▶ 0:21:20Chair Ernst: Thank you, everyone. I called the committee on small business and entrepreneurship to order. With its authorization expiring at the end of this fiscal year, today we turn her attention to the small business innovation research and small business technology transfer programs, or sbir sttr.
▶ 0:21:44Chair Ernst: This is effectively partnered federal agencies with private sector entrepreneurs to scale research and developing projects aimed at addressing the pressing challenges of the day. While we have seen a measure of success over the years, through the committee's oversight efforts, agency studies, and gao reports, it is clear sbir is in need of additional reforms to safeguard taxpayer funds and enable this program to meet its full potential.
▶ 0:22:13Chair Ernst: Despite the funding spanning 11 agencies and countless critical technology areas, sbir has demonstrated an incredible potential to revitalize our small business industrial base, and preserve america's technological leadership, the cutting edge technologies being generated are already serving to enhance competition, improve supply chains, and increase overall readiness.
▶ 0:22:40Chair Ernst: For these reasons, I am excited to announce that today I am introducing the investing in national net generation opportunities for venture acceleration and technological excellence, or innovate, act. We have to come up with these fancy names. A bill to reauthorize and comprehensively reform the sbir stt are program.
▶ 0:23:06Chair Ernst: The legislation streamlines and simplifies existing processes, directs the funding toward projects based on merit, channels funding to help accelerate the most promising projects toward final stage commercialization, protects against waste and abuse, and introduces enhanced protection and accountability tools to prevent these new technologies from getting into the hands of our foreign adversaries.
▶ 0:23:32Chair Ernst: First, the innovate act reforms phase one to provide new applicants with a simplified two page proposal process with smaller, one-time awards, so that more innovators throughout the country can have access to this program, even if they cannot hire professional grant writers. My bill also eliminates d.e.I. Preferences. These measures enable agencies to scout the best proposals based on substance from across the country.
▶ 0:24:03Chair Ernst: I am committed to ensuring open competition for innovators with traditionally lower engagement in the program. Second, my bill addresses the practice of mills where firms benefiting from their beltway connections and grant writing expertise have been able to collect an outsized portion of the funding, with fewer results to show for it.
▶ 0:24:28Chair Ernst: This problem was verified by both the gao, the government accountability office, and the dod's defense industrial board, which reported that the firms that got the most awards were less productive in terms of commercialization, investments, and patents, than those who got fewer awards. To prevent the use of phase one or two funding is a permanent source of revenue, my bill imposes a $75 million lifetime cap.
▶ 0:24:56Chair Ernst: It forces small businesses with dozens of awards to demonstrate commercial traction or follow on contracts with non-sbir dollars. Third, my bill empowers dod to repurpose underutilized and overly regulated sttr phase two funding to more efficiently scale the most promising technologies for long-term contracts for deployment through strategic breakthrough awards.
▶ 0:25:25Chair Ernst: For these awards of up to $30 million, the bill limits eligibility to small businesses making clear progress toward commercialization, and with an identified dod end-user. It also requires 100% matching funds to ensure that funds have skin in the game and are not just in it for corporate welfare.
▶ 0:25:47Chair Ernst: These reforms will enable more flexible use of sbir funding to help bridge the valley of death for companies on the verge of success. Finally, my bill builds on my long-standing work to safeguard these new technologies from being stolen by our adversaries. For years, china and other state actors stole intellectual property and proprietary secrets from american businesses and universities.
▶ 0:26:18Chair Ernst: That is why the foreign ties due diligence reforms in the 2022 reauthorization. But we have found that more needs to be done. That is why my innovate act introduces a new definition of foreign risk to create a stronger risk assessment baseline standard that must be applied consistently across all agencies.
▶ 0:26:40Chair Ernst: It implements a clear list of ties to foreign countries of concern that disqualify an applicant, and it empowers agencies with clear clawback authority if a small business exposes products to adversarial influence post award.
▶ 0:27:00Chair Ernst: By targeting sbir funds to the best innovators in the country, by cutting off the unserious applicants who are just after corporate welfare, by providing a boost to the best companies who need it to get over the final hurdles, and by better protecting our taxpayer-funded innovations from going directly to china, the sbir sttr program could expedite new technologies, increase economic opportunity, and attract investment back into our towns and cities, and helped
▶ 0:27:31Chair Ernst: To usher in a new golden age of innovation for america. I look forward to working with my colleagues to get this across the finish line. It is up to us, the members of this committee, to work together to optimize this important program. I would like to thank the witnesses were being here today and being willing to share their experience and expertise with us. I now recognize ranking member markey for his opening statement.
▶ 0:27:55Sen. Markey: Thank you, madam chair. Today's hearing centers on american innovation and the small businesses that lead the way every day of the year. For decades, the small business innovation research program and the small business technology transfer program have played an essential role in driving our country's innovation.
▶ 0:28:25Sen. Markey: I'm extremely proud that massachusetts small businesses have played such a prominent role. The commonwealth is the second-highest recipient in the country, receiving more than 24,000 awards, totaling $8.3 billion in awards totaling over $720 million. This success is due to the massachusetts business plan. Attract the best and the brightest.
▶ 0:28:56Sen. Markey: Provide a world-class education. And provide opportunities for small businesses to compete on a level playing field while having the best educated and the best trained workforce in the country. We start in the fourth grade. We are number one in the fourth, eighth, and 10th grades in america. It provides that workforce.
▶ 0:29:18Sen. Markey: This has led to the development of america's high-tech highway 128, which extends outside of boston and into the surrounding area, a kin to the research wrangle in north carolina. Sbir was codified in 1982. Stt are 10 years later, both on a bipartisan basis. During this time, congress was keenly aware that the federal research and development needs of the country were not being met.
▶ 0:29:50Sen. Markey: Sbir and stt are were designed to use america's small businesses to drive innovation. These highly competitive programs have contributed to a golden age of innovation. We have experienced that over the last four years. Without these programs, americans would not have novel technologies as they do today. For example, the very popular lazy guy surgery was developed in part due to sbir.
▶ 0:30:21Sen. Markey: Sbir funded early qualcomm wireless at -- wireless systems. I'm proud of the advancements that have come from massachusetts. Just as iowa is rich in soil that makes it the producer of corn, massachusetts technology provides a first time ground for innovation in the technology space, which is why we are not just the bay state. We are also the brain state.
▶ 0:30:51Sen. Markey: Massachusetts small businesses have received more than 70 awards for projects related to the treatment of all summers disease, the brain. It is approaching it from many different avenues. Today, we will hear from triton systems, the company from the commonwealth. They used an sbir award to help create the world's smallest device that is universally used in hospitals because of an sbir grant.
▶ 0:31:19Sen. Markey: Without that funding, many of these products may have never seen the light of day. These programs are highly efficient and pay dividends for the american people. The return on investment for every dollar the government spends on this program is anywhere from $20 to $30. The watch from the department of defense create over 65,000 new jobs every year.
▶ 0:31:46Sen. Markey: The sbir and sttr programs work because they prioritize merit and competition. Paranoia-inducing competition. That is the hallmark. That is what it is all about, that competition, the best ideas. We should not place limits on the amount of funding that goes to deserving small businesses.
▶ 0:32:17Sen. Markey: We should not limit the best ideas are the best technologies. That is what we are going to need to compete against china. We never look at the contracts a large defense contractor receives from the federal government, so why would we limit our numeral small businesses? We do not tell raytheon and lockheed martin -- martin you have had enough contracts. We go with the best ideas.
▶ 0:32:47Sen. Markey: Sbir and sttr have enjoyed bipartisan support for several decades. We have not been able to make them permanent. They are currently set to expire at the end of september. I've worked throughout my time in congress to make improvements to programs and ensure that their authorization never lapses. It is critical that we do so again. I look forward to working with you, chair ernst, on this issue.
▶ 0:33:15Sen. Markey: I think all of you for your help in our understanding this issue today.
▶ 0:33:19Chair Ernst: Thank you, ranking member markey. I want to extend a warm welcome to all of our witnesses today. I will now introduce the three witnesses who are testifying today on behalf of the majority. I am thankful that all of you took time out of your busy schedules to join us in front of the committee and share your expertise and insight into the sbir andr stt programs with this committee. First is Mr.
▶ 0:33:48Chair Ernst: Austin strawhacker, the associate state director of america's sbdc in iowa, at iowa state university, in ames, iowa. It operates 15 centers across the state, providing expert business counseling to entrepreneurs and small business owners. Mr.
▶ 0:34:06Chair Ernst: Strawhacker oversees the technology and commercialization team which supports innovative entrepreneurs in leveraging federal and state resources in all 99 counties. He also chairs the association of small business development centers, the research and data committee, and serves on the iowa rural development council. Mr.
▶ 0:34:31Chair Ernst: Strawhacker also holds bachelor's degrees from grandview university and a master of public administration from drake university, both in des moines, iowa. Thank you for being here today. Next, Mr. caleb carr is the ceo of -- is it vee-ta or vie-ta? Vita, it could not have.
▶ 0:35:03Chair Ernst: -- vita inclinata. It received awards that were crucial to the company's success. Mr. carr serves as a board member for the software defense coalition, and is a professor of entrepreneurship at the university of colorado. He graduated with a bachelors degree from the university of colorado at denver, and holds a juris doctor from the mitchell hemline school of law. Our third witness, Mr.
▶ 0:35:29Chair Ernst: David rothzeid, is at a venture capital firm focused on investing in early-stage companies, developing technologies critical for national security. He served for eight years as an acquisition officer in the united states air force. Thank you very much for your service to our country. Including a deployment in the special operations command in afghanistan.
▶ 0:35:57Chair Ernst: He subsequently worked at the defense innovation unit, and in his time there as director of acquisition pathways. He has a bachelors degree from miami university and an mba from the university of colorado, colorado springs. Thank you again, and I now recognize ranking member markey to introduce his witness.
▶ 0:36:21Sen. Markey: Might minority witness today is Dr. ken mahmud, the executive vice president of triton systems, a business at the cutting edge of innovation. Triton systems is a multi-award-winning spr and sttr company that won a small business in 2016. Dr. mahmoud has more than 35 years in research and development.
▶ 0:36:54Sen. Markey: And we welcome you. Thank you, madam chair.
▶ 0:36:59Chair Ernst: Briefly, I would like to explain our lighting system to the witnesses. There are three lights in front of you. Green means go. Yellow means you are running out of time. Red means to go ahead and wrap up those remarks. I ask unanimous consent that the witness statements be included in the record. Without objection, so ordered. As your written testimony has been made part of the record, the committee asks that you limit your oral remarks to five minutes.
▶ 0:37:30Chair Ernst: With that, Mr. strawhacker, you are recognized for five minutes for your testimony.
▶ 0:37:36Mr. Strawhacker: Chair ernst, ranking member markey, and distinct members of the committee, thank you for the opportunity to testify on the reauthorization of the small business innovation research and technology transfer programs. As the associate state director of iowa, I provide oversight to our technology center, which provides guidance to innovators, often including the exploration of sbir and sttr funding.
▶ 0:38:06Mr. Strawhacker: I work at an organization vital to the success of many small businesses. It strengthens local economies and drives small business success. We engage with approximately 5000 clients annually. In 2024 alone, we launched 225 new businesses, created 175,000 -- 1795 new jobs -- I wish it was a bigger number.
▶ 0:38:31Mr. Strawhacker: Generated 174 million dollars in sales, and secured $57 million in new capital. This yields an roi of 3.7 from all funding sources. Hosted by iowa state university, we collaborate with various partners to provide tailored services that support businesses in both urban and rural areas.
▶ 0:38:51Mr. Strawhacker: Our regional centers act as a pipeline for technology driven businesses, for assistance with proposal development, intellectual property, and commercialization assistance. Today, I would like to focus on three main points -- the importance of the programs, the importance of localized support, and outline a couple of challenges and opportunities.
▶ 0:39:16Mr. Strawhacker: For over 40 years, we have ensured that small businesses play a significant role in federal research and development. These programs help develop ground breaking technologies, create high-quality jobs, and enhance our global competitiveness. In iowa, these fundings help bridge the gap between research and market deployment, particularly in sectors like advanced manufacturing, agricultural technology, and biosciences.
▶ 0:39:44Mr. Strawhacker: These programs also attract follow-on investment, drive job creation, and expand local supply chains. In fact, over 50% of successful sbir and stt are applications we have assisted with have leveraged their wards to generate additional funding that has more than doubled the overall investment in these companies. Rural entrepreneurs exemplify the creativity and innovation that define american small businesses.
▶ 0:40:11Mr. Strawhacker: Despite challenges such as limited access to capital, shortages, and geographic barriers, the drive technological advancement and local economic growth. These grants provide support for these onto printers to take risks and continue to contribute. The success of small businesses, particularly in rural communities, depends on access to localized support.
▶ 0:40:37Mr. Strawhacker: The prime example in iowa is senator ernst's entrepreneur expo, a collaboration between the senator and the iowa state university center for industrial service. This event create small -- matches small business owners with potential investors, fostering collaboration and showcasing innovation. Additionally, we have established the great plains sbir working group with nebraska and oklahoma.
▶ 0:41:05Mr. Strawhacker: This group meets monthly to share best practices, develop solutions, and strengthen the regional support network. While sbir and stt are have been highly effective, there are opportunities to enhance the impact, streamlining the application process and introducing a smaller phase I award. It could lower barriers for first-time applicants. This would allow early-stage research to explore commercialization potential before the full work begins.
▶ 0:41:32Mr. Strawhacker: Many companies also received very little back on the phase one proposals if they are declined. Often the reason is something that sbc's could help with proactively if more guidance was provided. Increasing transparency and structured feedback would help applicants improve success rates. There should be recognition that innovation exists everywhere across our nation. Yet just five states received 46% of the awards and dollars.
▶ 0:42:02Mr. Strawhacker: Addressing this disparity through targeted outreach, regional training, and improved evaluation transparency would ensure fair access to funding, no matter the geographic location of the business. In conclusion, these awards have driven innovation, strengthen local economies, and created high-quality jobs in america for over four decades.
▶ 0:42:24Mr. Strawhacker: By leveraging support, small businesses can access commercialization experts, funding strategies, and technical assistance to maximize program benefits, continue collaboration among federal agencies, global resource providers and entrepreneurs will be essential in maintaining U.S. leadership in innovation. Thank you for your time and consideration today. We welcome any questions.
▶ 0:42:47Chair Ernst: Thank you. We will go next to Mr. mahmoud, and you are recognized for five minutes for your testimony.
▶ 0:42:58Dr. Mahmud: Small business committee. Thank you for the opportunity to speak at today's hearing. I'm pleased to share my insights . There is a successful track record of advancing national security and the economy. I would like to share a few examples with the committee, to show the different paths to commercialization and the benefits to the united states as a whole.
▶ 0:43:30Dr. Mahmud: First, a few words about myself. I received my masters and phd in chemical engineering. I have been in leadership roles, as senator markey mentioned, in the U.S. industry for over 35 years. I am an inventor with patents, and I received a reward on behalf of triton for success in commercializing. Ok. Thank you. Is this better? My apologies. Triton is a 100% U.S.
▶ 0:43:59Dr. Mahmud: Owned company with significant employee ownership. Most of our technical staff have security clearances and carry an incredible passion for helping the country. Let me show you some examples of the impact on national security and the economy as a whole. We supply a critical component to the f-35 aircraft, which is the largest dod platform ever.
▶ 0:44:26Dr. Mahmud: It is expected to save the air force over $550 million in costs. We supply another critical component to the f-22 aircraft, which will enable another $280 in sustained cost savings. We have set up a venture in the state of washington to manufacture long-range aerial mobility systems to support a navy program.
▶ 0:44:55Dr. Mahmud: To do this, we are setting up a U.S. supply chain, bringing that capability that had moved overseas. This involves companies across the country, primarily strutting with north carolina, but also companies in tennessee, massachusetts, rhode island, pennsylvania, and final manufacturing in the state of washington. Our hearing production product is being qualified for army groups.
▶ 0:45:24Dr. Mahmud: I want to point out that hearing loss and tinnitus are two of the biggest issues affecting our veterans. V.a. Provides over a billion dollars a year in disability benefits for these conditions. Our bladder relief product for aviators has been qualified for navy missions.
▶ 0:45:52Dr. Mahmud: Our sensor technology enabled the world's smallest heart pump for use in cardiac intervention. I want to mention that heart disease is the number one cause of death for americans today. We are also investing in the first large area metallic 3d printing capability in the country.
▶ 0:46:15Dr. Mahmud: This will be a new capability for the united states, for the printing of large metallic parts for aircraft, missiles, and other dod uses. I would like to finish by offering some suggestions to the committee for improving the program based on our experience with it.
▶ 0:46:33Dr. Mahmud: The spr program is one of the most successful technology programs in the federal government, as indicated by national academy of sciences studies and multiple agency studies. We believe this is because of the merit-based nature of the program, the competition -- the ruthless competition it fosters -- and the flex ability -- and this is important. The flex ability given to the agencies to adapt it to their needs.
▶ 0:47:01Dr. Mahmud: Our suggestions to the committee include, number one, provide meaningful incentives for transition to phase 3 for dod platforms in particular. I will add on a personal note that for a small business, when most of the platforms are owned by the prime contractors, it is incredibly hard for a small business focused on the sub complement or a component, 2d risk it, mature it, qualify it.
▶ 0:47:28Dr. Mahmud: It requires a tremendous amount of cooperation. I do want to adhere that small businesses like ours develop expertise in working with academia, working to transition to a program of record. We offer a unique skill set in our innovation. Number two, streamline the contracting.
▶ 0:47:58Dr. Mahmud: I believe this is a request all of the witnesses will make. Streamline the contracting process by mandating standard contracts. Number three, adequately resource the agencies. And number four, re-author is permanently or for a longer term, so small businesses and agencies have some certainty in the business plan. I wish to end by thanking the members of the committee for your continuing support for the program, and for the opportunity for me to speak to you today.
▶ 0:48:30Chair Ernst: Thank you. I appreciate that. Esther carr, you are recognized for five minutes of testimony.
▶ 0:48:36Mr. Carr: Thank you for having me today. I founded my company following the death of a friend of mine when we were on a search-and-rescue exercise in the mountains. He experienced active cardiac arrest. The rescue helicopter proceeded to lower a rescue basket down to us, but due to the winds, the basket kept swinging, and because of it, we could not get it through the trees. We called off the mission.
▶ 0:49:06Mr. Carr: Several years later, my business partner and I founded what would be known today as vita, a company focused on designing technology that would eliminate the swing and sway of suspended loads on rescue helicopters and save lives, preventing the reality that happened to my friend over a decade ago, and drastically improving the solution used today -- a rope.
▶ 0:49:31Mr. Carr: We started in a cold garage in denver, colorado, working tirelessly to find a solution to the problem. Investors would turn us down left and right due to the lack of market knowledge on the issue, and the amount of complexity that designing a solution and selling that solution to the U.S. government would entail. It was not until something else took a risk on us in late 2018 -- the sbir program. Specifically, the open topic sbir program. The program took a risk on us.
▶ 0:50:04Mr. Carr: It took our white paper and our idea, and empowered us to quit our jobs, hire a team, and design a solution we now call the rescue system. Subsequently, the company went on to secure phase ii contracts, and eventually a $50 million transition to the U.S. army, which we anticipate putting into motion later this year.
▶ 0:50:29Mr. Carr: Meanwhile, that system is deployed to battlefields in ukraine, cal fire's, fire attack helicopters deployed during the palisades fire, all to put army national guard units, including south carolina, and across the entire air national guard. Yet that was just the beginning.
▶ 0:50:48Mr. Carr: Thanks to that investment by the sbir program, vita expanded into providing the essential gear that crews need to fight the mission, such as harnesses, to the point where just two weeks ago, we received the following message. I just wanted to thank you for making such a great product. My father was in a horrific helicopter accident and his best friend died on impact. He was in the backseat and how your harness on.
▶ 0:51:14Mr. Carr: Despite the helicopter being destroyed, he actually walked away from the incident with only bumps and bruises. It is this type of capability, these products, that would not be here today without the support of the sbir program. You are going to hear a lot today about what the sbir program is and is not, but I come to you as someone who used the program for what it was meant to do -- transition real-life solutions into the hands of the people that need it most.
▶ 0:51:43Mr. Carr: What I can tell you is the sbir program should not be a welfare program to award 50 contracts to the same party. This is an investment in ideas to facilitate solutions that take what was a rope for decades, and make it into a technology solution. The investment to empower americans and frankly the market to validate and scale new capabilities we never thought about until today.
▶ 0:52:09Mr. Carr: The program is a mission-focused mission that advances the objectives of the agencies it supports, providing structure and funding to enable companies to directly address these missions head on, whether for organizations like calfire or the south carolina army national guard. I wonder, with those crews have this capability today if it remained in an r&d environment? Get at the end of the day, the program is the bedrock of transitioning the future into reality.
▶ 0:52:40Mr. Carr: Therefore, as you consider how to improve the program for the upcoming reauthorization, we encourage you to support the following. One, dedicated funding mechanisms for companies that can demonstrate private-sector demand for commercialized technology, and government demand for innovative solutions. We must provide the tools to transition, and transition quickly. Two, the use of firm, fixed price contracts.
▶ 0:53:09Mr. Carr: Reducing the bureaucratic overhead and allowing the program to take the small risk on people like me, and empower us to do something great. Three, limits on awards for those repeat offenders. Specifically, companies that continue to receive awards without commercializing a viable product. Getting their product to an end-user.
▶ 0:53:34Mr. Carr: In doing so, you will prevent the program from becoming a welfare program, and keep it focused on being an investment vehicle to allow entrepreneurs like me to innovate and create the critical solutions that don't just sit on the shelf for someone to talk about one day, but are used in reality, executing the mission it was designed to complete. Thank you for your time today. I look forward to your questions.
▶ 0:53:58Chair Ernst: Thank you. Now I recognize Mr. rothzeid for five minutes of testimony.
▶ 0:54:06Mr. Rothzeid: Thank you, members of the committee. Thank you for the opportunity to testify. I am an investor at shield capitol where I work with over 40 early-stage startups, billing technology at the intersection of national security and commercial applications, colloquial known -- colloquially known as dual use technology. I was on active duty as an air force acquisition officer, and I helped pioneer a new model for working with venture backed startups.
▶ 0:54:37Mr. Rothzeid: The reality is that america's technological edge is eroding. While we maintain clear dominance in iraq and afghanistan, we face a very different challenge in the people's republic of china. Yet our defense and commercial technology ecosystems continue to operate in parallel universes. If we are going to win the global power competition, we must leverage america's private capital markets to backup the most innovative ideas. Private capital is critical to accelerating the development of next-generation defense tech.
▶ 0:55:07Mr. Rothzeid: Venture capitalists bring funding, expertise, and a culture of iterations needed to develop cutting-edge capabilities. Venture backed startups thrive on rapid r&d, allowing them to develop, test, and scale disruptive technologies efficiently. In recent years, the investment in defense tech research going from $8 billion in 2016 to $42 billion last year -- a seven times increase.
▶ 0:55:34Mr. Rothzeid: This trend is driven by geopolitical instability and an emphasis on streamlined processes from organizations, and a growing recognition of private capital's value in national security. This was created as america's seed capital for innovation. Avenues for funding have contributed to major technological breakthroughs developed by venture backed companies.
▶ 0:56:01Mr. Rothzeid: This should be reauthorized, but with vital improvements. We outline solutions in written testimony, including addressing an obstacle course for entrenched companies. A postgraduate school study found that nearly 5000 companies, the top 25 alone secured 18% of all dod phase I and phase ii funding. That is over $2.3 billion between 2012 and 2021.
▶ 0:56:33Mr. Rothzeid: They focus on securing grants rather than feeling operational capabilities. We want true high-growth startups like the one on my right, the ones building the technology of the future, organized to scale, employing thousands and attracting billions in private capital. They were often locked out. We must ask, shouldn't america's government-backed seed capital be an entrepreneur's step, not a bureaucratic bottleneck?
▶ 0:56:59Mr. Rothzeid: Even when startups win silver awards, future additions -- that same study found that only 16% of silver companies transition beyond phase ii. Rest means stuck in perpetual r&d. Programs in the air force, space force, an army provide a model for bridging this gap.
▶ 0:57:23Mr. Rothzeid: It is these types of programs that would incentivize the federal government program office, and engage with other companies. Without these transition pathways, startups struggle to gain meaningful traction, and investors hesitate to back them. At shield capital, we have four startups that have successfully transitioned from face to to winning a contract, enabling them to innovate into emerging programs of record.
▶ 0:57:52Mr. Rothzeid: We expect the startups will graduate from the program, creating an on-ramp to scalable operational technology. This is the paradigm we need to solve four. We see financing on a grand scale. It is a small but mighty force. By working together, we ensure this will be a true launchpad. Both private capital and federal investment can work together.
▶ 0:58:23Mr. Rothzeid: R&d is a bipartisan issue that impacts the economy of every state in america. Chair ernst and ranking member markey, your states recommend -- represent critical sectors of innovation. Act tech food security and massachusetts biotech that pioneers of sieving enhancements. Neither thrives without the investment, scale, and clear pathways to impact. In conclusion, I want to thank all the members of the small business community.
▶ 0:58:54Mr. Rothzeid: There is a bridge between government needs and america's private capital system. The golden age of american innovation will not be won by government funding, but will be secured by unlocking the full potential of americans, leveraging our free-market system, ensuring economic prosperity and national security resiliency. I look forward to being a resource in answering your questions. Thank you.
▶ 0:59:17Chair Ernst: Thank you. Now I recognize myself for five minutes of questions. We will move into questions. That's start with you, Mr. strawhacker. Thank you for your amazing work and support of small businesses in iowa. Very familiar with what you do and thank you for it.
▶ 0:59:38Chair Ernst: I believe it is in our national interest to scale the best technologies with strong potential to solve america's challenges, no matter where they are located. What bureaucratic obstacles exist for small businesses that are new to sbir? What reforms should congress consider?
▶ 1:00:01Mr. Strawhacker: Thank you, chair ernst, for that question. As I mentioned in my testimony, local support is critical for early-stage development, particularly when it comes to learning about what these programs can and cannot do.
▶ 1:00:19Mr. Strawhacker: The expo that we jointly host in the state has done tremendous work in educating people about these resources, but it has also brought federal agency representatives to our state to have first-hand conversations with those business owners. That is where I believe the most work occurs.
▶ 1:00:38Mr. Strawhacker: When someone can sit down with someone who can answer their questions, right then and there, and provide first-hand technical assistance, it leads to significantly better planning as people start to enter this space. In 2022, the year before the expo was launched, we held a very similar event.
▶ 1:01:02Mr. Strawhacker: While it was impactful, because it was the first one I have done in quite some time, it was quite difficult to get a lot of our agencies to come and have a presence at the event. Those that did come were blown away by the amount of innovation that occurs in our state. Thankfully, we have many more of them coming to our event right now.
▶ 1:01:24Mr. Strawhacker: In addition to the expo, things such as introducing a smaller phase I award would be very helpful, as well as introducing transparency and feedback.
▶ 1:01:41Chair Ernst: Thank you, if we can move on to you, Mr. rothzeid. In your written testimony, you stated innovation thrives in a competitive market where the best ideas rise to the top. Over the past five years, just 10% of dod sbir stdr -- sttr funding went to companies without prior government contracts. I'm concerned whether sbir is living up to its potential.
▶ 1:02:12Chair Ernst: Assistance is skewed toward the status quo and entrenched players. It is not utilizing competition to drive the innovation that america needs to stay ahead. How could we ensure real and open competition in the sbir program?
▶ 1:02:31Mr. Rothzeid: It is not ok that only 10% of recipients are new entrants. The emerging ideas -- one of them -- the emerging bottlenecks for the program is the idea these esoteric, nuanced, specific topics that are based on prior existing relationships, with company and government labs.
▶ 1:02:56Mr. Rothzeid: If we can start to generalize the topics more around different technology areas, and innovator can come and build a solution. That is what is going to create disruptive technology for the future. It is also going to address the problems for the program offices responsible for fielding the technology and getting it to the war fighters. The labs have a different perspective with r&d, versus the program office. They are trying to deal with near and dear issues.
▶ 1:03:27Mr. Rothzeid: Additionally, I find it hard to believe that a company, a small business, can work on a myriad of different technology areas. For my startups, any more than two and three and they are tapped out. We have to ask ourselves, why is there such market efficiency were a company can be a small business but work across a dozen different sectors at the same time.
▶ 1:03:47Chair Ernst: Thank you for pointing that out. I appreciate it. I will now turn to senator rosen for her questions. Thank you.
▶ 1:04:00Sen. Rosen: Thank you. I have a 3:30 and I did not want to miss this. It is such a great hearing, and it is so important. I want to thank you all for your ideas, for your energy, and to really think out-of-the-box the box when you see a problem. You are problem solvers. It is very exciting. This is a great committee, to see the entrepreneurship.
▶ 1:04:26Sen. Rosen: And so the sbir and sttr programs are critical sources of capital for startups and for people who see a problem. How can I make it better? How can I fix it? How can I find the solution? Some states are not receiving their fair share of this vital funding. Iowa, the chair state -- nevada is in the bottom third of sbir grants in 2023.
▶ 1:04:58Sen. Rosen: That is compared to the national average of 118 awards per state. I hope to maybe move that up. The federal and state technology partnership program was created to address this gap. The program provides funding to economic development to entities and research institutions. That will provide support to the small businesses who are applying who often do not know how to get started. That is a big issue.
▶ 1:05:26Sen. Rosen: That is a mission to strengthen the competitiveness of underserved businesses seeking the sbir sttr grants. It's critical. Congress must continue to support alongside the innovation initiatives. Mr. strawhacker, as a past recipient, I know you know how important it is. Can you explain the ways to better serve businesses who struggle to navigate this process?
▶ 1:05:56Sen. Rosen: What challenges are you facing that we can address here?
▶ 1:05:59Mr. Strawhacker: Thank you, senator rosen. You are correct that the fast program is tremendously valuable to this equation. But it does play a complement to reroll to the business owners and innovators. We are there to connect them to resources, connect them to people who can alternately -- you can ultimately invest in these companies. It is there innovation that drives us forward. We have brought on a myriad of different proposal development tools.
▶ 1:06:30Mr. Strawhacker: We have sent our advisors to as many trainers as we can get to. I'm confident in saying that the proposals coming out of iowa right now are as strong as they have ever been. We have developed deeper partnerships for the state agency and development authority. There is still a lot of work to be done.
▶ 1:06:52Mr. Strawhacker: I hope that other states will look at implementing an entrepreneur expo who they can bring first-hand and can see representatives.
▶ 1:07:02Sen. Rosen: We will be in contact. I want to talk a little bit about rural business access to sbir funding. We know small businesses are the key economic drivers. Nevada is known for our large casinos. To be honest, 99% of businesses in nevada are small businesses. They support the good paying jobs, local jobs. It is both urban and rural.
▶ 1:07:34Sen. Rosen: The small businesses historically create a lot of challenges. Business resources -- I know you know this. I'm going to stick with you today, Mr. strawhacker. What challenges do you think rural businesses have? How can we help them and the need they specifically have? How can we better connect our resource partners?
▶ 1:08:01Mr. Strawhacker: Thank you, senator. It is often remarkably difficult to physically get to certain parts of states.
▶ 1:08:13Sen. Rosen: Knew have been to nevada, so you know. Most mountainous state in the lower 48, I might add.
▶ 1:08:19Mr. Strawhacker: I did not know that. That is why we have utilized the long-standing success of the sbdc network to come alongside the fast program. We have 15 offices strategically located. 11 partnerships with community colleges and for centers hosted by our three public institutions in the state. Those people are in the community where those business owners are developing their ideas.
▶ 1:08:50Mr. Strawhacker: They are constantly networking with different economic development agencies, different lenders. They serve as the pipeline for the technology-based innovation center, who can ultimately get them to the finish line.
▶ 1:09:07Sen. Rosen: There might be a connection with nevada. Thank you for all you do.
▶ 1:09:11Chair Ernst: Thank you, senator rosen. We will go to senator husted for five minutes of questions.
▶ 1:09:19Sen. Husted: Thank you for that. Business is hard. Many startups fail. Particularly if you are in tech, because there is some of the lsat there all the time who is also innovating and trying to identify a path, a use for their technology.
▶ 1:09:44Sen. Husted: And how do you go about the process of identifying who should receive assistance and who should not? In a marketplace, it is so much easier in the sense that when it is your real money and it is your decision, you are a far more discerning than when it is not.
▶ 1:10:09Sen. Husted: And so how does that process work right now, and how can we make it more like how the real marketplace works? Who can answer that question the best? >> it is an elevator pitch. It is a quick white paper with a quick summary, three pages, and that's it. The reality is the sbir program has continuously gotten longer and longer proposals.
▶ 1:10:39Sen. Husted: With a team of three people working in a garage, I did not have time to write a 100 page proposal. I had an elevator pitch. Are you, as the person on the other side, willing to buy into that elevator pitch? Or do you think something else should be rewarded instead? Sen. who's dead and does the process we are using in this -- is it entrepreneurial enough? Does it work?
▶ 1:11:05Mr. Carr: I think the bureaucracy, as much as I would love to make it simpler -- it forces you to be an entrepreneur. At the end of the day, you have to figure out how to navigate the market. If you are trying to figure out how to navigate the U.S. government, you have to learn and be that entrepreneurial self to figure out how you complete that.
▶ 1:11:25Mr. Carr: From my perspective, I believe a lot of the proposals supporting making that elevator pitch much easier for smaller companies to make it -- you will continue to see more and more and print -- entrants coming into the program to see.
▶ 1:11:43Sen. Husted: As I was doing research on this, one of the common complaints is that the people who figure it out are the ones who are getting all the money, and the people who have not figured it out, there is just a barrier that is a mystery of every door I go into. How do we go into that?
▶ 1:12:03Mr. Carr: If I may, -- Mr.
▶ 1:12:06Rothzeid: If I may, I've been on the other side as a government evaluator. In certain areas, you have some of the proposals that you try to take the easy way out. They say who did not cross their t or dot their I. That sort of sentiment certainly favors those who have gone through the process before, because they are able to rinse and repeat a lot of the proposals going forward.
▶ 1:12:30Rothzeid: I think that is why chair ernst and her recommendations of putting a cap sort of gets us away from being more process oriented, and more about the spirit of the idea. When the same companies can submit 50 applications at a time , and they have the resources to be able to evaluate all the incoming solicitations, there has to be a level of empathy for the review were on the government side.
▶ 1:13:00Rothzeid: As a venture capitalist, I take pictures all the time. I have three more scheduled later today from different companies. Most of them are going to receive a know, and that is just a reality. I'm looking at a competitive marketplace. How good is the founder? What is the opportunity for them to sell into? Those are difficult things that you learned over years and reps. Nongovernment stakeholders don't necessarily have that same backup.
▶ 1:13:28Rothzeid: We need to make it easier for them to evaluate less companies.
▶ 1:13:33Sen. Husted: My time is going to run out, and I want to ask a question, because I'm not sure how. Is it more difficult -- the way we set up particularly for contracting with the U.S.
▶ 1:13:47Sen. Husted: Military, a small business -- I was told one time with small businesses that the big contractors will welcome them as long as they stay in their box, and they can't have a -- they have bidding rules that make it hard for small businesses. Is that accurate, anybody who has worked on that? >> absolutely not.
▶ 1:14:17Sen. Husted: As a lawyer, going to law school -- some of the agreements, they take your ip. They take the knowledge, the idea, and they fit you into that box, and they force you into that box, and you must stay in that box, which is -- probably that is the idea.
▶ 1:14:35Sen. Husted: Madam chair, an opportunity may be to explore that. Thank you.
▶ 1:14:42Chair Ernst: And senator markey, we will go back to you.
▶ 1:14:47Sen. Markey: Thank you so much. And I agree with the big companies like -- microsoft just swiped c1 big companies still make breakthroughs. That is a joke. They steal them. A lot of stealing goes on. The highway robbery in silicon valley.
▶ 1:15:18Sen. Markey: The small business technology council provides small businesses with early-stage funding. Many small businesses have said without this, their businesses and the technologies that they successfully developed might not have happened.
▶ 1:15:42Sen. Markey: They develop technologies that reach the market to benefit americans. Can you speak to the impact funding has had on your ability to innovate? >> thank you for the question.
▶ 1:16:10Sen. Markey: Just because of the passion of our employees, we target benefiting. It turns out that in many cases take knowledge of a dual use.
▶ 1:16:43Sen. Markey: The venture capital industry has very tight timelines and expectations, as was just mentioned. An example I can cite that is benefiting everyday americans is we created a spinoff for a location since her technology. The biggest application turned out to be for a heart pump.
▶ 1:17:19Sen. Markey: It used to this sensor. It has to be very small. It enabled this technology. This is now widely used. This is an example of something that has widespread application. >> half of these are from the defense department.
▶ 1:17:49Sen. Markey: To protect our country. Ultimately our advantage over china or any other country as we are technologically superior to them. You have to learn how to work smarter, not harder. It has to be the death best technology.
▶ 1:18:25Sen. Markey: Does the defense department and make those kind of ruthless decisions? >> I can only speak to my company's experience. And our experience, we tend to focus on trying to understand what the gap is.
▶ 1:19:06Sen. Markey: As I have showed, when we understand the problem you do have to work with the primes.
▶ 1:19:37Sen. Markey: We worked with the primes. To incorporate this new material. To solve this problem. It will save them over half $1 million. I am not sure if I answered your question. >> you did. You have the technology the military will use work harder, not smarter.
▶ 1:20:13Sen. Markey: That incentivize do to find the answer. >> that is correct. The cost savings that we bring to the government, they'll show up in any metrics.
▶ 1:20:42Sen. Markey: There is no financial incentive for most companies. To take on a problem that has a low return for the company, relatively speaking. >> you are saying that venture capital money is looking to make a big profit. And this is not a big profit. This is a big problem that has to be solved. Because of some medical condition.
▶ 1:21:12Sen. Markey: >> hour spent also very active in the venture capital market. There are problems that are debilitating and life changing and very difficult. I just mentioned hearing loss. That is a significant one.
▶ 1:21:43Sen. Markey: A lot toxic dust. Some pilots practice tactical dehydration. That is not a good solution.
▶ 1:22:18Sen. Markey: These are not problems the marketplace looks to address. The market is not big enough to attract those investments. We feel we have brought tremendous benefit.
▶ 1:22:38Chair Ernst: Thank you.
▶ 1:22:42Sen. Shaheen: I am delighted that we are doing this hearing. On these programs. Thank you to all of the witnesses for being here. I apologize for missing your testimony. I was in an armed services hearing subcommittee.
▶ 1:23:08Sen. Shaheen: The reason I am so enthusiastic about this program is it was created in the 1980's. I have seen how it had grown.
▶ 1:23:38Sen. Shaheen: You may have already asked this question. Do you know if those savings are counted in statistics? Or in the commercialization data.
▶ 1:24:11Sen. Shaheen: >> that question was asked but I will repeat it. Once a fighter is exposed to a lot of noise, it is a permanent condition.
▶ 1:24:41Sen. Shaheen: It is very difficult to reduce that. We have focused in terms of support to the fighter. That has been qualified on all the army hop helicopters -- helicopters.
▶ 1:25:11Sen. Shaheen: I did hear you talking about that. It caught my attention because you were talking about hearing loss. We have a new hampshire company that has developed a new helmet system for aircraft carrier crews for that reason.
▶ 1:25:49Sen. Shaheen: You worked about -- talked about working together with neighboring states. She you think more funding would help with those partnerships? How can we encourage that kind of collaboration? >> I do think that type of collaboration should be looked at being implemented across the nation.
▶ 1:26:41Sen. Shaheen: They want to have the right advisors at the table. We need us to support them. Thank you. >> there has been some talk about limiting awards.
▶ 1:27:14Sen. Shaheen: I wanted to ask if that is something that should be helpful. I know a number of new hampshire companies have been successful. Maybe you could speak to that.
▶ 1:27:38Sen. Shaheen: >> I think one of the most powerful foundations of the program is they have tremendous flexibility. They have the flexibility to decide on limiting the number of applicants.
▶ 1:28:14Sen. Shaheen: We support the mission of agencies. We have a shrinking base.
▶ 1:28:48Sen. Shaheen: There is no reason to cap good ideas.
▶ 1:28:52Sen. Shaheen: I am out of time. I don't know if anybody else will speak to that. >> find a large proponent of giving some kind of cap. If you are a small business, I cannot chase and raise money for it.
▶ 1:29:27Sen. Shaheen: I have to be super focused.
▶ 1:29:46Sen. Shaheen: Do we have any that fit into that category? Do we have multiple categories? Do you believe a company is successful?
▶ 1:30:16Sen. Shaheen: Are you concerned about that aspect of it? >> because of the dual use aspect of the program we did that. It is tangential technology to what we are building. Are you really exiting the business? Or are you looking to create a new product?
▶ 1:30:49Sen. Shaheen: But never taking that to the final step which is you are my customer, had I get this to you? >> thank you for being here today.
▶ 1:31:23Sen. Shaheen: We hear it all the time. I'm sure you are familiar with it. The commission finds that promising projects are not being
▶ 1:31:54Sen. Shaheen: Preferred. >> I would recognize that the managing partner was one of the commissioners on that. We are talking about innovation.
▶ 1:32:33Sen. Shaheen: There is no need to continue it forward. It is inherently a two-year long process. There is no gap year. They now have to sit on their hands and wait.
▶ 1:33:08Sen. Shaheen: That can be a really big challenge for our company. We want to sell to the department of defense. That gives them an opportunity to stay afloat. Why should fire fighters have to wait for a solution that they need today?
▶ 1:33:41Sen. Shaheen: >> what is the fix? >> that program allows them to leverage additional funding.
▶ 1:34:14Sen. Shaheen: >> you said that 18% makes that cap? With this new system in place that you mention, what does that member get up to? >> more of that funding would've gone to phase more of this other bucket.
▶ 1:34:48Sen. Shaheen: You will probably see a shrinkage of the amount of those. A larger number of opportunities. I would expected to go more to 35%. >> you are saying and that 82% that would diminish, there is a lot of good, useful things. >> unfortunately that is the case.
▶ 1:35:19Sen. Shaheen: >> the reform commission also highlighted that. By ensuring that the budget process has that analysis. Can you speak to your views on that recommendation? >> I was not quite following.
▶ 1:35:43Sen. Shaheen: >> I think there is the question of a one-two allowing the reform commission. They want the budgeting process to have that analysis.
▶ 1:36:13Sen. Shaheen: Do you have any thoughts on that? >> I would say 11 of the 14 areas are identified by the department of defense. >> thank you.
▶ 1:36:36Chair Ernst: Thank you. I will go ahead and start if you would like a second round. If you want to go ahead, I will close up after you. Go ahead.
▶ 1:37:02Chair Ernst: >> we talked about the importance of preserving merit-based competition in the program. We should prioritize merit. We have seen great success.
▶ 1:37:41Chair Ernst: I understand that the company did not meet that. Leading to a limit. How have these caps impacted your company strategy? >> thank you for the question.
▶ 1:38:08Chair Ernst: I think we can all agree that the commercialization benchmark, this is what everybody has talked about. It is very important. Everything needs to have a purpose. We need to maximize it. At least in my opinion.
▶ 1:38:33Chair Ernst: We just talked about those awards. They want to see what is out there. We want to capture the best idea.
▶ 1:39:10Chair Ernst: This was just discussed in a number of questions. What we have done based on these new benchmarks is become really risk-averse.
▶ 1:39:50Chair Ernst: We don't take high risks. >> we need to be taking the risk. >> we do not pursue high-risk opportunities. Even if we have a good idea. >> that is very helpful.
▶ 1:40:34Chair Ernst: Even for the most innovative technologies. >> would you like me to explain the process? I did not catch the question. >> can you explain the question -- concept? >> I would be delighted.
▶ 1:41:04Chair Ernst: That is the process. The agency might not have a plan of moving it forward. You can show that you have the best solution.
▶ 1:41:44Chair Ernst: >> I thank you for that. Massachusetts is proud of its culture.
▶ 1:42:27Chair Ernst: Today the senate republicans are trying to paint a picture that these small businesses are bad. They delve into novel ideas. And bring them to reality. They save hundreds of millions of dollars.
▶ 1:43:15Chair Ernst: That is why we produce such tremendous technology. We don't have biz -- big businesses that much. We have small businesses. Especially in the defense sector. 80% of the department of defense budget is nuclear regulators.
▶ 1:43:47Chair Ernst: Those are the agencies that are asking for these technologies to be invested. We want to ensure that these small businesses are able to compete. And someday they want to sell to a big company, that is their right.
▶ 1:44:17Chair Ernst: That has to be the primary thing. We want to take a risk over here with some breakthrough technologies. That is the decision we have to make as a country. It is very valuable.
▶ 1:44:39Chair Ernst: I do have a couple of additional questions. Thank you for being here. Please answer yes or no. Do you have any connections with foreign countries of concern? >> may I answer the question?
▶ 1:45:14Chair Ernst: We are audited. We have no control over them. They will go in raise money on the venture capital market. We have incredible safeguards.
▶ 1:45:53Chair Ernst: We have no control over the spinoffs.
▶ 1:45:56Chair Ernst: You are aware they have been ties to countries of concern? >> I have read that in the press. One of the spinoffs has raised money. There is concern about that. We cut off ties with them a long time ago.
▶ 1:46:18Chair Ernst: For the record, you received 902 awards counting for more than 300 to $2 million. That is really hard for me to explain how someone who has received that much money can still be considered a small business. That is really difficult for me to explain in the heartland.
▶ 1:46:47Chair Ernst: I want to enter into the record open source data with spinoff companies. You stated you cannot control those companies.
▶ 1:47:22Chair Ernst: That is a chinese financial services firm. Another spinoff received $22 million. And received a joint venture with a chinese company.
▶ 1:47:58Chair Ernst: I would like to enter into the record open source data on these ties with china. Without objection, so ordered. I want to point out that they are required to expose joint ventures. Spinning these companies off preparest -- appears to be a loophole. This track record should be accounted for.
▶ 1:48:28Chair Ernst: The company does not seem to care who they are selling research to this is a national security risk. Making prudent judgment calls on who they award.
▶ 1:49:02Chair Ernst: There should be opportunity out there for the small businesses. I will set the record straight with this. Success is not measured in the number of awards a company wins. But rather the mission impact made by leveraging dollars. We should not reward firm state game the system.
▶ 1:49:40Chair Ernst: They push out innovators in the heartland states. I have a hard time justifying to islands that -- iowans that companies I can take this amount of money can still pass as a small business. Those concerns outline why I am pursuing changes.
▶ 1:50:10Chair Ernst: I hope we will have a bipartisan bill that we will be able to move forward. We have been joined by senator young. Do you have questions before we close? >> I do. Thank you so much. I think all of our witnesses for being here.
▶ 1:50:45Chair Ernst: I think it is critical to review this framework. Over the last year or so, I have had the privilege of chairing a commission, the national security commission on emerging biotechnology. One of the topics that will be included in our report to congress in south china is outspending the U.S. when it comes to critical technology.
▶ 1:51:26Chair Ernst: How can the federal government better ensure that funds for this program are translating into material technology and innovation? Especially in the areas that require sustained capital? >> thank you. The only way the U.S. can compete with china it is by leveraging its greatest asset, and that is the private capital market place, the nb of the world.
▶ 1:51:56Chair Ernst: It attracts entrepreneurs here and abroad to want to come build here. The days of the government being able to foot the bill are long gone. The systems and programs and structures we have put in place were predicated on that paradigm. Just going back to 1960, 20 4% of all the r&d expenditure was happening in government labs. Today it is less than 1%.
▶ 1:52:25Chair Ernst: If we are going to compete, we have to get starter -- smarter about how we are leveraging taxpayer dollars. To build technology companies of consequence. Thank you. >> thank you. Your points of emphasis are well received.
▶ 1:52:52Chair Ernst: This is to preserve research and development deductions through the tax code for our small businesses. And frankly for emerging high growth potential businesses. To offer them a tax credit to incentivize early-stage r&d.
▶ 1:53:17Chair Ernst: Do you have additional thoughts on how we can better support tech innovation? And other critical sectors? >> I think what the chair has proposed to provide larger pots of funding for technology of consequence as signaled by the
▶ 1:53:48Chair Ernst: Federal agencies. Similar to what the air force band space for has done. These are the types of signals that help ensure that investors can understand what is really important to the federal agencies by providing additional capital to those agencies. So they can invest in cutting-edge equipment. If we are not building companies that want to scale and grow, they will not be able to meet the needs of americans.
▶ 1:54:19Chair Ernst: >> thank you for that. I want to briefly explore something related to the integration of open topic. My office has been impressed.
▶ 1:54:49Chair Ernst: As we think about ways to support small businesses can you offer any reflections on this topic? >> I believe the open topic is the reason why this is happening today.
▶ 1:55:21Chair Ernst: It is because innovators are building solutions that the department hasn't even imagined. What are the solutions to the problems you did not know you had? Let the entrepreneurial class of america go to work.
▶ 1:55:44Chair Ernst: >> in light of the fact that I have already gone over my time, might I work with you on an ongoing basis to explore ways to expand the scenarios and situations with which open topic proposals can be utilized? >> absolutely. >> great. Thank you.
▶ 1:56:10Chair Ernst: Thank you. Are there any additional questions? With no further questions I want to thank the witnesses for being here today. I ask unanimous consent of the record be left open for two weeks to members to accept questions and remarks and to submit additional information into the record. Without objection, so ordered. With that, we stand adjourned.