Turning an innovative technology into a successful business can be a complicated and arduous process. Fortunately for would-be entrepreneurs, The National Science Foundation has programs in place to help turn dreams into business reality.
Errol Arkilic leads the software and services portfolio of the National Science Foundation (NSF) Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. He is one of ten program managers in the SBIR program at NSF where he focuses on IT and Security Technologies. The NSF supports high-risk innovation research projects in four areas: nano- and advanced materials and manufacturing; bio and chemical technologies; information and communications technologies; and education application.
Before joining NSF in 2003, Arkilic was president and CEO of StrataGent Life Sciences — a venture-backed startup in Silicon Valley. Prior to StrataGent, Arkilic served as president of Phasyn, Inc. (a developer of packaging technologies for optical components) and manager of product engineering at Redwood Microsystems, both in the Bay area. He holds a Ph.D. from the Micro Technology Laboratory at MIT.
BusinessNewsDaily recently spoke with Arkilic about what the NSF does and how it can help small businesses.
BusinessNewsDaily: What can the Small Business Innovation Research program do for a small business?
Errol Arkilic: The SBIR program is the federal government’s single biggest program to support innovation research in small companies. Its sister program, the STTR, is the biggest tech transfer program. They both provide unique sources of equity-free capital that can be applied to mitigate the technical and commercial risk of an innovation project in ways that private sector capital simply cannot.
If used properly, it can be a very powerful tool to get projects off the ground that otherwise would not see the light of day. But, if a company is not disciplined in their approach to the market and doesn’t invest the requisite time and additional resources to build appropriate business partnerships to augment the SBIR/STTR funds, the opportunity to benefit from this taxpayer-supported research can be lost. One of my biggest frustrations is to see an otherwise special opportunity be lost due to lack of focus or discipline.
BND: What do small businesses need to know and do to receive this help?
E.A.: I think the single most important advice I could provide is, “Get to know your potential partner.” The SBIR and STTR programs represent over $2.5 billion in funding across the landscape. But, they are managed independently by each and every federal department or agency that has such programs. The key point: There is no monolithic SBIR or STTR program across the federal government. This is a simultaneous strength and weakness.
The strength is that each department or agency can manage the program according to its specific culture and mission. The weakness is that the subtle but important differences among each agency’s programs present many faces to the community that can and does cause confusion among the class of companies that are eligible to participate in these powerful programs.
BND: Describe the process.
E.A.: The process is subtly different depending on the specific program and I can’t comment across the board. But, at NSF, we accept proposals twice a year for Phase I support — $150,000 and six or 12 months of activity. Phase I is meant to demonstrate technical and commercial feasibility of the effort. And, we accept proposals twice a year for Phase II — $500,000 and up to 24 months of activity.
A company must receive Phase I support before competing for Phase II funding. At NSF, we use external reviewers —trusted members of the industrial, academic and investment communities —who help us with the diligence process. The reviewers basically convey the strengths and weaknesses for each proposal and give us guidance on additional diligence points that need to be covered. Sometimes, the guidance is “don’t spend any more time with this project.”
If the feedback is generally positive, maybe we’ll need to get more visibility on a particular partnership or demonstration of support from a key potential customer. Sometimes we will need to understand elements of the finance strategy moving forward or a demonstration of the buy-in from the team is what is in question. We see the standard basic challenges faced by all early-stage projects. The difference is that we are willing to accept much more ambiguity —and risk —than that which can be accepted by the private sector. In fact, there has to be a risk profile associated with the project that would typically preclude it from receiving more-standard financing.
BND: What are common pitfalls?
E.A.: With respect to the NSF portfolio, I would say that those projects that fail to gain traction are usually the result of a perspective that the effort appears to be a “basic research” project. Or, they are projects for which we can’t readily see a market opportunity. For the companies that do end up receiving SBIR or STTR support from NSF, I see common failure modes associated with too much focus on technology, undisciplined customer-development processes and poor corporate governance. With respect to poor corporate governance, every business entity needs to have proper checks and balances to function well. A good board of directors can provide this oversight. When I see a company that appears to have no or a weak board of directors or, more importantly, a lead entrepreneur or CEO that doesn’t want a board of directors, I get very concerned.
BND: What advice do you have for a small business that wants to take advantage of the NSF SBIR program or STTR program to grow their business?
E.A.: First, get to know the culture of the program. Search through the publicly available information. Try to contact previous recipients. Second, after you are basically up to speed, contact a program director. There are only ten program directors within the NSF SBIR program, and we each support specific domain areas. Send in a two- to three-page executive summary via email with background on the team, the market opportunity, technology and competition and try to get a read from the program director whether or not your vision for an innovation research projects would resonate with NSF.
If the project fails to resonate, think hard about whether to move forward with a full-blown proposal. Preparing a high-quality proposal is very expensive and time-consuming. Third, assuming you get the award, surround yourself with people who have been in similar early-stage situations and, importantly, take their advice. These can be board members, mentors or peers. Moving an innovation project from white board to the market is one of the hardest things in the world to do and there are so, so many failure points. You are going to need a lot of support to pull it off effectively.
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