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WisBusiness: Exec says proposed changes to SBIR program would hurt innovation

By Brian E. Clark
For WisBusiness.com

Nascent, high-risk companies are in danger of being squeezed out of federal funding under proposed changes to the Small Business Innovation Research program, a Racine start-up executive charged Wednesday.

Speaking at the closing luncheon of the national SBIR conference in Madison, Jonathan Pearl, president and chief scientist for Perceptral, said he was dismayed by some of the aspects of a bill now in Congress to reauthorize the $2.5 billion SBIR program.

Pearl said he was particularly upset by the prospect of Phase I grants worth $100,000 for new companies disappearing in favor of awarding fewer Phase II grants worth around $1 million to slightly older firms.

“If we don’t ensure that these relatively small dollar awards continue, in a short time the SBIR program will be dead,” he warned.

Edsel Brown, assistant director of the Office of Technology at the Small Business Administration told Pearl that he and others who agree with him need to make their opinions known to legislators.

“It’s the squeaky door that gets oiled,” he said.

The SBIR gathering, held at Monona Terrace, drew more than 600 people over its three-day run.

In a later interview, Pearl, whose sound technology was founded in 2008, praised SBIR efforts to aid new companies and said they had been “extremely successful for more than a quarter century.

Perceptral now has seven employees. It is a multiple SBIR award winner, currently engaged in research and development projects for the U.S. Navy.

“And what SBIR does really well is take high-risk, high reward ideas from the earliest stages and gives an independent researcher or a small business a chance to prove it out,” Pearl said.

He said Phase 1 grants have typically been for individuals to do feasibility studies. They typically run for six months and are worth up to $100,000.

“That attracts a lot of independent researchers who have an idea they want to test,” he said. “But the only way they can quit their day job, so to speak, or hire a consultant, is to give them a little bit of cash.’

He said few venture capital firms will invest in such entrepreneurs who have untested ideas.

“They are looking to return ten times their investment,” said Pearl, who earned his Ph.D. from the University of California, Santa Barbara in 2005 in music and cognitive science. He followed that up with post-doctoral work in linguistics.

“So I’m an oddball,” he said.

He decided to get involved in speech technology, but none of the big firms were interested in hiring him because he did not have the training or degrees they thought were necessary.

“In other words, I was innovative,” he said. “I was not following the same track that had been followed for decades.”

Pearl said he believes there are thousands of would-be entrepreneurs like him who are interested in “this, that and another thing. They can make connections that someone at AT&T, Google, Johnson & Johnson or Raytheon is not going to make.

“They are good at what they do, but they might miss the mark at trying something completely different.”

Pearl said what the SBIR program does “particularly well is allow someone like me to take six months or a year to see if I can prove to them that my idea is sound.”

At the end of that period, an individual or company can compete for Phase II awards of about $1 million, which he said is enough to hire a handful of employees.

“That allowed me to go from being a lone researcher in my house with three kids interrupting me to having an office in a building in Racine with a small staff,” he said.

Pearl said several congressmen are pushing a plan that would bypass Phase 1 grants to fund companies that had already done feasibility studies.

“What that would mean is they won’t be funding as many people whose ideas have not been tested,” he said.

“That’s a bad idea because other than having a rich uncle, these Phase 1 grants are the only source of funding for someone who isn’t independently wealthy to take an idea and test it out for six months or a year.

“And it’s from those ideas that we will have great innovation,” he said. “Really game-changing gains in technology.

“This has been proven time and time again. Companies that win SBIR awards are more effective in producing patents and commercializing ideas than universities and large businesses.”

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