Small businesses suffered a stinging defeat in Congress this week, delivered by the one lawmaker who is supposed to be looking out for their interests, House Small Business Committee Chairman Nydia M. Velázquez, D-N.Y.
Velázquez has been quarterbacking the venture capital industry’s efforts to reverse a Small Business Administration policy that prohibits firms substantially owned by venture capital companies from participating in two key conduits for government research grants, the Small Business Innovation Research (SBIR) program and the Small Business Technology Transfer (STTR) program.
For the past two years, she has been the bill’s principal sponsor, and in each case she’s rammed it through the House at lightning speed with little regard for small business concerns. By the time the dust had settled this time, the House of Representatives had overwhelmingly approved the bill (368-43). The measure all but eliminates "small business" from the programs, according to the National Small Business Association (NSBA).
The NSBA is one of several small business groups that have been pitted against the Biotech Industry Organization (BIO), the National Venture Capital Association (NVCA), and other groups in the five-year battle over the SBA policy. Indeed, the stakes are high. More than $10 billion has been funneled through the two programs since their inception in 1982.
The whole intent of the programs is to make sure small, independent R&D firms have a shot at government grants. In keeping with the landmark 1958 Small Business Act, which created the SBA, the SBIR and STTR are only supposed to be open to "independently owned" firms with fewer than 500 employees.
The programs operated with relatively little controversy until the SBA revised its eligibility policy in 2003. It began excluding firms from competing for grants if they were substantially owned by venture capital companies. As part of the policy shift, the SBA started counting VC company employees and the employees of the firms they controlled toward the 500-employee threshold. The fight was on.
While Republicans controlled Congress, the biotech and VC industry made little headway. But after Democrats took over in 2006, the playing field began to tilt. Small businesses suddenly proved to be no match against a team stacked with heavyweights like Abbott Laboratories, Pfizer, Merck, Monsanto, Bristol-Myers Squibb, Amgen, Eli Lilly, Schering-Plough, GlaxoSmithKline, and other multinational pharmaceutical companies. All, of course, are major campaign contributors.
The most recent effort is a case study of how Velázquez has thrown the game to big pharma, through the BIO. Out of three hearings on the bill since January, 10 of the 16 witnesses had ties to biotech and/or venture capital interests, two had general biotech backgrounds, and the rest were government officials. No one spoke on behalf of small businesses, according to Rick Shindell, who writes a newsletter on the SBIR program.
"Nobody was asked (or allowed) to give testimony in any of the three hearings contrary to the word of BIO and NVCA. In communication with House [small business committee] staffers, the subject of alternatives to VC was ‘off limits.’ Some small Maryland-based biotech companies wanted to make their side known, but were rebuffed by the committee. They then tried to go through their Congressman [and House Majority Leader], Steny Hoyer, D-Md., but to no avail," Shindell wrote.