National Academy Warns: Ban on Venture Capital Funding Hurts Innovation A committee of the National Academy of Sciences is urging Congress to consider permitting venture capital-backed companies to receive funding through the Small Business Innovation Research program. SBA’s decision to exclude firms controlled by VC investors “appear[s] to disproportionately affect some of the most commercially promising small innovative firms” in the biomedical field, the Academy’s National Research Council said. Whether to allow venture capital participation is the sticking point that has delayed reauthorization of the SBIR program, which enjoys broad support in Congress, industry and the academic community. SBA ruled in 2002 that SBIR funds could go only to small businesses that are at least 51% owned and controlled by one or more individual U.S. citizens. It said venture firms, pension funds and corporate entities were not “individuals.” The National Research Council said the ruling has excluded from 4% to 12% of companies that had previously received SBIR funds from the National Institutes of Health. “While the evidence is narrowly based and is by no means precise, it does also suggest that the impact of the ruling falls disproportionately on the most promising firms—i.e., those firms that have repeatedly been selected by both NIH for their promising technologies and by venture investors for their commercial potential,” the Council said. Some small business advocates have argued that giving SBIR money to VC-controlled firms violates the purpose of the program, which is designed to support research and development by small companies. They say VC investors such as banks and other large corporations would receive funds that were intended to help small businesses grow. The House passed legislation last year that would make VC firms eligible, but the Senate did not act. Bipartisan leaders of the Senate Small Business Committee, Chair Mary Landrieu, D-LA, and Ranking Member Olympia J. Snowe, R-ME, said they plan to approve an SBIR reauthorization bill by July 31. They said the National Academy study is “another source of information to consider.”