missions.¹⁸

   • Many STTR projects, particularly those funded by DoE, support partnerships with the National Laboratories.¹⁹
   • Case studies (as well as success stories published by the agencies) support the evidence that STTR contributes to meeting specific agency needs.²⁰
   1. In particular, research institutions see the development and widespread dissemination of technical knowledge as part of their core mission. In contrast, small businesses see the commercialization of knowledge as a priority, which will likely require steps to limit the ability of others to use technical information, through the use of either trade secrets or patents.
      • They often require that the faculty be a full-time employee of the university, which means that the faculty member cannot work more than half-time for the small business concern. STTR—but not SBIR—can accommodate principal investigators who are still working more than 50 percent time at the RI.
      • Conflict of interest (COI) rules may require that small businesses have principal owners/managers other than the founding faculty member, thus significantly reducing incentives for faculty participation.
      • COI rules may also block the employment of graduate students at the small business concern.
      • COI rules may also limit or prevent use of university laboratories and facilities acting as subcontractors to a small business concern that is wholly or partly owned by a faculty member.
   2. As university faculty participate in commercial activities outside the research institution, university administrators often seek to ensure that a dividing line exists between research inside the university and activities outside.
7. STTR awards require a formal partnership between the small business concern and the research institution, but they each can have different interests and needs. This creates unique challenges within the STTR program.

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¹⁸See Chapter 2 (Program Management).

¹⁹See Chapter 4 (Qualitative Outcomes: Company and University Perspectives).

²⁰See Appendix E (Case Studies) and Chapter 4 (Qualitative Outcomes: Company and University Perspectives).

3. Research institutions have varied views on and approaches to licensing of university intellectual property (IP).
4. • Typically, technologies at issue in STTR projects are at a very early stage of development when it is not clear how commercially successful they will be or what the size of the relevant market will be. Yet some universities require significant royalty payments upfront, as well as payment for patenting costs and other expenses. This approach to licensing makes it difficult for small businesses to work with these universities and makes a successful partnership through STTR less likely.
   • Some universities have developed an approach to licensing intellectual property that is more supportive of STTR/SBIR activity. The University of Minnesota, for example, has developed two well-defined pathways to licensing that appeal to small companies as evidenced by the substantial increase in licensing and partnership agreements since the policy was introduced. The technology transfer offices (TTOs) at the University of New Hampshire and North Carolina State University, for example, each see their mission as calling for them to support STTR/SBIR activity while still managing COI issues. Progress is also being made in this regard by university groups such as AUTM, NACUBO, and NACUA.
   • Agreements with research institutions may require multiple levels of approval.
   • Adjustments and changes—often necessary for very early stage technology projects—may require further approvals and permissions, which can cause substantial delays.
   • The overhead costs at research institutions may be viewed as an unproductive burden from the perspective of the small business concern.
   7. Small business concerns in general see STTR as more onerous to use and thus less attractive than SBIR, in part because STTR awards
5. The bureaucracy at research institutions can be challenging. Research institutions are big organizations, typically with large overhead rates, and the transfer of technology often is not seen as a core part of their mission. Unless there is a defined path to partnership, negotiating with research institutions can take considerable time and resources for a small business.

8. 1. require a formal partnership between the small business and the research institution.²¹

      • This view is reflected in some case studies where the principal investigators indicated that they applied for STTR only when absolutely necessary. One experienced principal investigator said that given the choice he would utilize SBIR over STTR “every time.”
      • Many case study companies and survey respondents indicated that the success of the STTR partnership depended heavily on the degree of commitment of the RI, which varied widely.
   2. About 45 percent of small business survey respondents indicated that the STTR program was more difficult to use than SBIR. Only 3 percent thought the opposite.²²
      • National Laboratory administrators consider STTR to be a small amount of money and a considerable amount of work.
      • There is little evidence that National Laboratories see STTR as a strategic solution to disseminating their technology.
      • Small business concerns expressed considerable frustration with the difficulties of holding National Laboratories (as well as other research institutions) accountable for STTR deliverables, something that was less the case for SBIR.
      • Small business concerns also expressed concern about the cultural differences between the open culture of some laboratories and the more closed commercial culture of private businesses. This problem could be resolved, but in some cases can lead to difficulties for the small business.
      • However, case studies indicate that STTR may be a useful mechanism through which National Laboratory scientists and engineers can pursue applications of advanced ideas.
   3. Small business concerns see STTR partnerships with the National Laboratories as especially challenging.²³
   1. Survey respondents report that STTR is having a transformative or strongly positive impact on participating companies, with 32 percent of
9. STTR supports the development of innovative companies.

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²¹See Chapter 4 (Qualitative Outcomes: Company and University Perspectives) and Appendix E (Case Studies).

²²See Figure G-1.

²³See Chapter 4 (Qualitative Outcomes: Company and University Perspectives).

RECOMMENDATIONS

The committee finds that STTR meets the specific congressional objective of increasing the linkages between small business concerns and research institutions. As shown in Table G-3 (page 274), a total of 71 percent of the small business survey respondents indicated that the STTR program enhanced their relationships with the research institutions. However, as shown in Figure G-1 (page 275) 45 percent of the survey respondents found the STTR program to be harder to manage than the SBIR program. This finding is not surprising since STTR requires a formal agreement between the small business concern and the research institution. This requirement, which was originally intended to encourage more small businesses to collaborate with research institutions, may sometimes impede this collaboration. To address this issue, the committee recommends:

1. The five sponsoring agencies should address the following factors that may be discouraging some small businesses and research institutions from collaborating in the STTR and SBIR programs:
2. • STTR Program
   1. Finding alternative templates for royalties and licensing agreements. The complexity and variation in intellectual property terms and conditions among universities and laboratories can cause delays in developing contractual agreements between the research institution and small business concerns. The potential partners in an STTR award should consult leading research institutions to learn what templates for royalty and licensing schemes have proven to be most effective and might be adapted for their project. Many different schemes have been used and should be reviewed in the context of the potential project and its participants. One example, adopted at the University of Minnesota, offers a standard option along with an alternate “open negotiation” option that could be a useful template for some projects.

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²⁴See Table G-26.

2. 2. Resolving unique challenges of cooperation. Given the highly flexible nature of the STTR program, the sponsoring agencies should consider seeking SBA authority to act in special circumstances to protect participants from the effects of unexpected delays or related problems with contract agreements or deliverables.
   3. Maintaining a distinct strategy for STTR. Each sponsoring agency should seek ways to ensure that the STTR program plays an identifiable role in the agency’s R&D strategy that differs from that played by the SBIR program. A focus on projects with earlier technology readiness levels might be part of this strategic distinction.
   • SBIR Program
   4. Relaxing the small business employment requirement. Research institutions with personnel who seek to serve as Principal Investigators on SBIR awards while retaining their full-time positions might be allowed—under exceptional circumstances—to seek a waiver of the SBIR 51 percent small business employment requirement.
   5. Reporting on waiver requests. If any waivers are to be considered, the sponsoring agencies should develop an appropriate mechanism for addressing these special requests and should report on the number of waiver requests and the number granted, as part of their annual program reporting.
   • The overall impact of these proposed changes should be evaluated in future assessments of the SBIR and STTR programs to determine if they have been effective in strengthening the collaboration between small business concerns and research institutions in the STTR and SBIR programs.
   1. SBA translates “minorities” in the governing legislation into “socially and economically disadvantaged groups” in the Policy Guidance for SBIR. Asian Americans are designated as one of the included groups.
   2. Asian Americans are well represented as founders of innovative small businesses. Research shows that they have in recent years accounted for
3. SBA should change its definitions to address congressional intent with regard to minorities.²⁵

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²⁵See Finding D.

3. 3. a significant number of all startups in Silicon Valley and other innovation clusters.²⁶

   4. Including Asian Americans has the direct effect of underplaying the low participation for African American, Hispanic American, and Native American entrepreneurs and principal investigators.
   5. SBA should act immediately to change its definitions to ensure that efforts in this area are focused on activities that meet congressional intent.
   6. SBA should also require that agencies collect data—and report annually—on the participation of each SBA subgroup in the SBIR and STTR programs.
   1. Enhance the participation of women and minorities: STTR administrative funding should be aligned with SBIR funds for the purpose of enhancing the participation of women and minorities. Given the small size of STTR programs, these administrative funds should be used in joint programs with SBIR to address this issue through enhanced targeted outreach programs.
   2. Streamline connections with the National Laboratories: DoE should establish a pilot program that streamlines the use of STTR in connection with the National Laboratories. The agency might, for example, consider ways to reduce the multiple layers of permission required for project changes, and to provide improved incentives for National Laboratories to participate. The National Laboratories should have the discretion to be more innovative and take greater risks with the STTR program, given its history of success.
   3. Improved data collection. More effective management of the STTR program depends on better data collection about outcomes. While current SBA efforts in this area show some promise, we would urge agencies to ensure that they do not delay improved data collection in the interim, and that they ensure that the specific metrics most appropriate for the agency are addressed—for example, at NIH data related to clinical trials and the FDA will be needed.
   4. Additional analysis of National Laboratories role in technology transfer to small business. It is apparent that working with the National Laboratories is challenging for many small businesses. It would therefore be useful to study this issue further with a view to
4. Other recommendations²⁷

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²⁶See, for example, Anuradha Basu and Meghna Virick (2015), “Silicon Valley’s Indian diaspora: networking and entrepreneurial success,” South Asian Journal of Global Business Research, 4(2):190-208.

²⁷See Findings D, E, and G.