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JUNE 2, 2000

Getting the Government to Chip In for Your Invention

Agencies offer funds earmarked for small business innovation and research


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Kenneth Wagner and Karl Fant wanted to do away with clocks. Not the kind that hang on walls, but the internal clocks that synchronize the data flow within computer chips. In the early 1990s, the two former Honeywell employees thought that these timing devices slowed the pace of information processing within semiconductors. If they could come up with clockless circuits, they hypothesized, that would allow chipmakers to design faster and more complex chips.

Enter the federal government. In the mid-1990s, Wagner's and Fant's new company, Theseus Logic, now based in Orlando, was trying to raise money for research and development efforts. The inventors convinced government officials in charge of doling out awards to small businesses that their dream technology had potential for military radar systems, miniaturized space systems, and electronic intelligence.

A SERIES OF GRANTS. An intrigued Ballistic Missile Defense Organization, part of the Defense Dept., awarded Theseus Logic an initial $70,000 under its Small Business Innovation Research (SBIR) program, which provides grants to help small companies develop new technology and commercialize products. It later followed up with an additional $750,000. "BMDO makes its funding decisions based on the potential business merit of a technology," says Theseus Executive Vice-President Kenneth M. Wagner. "We were creating a useful technology that the government would be able to use."

The SBIR contract from the ballistic missile folks was not the last. Since then, Theseus has received SBIR awards from the National Security Agency, the National Aeronautics & Space Administration, and the Army's electronics research arm. The nearly $3 million in SBIR contracts enabled the company to leverage private equity. Theseus now has a market capitalization of about $70 million, Wagner says. The company expects to release its first product this summer as part of an alliance with Motorola.

Theseus is one of thousands of small U.S. companies that benefit from this little-known program within the federal government. Under the SBIR program, 11 federal departments and agencies are required to reserve a portion of their research and development funds for small business, defined by the government as having fewer than 500 employees. The Small Business Administration coordinates the program. These agencies make the decision on which projects to fund and devote about 2% of their budgets to the SBIR.

SMALL-BIZ SMARTS. Why so much attention to small business? "When it comes to cutting-edge research, small firms historically have been more willing than large companies to take a risk," says Joseph P. Allen, president of the National Technology Transfer Center, a federally funded center that helps small companies gain access to government R&D.

Last year, the government made 4,000 SBIR grants, and it plans to award about $1 billion in contracts to small businesses this year. The program funds high-risk projects at their earliest stages of development, even before venture-capital firms are interested. What's more, says James A. Rooney, deputy manager of the commercial program at NASA's Jet Propulsion Lab, "the small company retains the intellectual property of any invention. The company would then sell the product to the government as well as in the commercial marketplace."

The program was created in 1982 to stimulate the creation of new innovations to meet existing federal R&D needs. Under the program, an agency will issue an initial award of up to $100,000 for about six months so the company can explore the technical merit of an idea. If the agency is satisfied, it will then issue a contract of up to $750,000 for two years to perform R&D work and to explore the technology's commercialization potential. In a third phase, the developer must raise private money to move the technology into the marketplace.

A small company can come up with an idea, as Theseus did, and apply for a contract. Alternatively, the SBA, as well as each agency, releases requests for proposals for specific R&D it needs and then issues a competitively awarded contract. For instance, the Transportation Dept., on its SBIR Web site, is seeking a company that will perform various vehicle crash tests. These "pre-solicitation announcements" are released quarterly. The announcements, as well as other information on the SBIR program, are available at Obviously, not every company will have a product that's SBIR-eligible. But if yours does, the feds' free money could be an offer you can't refuse.

By Susan Garland


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