Exploring SBA Programs: Reviewing the SBIC and SBIR Programs' Impact on Small Businesses (House Small Business subcommittee hearing, April 16, 2024)

Summary

Transcript of the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access hearing Exploring SBA Programs: Reviewing the SBIC and SBIR Programs' Impact on Small Businesses, on April 16, 2024, published as Small Business Committee Document Number 118–047. Subcommittee Chairman Dan Meuser presided, and Representative Greg Landsman gave the minority opening statement. Witnesses were Angelo Valletta of Ben Franklin Technology Partners of Northeastern PA, Amanda Bresler of PW Communications, Brett Palmer of the Small Business Investor Alliance, and Jere W. Glover of the Small Business Technology Council. The appendix adds a letter from MITO Material Solutions. The subcommittee met at 10:12 a.m. and adjourned at 11:21 a.m.

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“Exploring SBA Programs: Reviewing the SBIC and SBIR Programs' Impact on Small Businesses (House Small Business subcommittee hearing, April 16, 2024).” Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/exploring-sba-programs-reviewing-the-sbic-and-sbir-programs-impact-on-20b22b0649/, SHA-256 2ce680659ae58ae2b04690cee8767a5760510e5371303c1aafc17906385b9156.

Full text

EXPLORING SBA PROGRAMS: REVIEWING THE
SBIC AND SBIR PROGRAMS’ IMPACT ON SMALL
BUSINESSES

HEARING
BEFORE THE

SUBCOMMITTEE ON ECONOMIC GROWTH,
TAX, AND CAPITAL ACCESS
OF THE

COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION

HEARING HELD
APRIL 16, 2024

Small Business Committee Document Number 118–047
Available via the GPO Website: www.govinfo.gov

U.S. GOVERNMENT PUBLISHING OFFICE
55–251 WASHINGTON : 2024
HOUSE COMMITTEE ON SMALL BUSINESS
ROGER WILLIAMS, Texas, Chairman
BLAINE LUETKEMEYER, Missouri
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
BETH VAN DUYNE, Texas
MARIA SALAZAR, Florida
TRACEY MANN, Kansas
JAKE ELLZEY, Texas
MARC MOLINARO, New York
MARK ALFORD, Missouri
ELI CRANE, Arizona
AARON BEAN, Florida
WESLEY HUNT, Texas
NICK LALOTA, New York
CELESTE MALOY, Utah
NYDIA VELÁZQUEZ, New York, Ranking Member
JARED GOLDEN, Maine
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
GREG LANDSMAN, Ohio
MARIE GLUESENKAMP PEREZ, Washington
SHRI THANEDAR, Michigan
MORGAN MCGARVEY, Kentucky
HILLARY SCHOLTEN, Michigan
JUDY CHU, California
SHARICE DAVIDS, Kansas
CHRIS PAPPAS, New Hampshire

BEN JOHNSON, Majority Staff Director
MELISSA JUNG, Minority Staff Director

(II)
CONTENTS
OPENING STATEMENTS
Page
Hon. Dan Meuser ..................................................................................................... 1
Hon. Greg Landsman .............................................................................................. 3

WITNESSES
Mr. Angelo Valletta, President and Chief Executive Officer, Ben Franklin
Technology Partners of Northeastern PA, Bethlehem, PA ............................... 6
Ms. Amanda Bresler, Chief Strategy Officer, PW Communications, Rockville,
MD ......................................................................................................................... 7
Mr. Brett Palmer, President, Small Business Investor Alliance, Washington,
DC .......................................................................................................................... 9
Mr. Jere W. Glover, Executive Director, Small Business Technology Council,
Annapolis, MD ...................................................................................................... 11

APPENDIX
Prepared Statements:
Mr. Angelo Valletta, President and Chief Executive Officer, Ben Franklin
Technology Partners of Northeastern PA, Bethlehem, PA ........................ 24
Ms. Amanda Bresler, Chief Strategy Officer, PW Communications, Rock-
ville, MD ........................................................................................................ 45
Mr. Brett Palmer, President, Small Business Investor Alliance, Wash-
ington, DC ..................................................................................................... 36
Mr. Jere W. Glover, Executive Director, Small Business Technology Coun-
cil, Annapolis, MD ......................................................................................... 165
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
MITO Material Solutions Letter ..................................................................... 182

(III)
EXPLORING SBA PROGRAMS: REVIEWING THE
SBIC AND SBIR PROGRAMS’ IMPACT ON
SMALL BUSINESSES

TUESDAY, APRIL 16, 2024

HOUSE OF REPRESENTATIVES,
COMMITTEE ON SMALL BUSINESS,
SUBCOMMITTEE ON ECONOMIC GROWTH,
TAX, AND CAPITAL ACCESS,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:12 a.m., in Room
2360, Rayburn House Office Building, Hon. Daniel Meuser [chair-
man of the Subcommittee] presiding.
Present: Representatives Williams, Meuser, Landsman, Chu, and
Davids.
Chairman MEUSER. Okay. Ladies and gentlemen, we are ready
to get going in our Small Business Committee hearing.
Before we bang the gavel and being our proceedings, I want to
recognize the Chairman of the full committee, Roger Williams, to
lead us in the pledge and the prayer.
Mr. WILLIAMS. Please rise.
Heavenly Father, God of all people, thank you for allowing us to
be here today to do what we can to preserve the greatest country
in the world we love to call the United States of America. Let us
remind of the Book of Romans. It says we all bring different things
to the table. We all have opportunities to do great things, put it
together and make it work. But you have to come to the table. I
hope we do that today. In your name, we pray. Amen. Join me in
the pledge.
I pledge allegiance to the flag of the United States of America
and to the Republic for which it stands, one nation under God, in-
divisible, with liberty and justice for all.
Chairman MEUSER. Thank you, Mr. Chairman.
So, good morning, everyone. We now call the Committee on
Small Business to order.
Without objection, the Chair is authorized to declare a recess of
the committee at any time.
I now recognize myself for my opening statement.
Again, we want to welcome everyone to today’s hearing, includ-
ing the Ranking Member. And, first, I do want to thank our wit-
nesses for joining us here today. Your time is very much appre-
ciated, and we look forward to your testimonies.
Today, our committee, the Subcommittee on Economic Growth,
Tax, and Capital Access, will focus on the current function and fu-
(1)
2

ture of the both the SBIC and SBIR programs. Unlike large cor-
porations, small businesses don’t share the luxury of utilizing debt
and equity markets for financing. Main street is instead forced to
bridge the funding gap and utilize resources like SBIC programs
where federal funding is matched with experienced private inves-
tors at no risk to the American taxpayer.
An SBIC is a privately owned company that is licensed and regu-
lated by the SBA. SBIC has raised capital to invest in small busi-
nesses in the form of debt and equity. The SBA doesn’t invest di-
rectly into small businesses, but it does provide matching funds in
the form of loans to qualify at SBICs with expertise in certain sec-
tors or industries. Those SBICs then use their private funds, along
with the SBA guaranteed loan, to invest in small businesses.
Through the SBIR and STTR programs, main street is also given
the ability to develop and commercialize new products from both
government and private sector. For example, SBIR works by infus-
ing federal R&D dollars in phases to small businesses, developing
new ideas that align with the needs of the federal agency.
Federal agencies can offer SBIR and STTR awards by either re-
questing a product that meets specific requirements or by an open
topic in which small businesses propose innovative solutions to
meet an agency’s mission. The flexibility of open topics allows small
businesses to propose new solutions that help agencies meet their
mission.
The access to and utilization of these two programs is essential
to helping many small businesses navigate economic challenges set
upon them by Bidenomics and some what one might describe as
wasteful, excessive government spending. As we know, it is more
expensive than ever to do business because of high interest rates,
persistent inflation, and newly proposed banking regulations, such
as Basel III, which have forced banks, as we speak, of all sizes to
tighten commercial lending standards.
In order to ensure small businesses have continued access to cap-
ital, this committee must work to reauthorize the SBIR and STTR
programs expiring at the end of next September. Our first duty is
to address challenges within the program and explore various solu-
tions that were left on the table during the program’s last reau-
thorization.
As leading voices for main street, it is our job to work to ensure
our nation’s job creators have an economic and regulatory environ-
ment they cannot only survive but thrive in. Reauthorization is
crucial but not without necessary adjustments regarding flaws, like
the current CCP infiltration into the SBIR program.
During 2022 SBIR and STTR reauthorization, Democrats did not
consider the threat China posed in the SBIR, STTR as a serious
concern. Republicans successfully fought to combat Chinese infil-
tration by requiring agencies to develop a due diligence program.
While this program has since assessed security risks, Congress has
an opportunity to address weaknesses in the due diligence efforts
as their effectiveness is further evaluated.
As we look to the future of the SBIC and the SBIR and STTR
programs, one thing remains abundantly clear: We must continue
to fight for main street and work to empower our job creators with
commonsense, regulatory relief, and reliable methods of access to
3

capital. These businesses, especially those developing innovative
products for federal agencies, work to advance everything from our
national security to our education system. We rely on them and
their innovation to ensure the U.S. remains a global leader for
products across the board. Prioritizing their success and contin-
ually motivating their output is essential to America’s continued
advancement.
With that, I will now yield to our Ranking Member, Mr.
Landsman.
Mr. LANDSMAN. Thank you, Mr. Chair, and thank you for hold-
ing this very important hearing.
And thank you to all of our guests for being here. Your time is
very important, and we truly appreciate your perspective and ad-
vice.
The hearing really couldn’t have come at a better time. We are
seeing a record surge in new startup activity, and it is happening
at this really important point in our nation’s history. We are work-
ing, as the Chair said, to evaluate, reevaluate, in some instances,
the role of our startups in the global supply chain and the way in
which we source products that are critical to our economy and our
national security.
We all know that innovation is a catalyst for economic growth
and resilience, and oftentimes the most innovative ideas come from
our startup communities. However, these startups often struggle to
grow their ideas and be part of the economy because they just don’t
have the capital that they need. It takes time and money to turn
their innovations into real products.
To help, we have prioritized investing in these new startups
through important programs at the SBA. The SBA’s office of invest-
ment and innovation houses two of these programs that we are
talking about, the SBIC and the SBIR. Together, these programs
help startups research and develop new products and help high-
growth companies and disadvantaged communities access private
equity capital to grow and scale their businesses.
Let’s start with the SBIR program, which creates this partner-
ship between federal agencies and startups to develop technologies
to support our economy and national security. This program uses
a small percentage of research and development spending through
highly competitive grants. This program has helped startup busi-
nesses like 23andMe, Sonicare, LASIK, and could bring many more
promising ideas to the marketplace.
In the fiscal year 2020 alone, these programs backed more than
4,000 small businesses and 7,200 projects. But developing tech-
nology is only the first step as many businesses with great prod-
ucts face other reasonable barriers to funding. That is why Con-
gress created the SBIC program in 1958 to enhance small business
access to patient capital.
Under this program, the SBA works with and licenses private in-
stitutions to provide financing to small, high-growth companies. In
the past, these investments have acted, believe it or not, as a life-
line to firms that have changed the course of history, companies
like Apple, Costco, Federal Express, and Intel. Now there are over
300 SBICs. In 2023, they provided $8 billion to over 1,200 startups.
This helped create and keep more than 130,000 jobs.
4

Despite the overwhelming success of these programs, some mod-
ernizations need to be made. Just last year, the SBA finalized the
SBIC investment diversification and growth rule. The rule updated
the program and created two new types of SBICs to create greater
flexibility in investment repayment opportunities for firms that
may not have fit under the traditional rules.
We are also just over a year away from another reauthorization
of the SBIR program. It is my hope that we work together in a bi-
partisan fashion to address gaps in the program like better serving
women and minority owned businesses that have unfortunately
been left out of the program in the past.
Once again, I would like to thank the Chairman for holding these
hearings, as well as the witnesses for being here today. I look for-
ward to a productive conversation about the state of these pro-
grams and hearing ideas to strengthen them, and I yield back.
Chairman MEUSER. Ranking Member yields back.
I now recognize the Chairman of the full committee from the
great State of Texas, Chairman Roger Williams, for an opening
statement.
Mr. WILLIAMS. Well, thank you, Mr. Chairman.
And good morning to everyone here today. I want to thank
Chairman Meuser for holding today’s subcommittee hearing that
will examine the impact and effectiveness of the SBIC and the
SBIR programs.
Main street. Main street is faced with a continuing disadvantage
when it comes to accessing capital. With burdens and regulations
and high interest rates, banks are being forced to tighten their
lending standards, and when this happens, small businesses are
often the ones forced to pay the higher price to much needed funds.
This is where the SBA steps up to fill these gaps. Through the
SBIC and the SBIR programs, main street is able to access funds
that will help them grow and expand their operations. These pro-
grams have proven to be successful for a wide variety of businesses
in almost every industry.
As the authorizing committee of both of these programs, it is our
duty to evaluate what is working and what could be done better
to ensure that they are helping as many entrepreneurs as possible.
I am looking forward to hearing directly from our witnesses today
and appreciate all of them being here so we can learn from their
firsthand experiences in navigating the SBIC and the SBIR pro-
grams. So I want to thank all of our witnesses for being here, for
coming here on your own time, and to be with us.
And, with that, I yield back the balance of my time.
Chairman MEUSER. Thank you, Chairman.
I will now introduce our witnesses. Our first witness here with
us today is Mr. Angelo Valletta. Mr. Valletta is the president and
CEO of Ben Franklin Technology Partners of Northeastern Penn-
sylvania—I know that neck of the woods a little bit—located in
Bethlehem, Pennsylvania. Since 2021, Mr. Valletta has been with
Ben Franklin Technology Partners of Northeastern Pennsylvania,
which provides investment capital and business support services to
both technology startups and established manufacturers.
Prior to his current position, Mr. Valletta held several executive
leadership roles at FIS Global, one of the largest fintechs in the
5

world. He also served as senior vice president and chief bank oper-
ations and information officer at Sun National Bank. Mr. Valletta
earned his bachelor of business administration from the Fox School
of Business at Temple University before going onto his master of
business administration from Philadelphia university.
Thank you for joining us here today.
Mr. VALLETTA. Thank you, Mr. Chairman.
Chairman MEUSER. Our next witness is Ms. Amanda Bresler.
Ms. Bresler is the chief strategy officer of PW Communications, lo-
cated in Rockville, Maryland. PW Communications provides full-
service proposal preparation, contract performance, and strategic
business development support to companies. At PW Communica-
tions, Ms. Bresler has used government data to analyze the impact
of federal procurement programs, including SBIR on small busi-
nesses.
Ms. Bresler currently serves as the global board of directors for
AlmaLinks, a global community that connects Jewish CEOs, found-
ers, and seasoned executives to business leaders from Israel and
around the world. Ms. Bresler attended the Georgetown University
McDonough School of Business, from which she earned her degree
in marketing.
Thank you for joining us here today.
Our next witness with us is Mr. Brett Palmer. Mr. Palmer is the
president of the SBIC Alliance, Small Business Investor Alliance,
located here in Washington. For over 15 years, Mr. Palmer has
served as president of the Small Business Investor Alliance, which
does represent a variety of funds investing in American private
small businesses, including the SBIC companies and private equity
funds.
Prior to his current position, Mr. Palmer was managing director
of government relations for the National Association of Insurance
Commissioners, as well as an Assistant Secretary of Legislative
and Government Affairs and Deputy Assistant Secretary for Trade
Legislation in the U.S. Department of Commerce. Mr. Palmer was
recently appointed to the Small Business Administration’s Invest-
ment Capital Advisory Committee. Mr. Palmer earned his degree
in history from Davidson College.
Thank you very much for joining us today.
I now recognize the Ranking Member from Ohio, Mr. Landsman,
to briefly—you don’t have to be so brief—but introduce our last wit-
ness appearing before us today.
Mr. LANDSMAN. Thank you, Mr. Chairman.
Our final witness today is Mr. Jere Glover, the executive director
of the Small Business Technology Council, SBTC, a trade associa-
tion of small, high-tech companies, most of whom are involved in
the Small Business Innovation Research, or SBIR, Program. Mr.
Glover is considered one of the fathers of the SBIR program. As
counsel to the House Small Business Committee, he directed and
organized a set of hearings on small business and innovation that
led the groundwork for the program in 1978. Throughout the law’s
existence, he has been one of its most active supporters.
Mr. Glover has a unique blend of public and private sector expe-
rience. For more than 6 years, he was the federal government’s
lead defender of small businesses in the regulatory process in the
6

private sector. He has been the CEO or principal of a biotech com-
pany, a medical technology company, and a group of medical clin-
ics. He obtained his undergraduate and law degrees from the Uni-
versity of Memphis and an LLM in administrative law and eco-
nomic regulation from George Washington University.
Thank you, Mr. Glover. We look forward to your testimony.
Chairman MEUSER. Well, before recognizing the witnesses for
your opening statements, I would like to remind you all that your
oral testimony is restricted to 5 minutes in length. If you see the
light turn red in front of you, it means your 5 minutes have con-
cluded and you should wrap up your testimony. If you start hear-
ing this, it means you should really consider wrapping it up, be-
cause I don’t want to have to wrap this too hard, all right.
I do now recognize Mr. Valletta for his 5-minute opening re-
marks.
STATEMENTS OF ANGELO VALLETTA, PRESIDENT AND CEO,
BEN FRANKLIN TECHNOLOGY PARTNERS OF NORTH-
EASTERN PENNSYLVANIA; AMANDA BRESLER, CHIEF STRAT-
EGY OFFICER, PW COMMUNICATIONS; BRETT PALMER,
PRESIDENT, SMALL BUSINESS INVESTOR ALLIANCE (SBIA);
AND JERE W. GLOVER, EXECUTIVE DIRECTOR, SMALL BUSI-
NESS TECHNOLOGY COUNCIL (SBTC).

STATEMENT OF ANGELO VALLETTA
Mr. VALLETTA. Good morning, Chairman Williams, Chairman
Meuser, and the esteemed Members of the subcommittee. I am An-
gelo Valletta, president and CEO of Ben Franklin of Northeastern
Pennsylvania and Chair of the Ben Franklin Technology Partners.
I am honored to be here today to testify today about the SBIR and
SBIC programs’ impact.
Ben Franklin has been investing in supporting early-stage, tech-
nology-focused startups, innovative manufacturers, and technology
incubators for over 40 years and generates $4 for every $1 invested
and has supported SBIR and SBIC programs for many years. These
programs are often referred to as America’s seed fund. These pro-
grams are a valuable source of capital to help small businesses
commercialize research into useful, launchable products and serv-
ices.
Ben Franklin has supported these companies through our state-
wide program called Innovation Partnership, IPart for short. Penn-
sylvania companies have been successful in leveraging SBIR pro-
grams with PA ranking seventh among participating States. PA’s
IPart assists primarily first-time SBIR applicants and has a 28-per-
cent success rate versus the national average of 18 percent. Our re-
lationship with SBIC program is program in partnership with li-
censed SBIC firms. We have invested in SBICs, evaluated SBIC li-
censes, and leveraged separate for-profit funds.
Regulations have limited the use of the SBIC program for early-
stage investments. We believe the SBIR and SBIC programs are
valuable resources to grow small businesses that translate into
highly paid sustainable jobs for the communities that we serve.
SBICs use a rigorous analysis of managers’ backgrounds and in-
vesting experience and an evaluation of the fund’s investment the-
7

sis, strategy, and structure. The application process to secure an
SBIC license can be lengthy and difficult, but it has many benefits.
Pennsylvania’s SBICs have invested in 84 PA companies in the last
15 years. Of these investments, 81 were at mezzanine, debt, pri-
vate equity, or other later-stage capital facilities, but only three
deals by the same investor were in early-stage funds.
Last year, SBA overhauled aspects of the SBIC capital regula-
tions. SBA made several positive revisions to renew the approval
process for new SBIC applicants, such as expanding capital, consid-
ering the fund’s management team’s expertise in capital activity,
are open to smaller SBIC investments, and, finally, have lowered
its fees and streamlined the committee review for newer program
applicants. These positive reforms are significant improvements to
the SBIC program, and as such, Ben Franklin is considering an
SBIC license for its GO PA Fund.
Ben Franklin is happy to see SBA implementing the alternative
funding structures to supply additional capital for early-stage in-
dexing. However, several hurdles remain: SBICs are required to be
for-profit; the size of over 3 million can still be a challenge; and,
finally, the limitation of leverageable capital could be better de-
fined.
SBIR and STTR programs are referred to as the nation’s largest
source of early-stage, high-risk funding for startups and small busi-
nesses. Again, PA ranking seventh in the amount of SBIRs award-
ed annually—in the last 5 years, over 1,200 companies receive
Phase I and Phase II awards, totaling nearly $850 million in fund-
ing, and the Ben Franklin network investing in nearly 25 percent
of them, with 27 invested by our IPart program.
There is merit to having the SBIR and STTR awards distributed
by a rigorous proposal process, but there is some room for improve-
ment. With over 20 years of assisting small businesses seeking
awards, IPart assists many clients submitting proposals for fund-
ing. SBIR and STTR agencies could require a similar preliminary,
Phase I, presubmission, project-focused document for agency-spe-
cific vetting and could be standardized to streamline the applica-
tion experience and to avoid duplicate proposal submission.
Furthermore, SBA could coordinate solicitation registration re-
quirements and timing of feedback for a single information channel
that would significantly enhance the experience of companies seek-
ing awards, increase the number of companies seeking SBIR and
STTR awards, and would likely improve the submissions’ quality.
I thank you for your time, and I look forward to your questions.
Chairman MEUSER. Thank you very much.
We now recognize Ms. Bresler for her 5-minute opening remarks.
STATEMENT OF AMANDA BRESLER
Ms. BRESLER. Chairman Williams, Chairman Meuser, Ranking
Member Landsman, and Members of the subcommittee, thank you
for the opportunity to testify today. My name is Amanda Bresler,
and I am the chief strategy officer for PW Communications. My
firm has won SBIR awards from the Department of Defense, and
I have published five independent research papers analyzing the
impact of federal procurement policies, including the SBIR pro-
gram, on small businesses.
8

The SBIR program is marketed as a way for innovative small
businesses to break into the public sector, yet most SBIR funding
goes to existing government contractors. Task a group of the
world’s most accomplished entrepreneurs with identifying and re-
sponding to a Phase I, and you will understand why. The process
is so arcane that, irrespective of IQ or business acumen, it is nearly
impossible for an outsider to navigate.
Many small businesses forego SBIR entirely. Others hire SBIR
advisory firms to manage the process in exchange for a percentage
of the award funding. It is also why a handful of companies win
the lion’s share of SBIRs. A recent GAO report showed that a mere
22 companies, less than 1 percent of all SBIR participants, won
more than $3 billion in SBIR funding between 2011 and 2020,
roughly 10 percent of the entire SBIR budget.
The program is designated for small businesses, yet some of
these entrenched SBIR companies generate hundreds of millions in
government contracting revenue annually, and some are even pub-
licly traded. Both we and the GAO found that these entrenched
SBIR companies don’t necessarily transition at higher rates. One
firm we analyzed won over $320 million in Phase I/Phase II fund-
ing and has generated only $10 million in Phase IIIs.
The SBIR program isn’t held accountable for meeting explicit
intragovernmental transition goals. So these large SBIR companies
that understand the system aren’t incentivized to transition; they
are incentivized to pursue more SBIRs. However, for the truly
small companies that do manage to break into the program, it is
often with the expectation that good performance will translate
into follow-on government contracts. Yet the program rarely posi-
tions them for success in the broader federal market. They don’t re-
ceive the resources or guidance needed to identify transition part-
ners.
Sam.Gov is poorly designed and has archaic search functionality.
It only searches for exact terms within the title and description
fields, not the attachments, which is where government stake-
holders often outline their needs.
In 2021, we analyzed the readability of over 1 million archived
solicitations, and less than 4 percent were written in plain English,
meaning small companies can’t even wrap their heads around what
the government is looking for. Similarly, 70 percent of the analyzed
solicitations required responses within 21 days of when they were
posted, and 30 percent within 10 days or less.
Ultimately, the only way for most small SBIR companies to win
follow-on contracts is if they pay to play. Compounding this chal-
lenge, government stakeholders rarely receive information about
the SBIR-funded projects within their branch, let alone what is
being funded externally. You can’t expect capabilities to transition
if prospective transition partners don’t know they exist.
To address these issues, I offer the following recommendations:
Overhaul the SBIR submission process so that small, nontradi-
tional companies can compete. Mandate that a share of Phase Is
be awarded to companies with no prior government business.
If the SBIR program is intended to serve small businesses, eligi-
ble companies should be small. Limit the SBIR program to compa-
nies with $40 million or less in total annual revenue. Make it easi-
9

er to identify and bid on government contracts. Redesign Sam.Gov,
improve its search functionality, require solicitations to be written
clearly, and give companies at least 30 days to respond.
Prioritize and incentivize transition. Mandate that SBIR must
meet minimum intragovernmental transition goals. Establish a set-
aside program requiring government stakeholders and prime con-
tractors to allocate a share of contract dollars annually to SBIR
companies who pass a rigorous assessment of technical merit at the
end of their Phase II. Provide greater incentives for integrating ca-
pabilities initially funded by a different branch. These rec-
ommendations stand to benefit small businesses and government.
They will make the program more open and competitive, and en-
courage wider adoption of SBIR-funded capabilities.
Thank you again, Chairman Williams, Chairman Meuser, Rank-
ing Member Landsman, and Members of the subcommittee, for the
opportunity to speak.
Chairman MEUSER. Thank you very much.
We now recognize Mr. Palmer for his 5-minute opening remarks.
STATEMENT OF BRETT PALMER
Mr. PALMER. Good morning, Chairman Meuser, Chairman Wil-
liams, Ranking Member Landsman, and Members of the com-
mittee. Thank you for the opportunity to testify today. My name is
Brett Palmer. I am president of the Small Business Investor Alli-
ance. Since 1958, SBIA has been the champion of small business
investment companies, America’s original venture capital and pri-
vate equity funds.
Our association’s purpose is to support the entire small business
investing ecosystem, and our policy goals are focused on maintain-
ing a robust, healthy, and competitive market. Our Members help
small businesses grow, and they are rightly proud of what they do
and how they do it, and they are proud of the benefits that their
actions have on the people and their communities where their busi-
nesses are located.
SBICs are an American success story, an example of successful
public policy that aligns the power of private markets with the
public interest of job creation, economic growth, and global com-
petitiveness. Over the years, SBICs have made over 200,000 invest-
ments, totaling over $130 billion, creating millions of American
jobs. And SBICs provide many types of capital, including growth
equity, minority equity, control equity, mezzanine and private debt,
as well as some venture capital and venture lending, and more of
that is coming.
SBIC investments are often the first institutional capital to ever
be deployed into the small business. Further, once SBIC capital is
invested into a small business, then the small business is able to
access more conventional bank capital. Small businesses that re-
ceive SBIC investments have grown into icons of American indus-
try, including Federal Express, Apple, Intel, Callaway Golf, and
many others.
While these are known globally, many more that were backed by
SBICs have grown from smaller businesses into robust, sustain-
able, midsize businesses. For example, Drug Free Sport Inter-
national, based in Kansas City, Missouri, they provide drug-testing
10

services that keep athletics fair and safe. Their employment grew
242 percent after the SBIC investment, with their sales growing by
143 percent.
JSI Manufacturers, in Milo, Maine, they sell grocery store dis-
plays. They doubled their employment to over 200 employees in a
town with a population of around 2,000. Hart Systems in
Hauppauge, Long Island, a provider of inventory management sys-
tems, they increased their employment 77 percent from 69 to 122.
And Behavioral Innovation Systems in Dallas, Texas, was founded
by three clinicians, two of whom were women. They provide ther-
apy to children with autism, and they now help thousands of chil-
dren across Texas, Oklahoma, and Colorado, and now have over
2,000 employees.
The SBIC Program is a private capital amplifier. Most SBICs are
leveraged funds, which means those SBICs are able to borrow
money from an SBA credit facility. The private sector leads, and
the SBIC leverage follows and amplifies. Individual SBICs can re-
inforce their private capital with up to two tiers of leverage or $175
million in capital, whichever is less. And I want to stress, this le-
verage is provided at zero subsidy to the taxpayer, and SBICs pay
it all back plus interest and fees.
For all companies, small businesses in particular, access to cap-
ital often determines success or failure. And the private capital
markets are tight right now, and they are particularly tight for
small businesses due to higher interest rates, and SBICs are filling
some of the capital gaps with record investments that have been—
that we have done in recent years.
SBA has made several recent major reforms and has several ini-
tiatives to increase equity capital and to diversify the type of inves-
tors that can become SBICs. Further, SBA recently announced the
Critical Technologies Initiative, which is a partnership with the
Department of Defense. This is using SBICs to increase invest-
ments in small businesses in critical national security industries
and supply chains, not necessarily government contracting, just
businesses that—industries we want here.
Now, there is several policies that we encourage Congress to sup-
port, and the first one I am going to actually thank you all for vot-
ing for, because everyone here did vote for it. You voted for the In-
vesting in Main Street Act, which passed the House with over-
whelming bipartisan support earlier this year. That was led by
Representative Chu and Garbarino, and we are working on that in
the Senate now.
We also strongly support H.R. 5333, the Investing in All of Amer-
ica Act. This is also bipartisan legislation introduced by Chairman
Meuser and Skelton, and many Members of this subcommittee are
cosponsors. If passed into law, it will bring more private capital
into parts of America that are often overlooked and with some of
the following benefits: There is no new spending. There is no new
mandates, no new subsidies, no subsidies at all, in fact. It is mar-
ket-led and market-driven. 100 percent of the investments are in
American small businesses. It encourages investments in low-in-
come areas, rural areas, and areas of national security importance,
and the inflation adjustment allows the program to remain com-
11

petitive and operational as inflation marches on and time marches
on.
So, today, there are nearly 320 SBIC licenses managing over $42
billion in domestic investment. This is extremely strong and getting
stronger. There are currently 94 licensed applications that are in
the licensing pipeline. To put that in context, SBA normally li-
censes in a normal year 25 to 28 licenses, and there are 94 in the
pipeline coming through. The demand for small business capital is
there, and the market is following it. That is about $15 billion to
$20 billion of additional small business investment that is coming
online in the next couple years once those get through the licensing
process.
So I want to thank the Chairman for having this hearing.
Thank you, the Ranking Member, for being here as well, and the
full Chairman for joining us for this hearing. Thank you. Happy to
take your questions.
Chairman MEUSER. Thank you very much, Mr. Palmer.
We now recognize Mr. Glover for his 5-minute opening remarks.

STATEMENT OF JERE W. GLOVER
Mr. GLOVER. Good morning, Chairman, Chairman, Ranking
Member. Thank you for the opportunity of appearing here today.
I am Jere Glover, the executive director of the Small Business
Technology Council. I got my early experience in the federal inno-
vation and technology area back in 1978 when I staffed a joint Sen-
ate and House Committee and report that documented clearly the
underutilization of small business by the federal R&D programs.
Next to the GI bill, after World War II, I believe the SBIR pro-
gram is one of the most significant pieces of legislation Congress
has ever passed. Why is it so significant? Well, one, it revolution-
ized the way government does business. For the first time there
was a law that required federal agencies to award a very small per-
centage of their R&D budgets to small business. This resulted in
the creation and support of tens of thousands of new innovations
and small businesses.
The benefits of this to the American innovation economy have
been tremendous. Two technologies that you use every day: One is
the GPS on a chip, which is in your cell phones and on your cars,
allows you to track what is going on; the other is the CMOS sys-
tem, which is the cameras, which are on virtually all cell phones.
Those are just two examples of the technology.
Thirty-eight percent of SBIR awards go to new firms every year.
That amounts to 1,500 new companies that had never gotten an
SBIR program, winning an SBIR award. Ninety-nine new drug ap-
provals in the last 24 years were funded by SBIR. And, if you think
those were unimportant drugs, 16 percent of the priority review
drugs, meaning those that had made significant health advances
over prior treatments were, again, funded by the SBIR program.
When we also look at the return on investment, several economic
impact studies have clearly shown that the return on investment
is about 25 percent. For every dollar invested in the SBIR program,
there are $11 of commercial sales, nongovernment sales at the Na-
tional Cancer Institute, and $3 of nongovernment sales at the De-
12

partment of Defense. Eight percent of all venture capital invest-
ments go to funds that have received SBIR funding.
Over half of the SBIR Phase II awards go on to be successful.
For every dollar invested in the SBIR program, over $3 in taxes are
paid State and local. Over 2,800 firms, SBIR firms, and their tech-
nologies have been acquired. Over 800 of these SBIR firms have
gone public. SBIR firms have acquired 149,000 patents.
The purpose of the Small Business Innovation Research Act is to
stimulate innovation, to use small businesses to meet federal re-
search and development needs, to foster and encourage participa-
tion by minorities and disadvantaged persons, to increase tech-
nology and innovation, and to increase private sector commer-
cialization innovations that derive from research and development.
Has SBIR achieved these goals? Yes. In 18 National Academy of
Sciences that the government spent over $20 million to fund over
the years, they have looked at these goals and determined that,
yes, they meet all of these goals, with the exception of women and
socially and economically disadvantaged small businesses.
Recent data from SBA, however, indicates that they are making
significant progress, a 33-percent increase in the socially disadvan-
taged firms winning SBIRs and an 18-percent increase in women-
owned businesses. Why does it work? Why does SBIR work? Merit
selection based on science and technology, the best proposal wins.
It is highly competitive, extremely competitive. Only 1 in 12 pro-
posals get to a Phase II.
SBIR solves our federal R&D challenges and supports the agency
missions. Agencies select the topics, select the winners, and make
awards to meet their needs. University and small business partner-
ships drive SBIR and STTR solutions. While some people may
focus on the big end of the funnel and fight over the crumbs as to
who gets what, we need to focus more on the small end of the fun-
nel and make sure that the primes start adopting outside tech-
nology or we have a serious problem.
Recommendations: First, SBIR should be made permanent; sec-
ondly, the proposal and contracting process should be simplified
and standardized. The SBIR allocations should be doubled. And, for
improved transition, prime contractors should be required to use
and report on the use of SBIR and nontraditional firms. Thank you
for your time.
Chairman MEUSER. Thank you.
We will now move to Member questions under the 5-minute rule.
I now recognize myself for 5 minutes.
Mr. Palmer, I will start with you. Real-world examples of what
the SBIC has meant to the overall organization, meant to the
SBIC, individual companies, and to those that they were providing
investments to, and how would the bonus leverage improve things
and benefit small business access to capital?
Mr. PALMER. Sure. The SBIC capital, as I mentioned, is the
first institutional capital to go into most businesses. So a lot of this
is professionalizing the business and helping them scale up. The
number of employees increases significantly in almost every case.
I can’t think of a case where it hasn’t been, which has been helpful.
Now, the bonus leverage is designed specifically to make it so
there is an incentive, not a mandate but incentive, to look off the
13

beaten track to parts of the country that haven’t been invested in.
So, if you have a fund, the funds have a 10-year lifespan, 5 years
of which they invest and then 5 years they harvest, in the first 5
years, it is an incentive to look out for low-income areas and rural
areas and industries in these national security sectors. And, if you
find a business there that you might not have otherwise gone to,
you can access more leverage and doesn’t preclude you from doing
another deal. And so it just is an incentive to look off the beaten
track and find more companies in places that otherwise often get
passed over.
Chairman MEUSER. Sure. And, in your opinion then, would the
SBA, by implementing bonus leverage as drafted in the legislation,
Investing in All of America Act, my bill, H.R. 533, would that be
advantageous in the manner that it is intended?
Mr. PALMER. It would be very constructive. It would be very
constructive for every State in the Union.
Chairman MEUSER. Okay. Adjusting the leverage caps, is
that—you believe that is necessary within the SBIC program?
Mr. PALMER. Yeah. So the leverage caps rely—some of them
were adjusted back in 2015, some in 2018. And, basically, as infla-
tion has carved up and chewed up 25 percent of the SBIC fire-
power, as far as under the leverage caps, and so, as time marches
on, there just needs to be an inflation adjuster so that they can
continue to operate the way they would because just time catches
up.
Chairman MEUSER. Mr. Glover, congratulations on everything
you have done over time for small business. It is appreciated. Do
you agree with what Mr. Palmer is saying?
Mr. GLOVER. I do. It has been the goal of the founders of the
SBIR program forever to have venture capitals focus specifically on
SBIR firms. A few have done that. Obviously, many of them do it
some. But, to have some of them that are specifically focused on
equity funding, the SBIC program, we have talked about this, we
have worked on it, we have dreamed about it for 40 years, and so
I am glad that you are making some steps to make that happen,
and hopefully we get to see this legislation go going.
Chairman MEUSER. Good.
Mr. PALMER. Yeah, you are going to see a lot more equity inves-
tor funds coming in the pipeline. There are a significant number
of those, 94 that I mentioned.
Chairman MEUSER. Sounds good.
Mr. Valletta, SBIC, private investments, fueling the development
and innovation of your small business clients?
Mr. VALLETTA. Yes. These American seed funds are paramount
to small business innovation as well as growth. And, for organiza-
tions like ours, so that our venture investment and development or-
ganizations, it is extremely important because part of our pro-
gram—a portion of our funding comes from public sources like
State government, public authorities, or bonds, and federal pro-
grams like the Small Business Credit Initiative, the SSBCI, are
very important programs.
Now, as we know, most venture development organizations re-
ceive returns on their investments. What we would like to do is
have a virtuous cycle of business innovation as well as investment
14

velocity to take our funds that we receive back from those invest-
ments, turn them back into SBICs and SBIRs, and so forth, so re-
moving that leverageable capital requirement in regards to being
able to leverage those dollars for innovation and investments.
Chairman MEUSER. That is great. And you have really done
great things for Pennsylvania over the years, so it is appreciated.
Mr. VALLETTA. Thank you, Chairman.
Chairman MEUSER. Ms. Bresler, so you gave a nice list of ideas
and solutions for improvements. Do you find your suggestions as a
significant stakeholder here are being heard and that we are ad-
vancing in the manner that you would see best?
Ms. BRESLER. Thank you for the question. To some extent, yes,
I am here in the room with this audience. And, unfortunately, I
think some of the most basic recommendations are some of the
hardest to implement anywhere but this room. You know, for in-
stance, the size standards, even if you have buy-in from the people
involved in these programs, they understand on paper that a com-
pany doing $350 million a year in revenue doesn’t sound like a
small business in the way that everyday Americans view small.
Chairman MEUSER. Sure.
Ms. BRESLER. They don’t have the ability to implement that
change. So I think it does depend on having, you know, a caucus
of people with, you know, different interests in this broader pool to
come together and implement these changes collectively.
Chairman MEUSER. Good. We will work on it. Thank you.
My time has expired.
I am now going to recognize Mr. Landsman for his 5-minute
questions.
Mr. LANDSMAN. Thank you, Mr. Chair.
Mr. Glover, a couple things: One, these are two really important
programs, but they are not permanent. Can you talk a little bit
about the value of making them permanent as we look to reauthor-
ize them?
Mr. GLOVER. Every few years the government thinks——
Chairman MEUSER. Mike.
Mr. LANDSMAN. You might want to grab that. Yes.
Mr. GLOVER. Sorry. Sorry. Every few years, the government
thinks, ‘‘Oh, this program is going to go away, so we don’t have to
continue funding. We don’t have to make long-range plans. We
don’t have to make that a critical part of our infrastructure to
make innovations great.’’ There is no question innovation and
adoption by the federal government in the R&D world is not work-
ing as well as it should. We are fighting against China, and we
simply aren’t there.
But, when—to have one of its critical fundamental programs
threatened to be going away every time and have the government
think about it going away and to have the businesses not be able
to plan long term is very bad.
Mr. LANDSMAN. Yeah. Also, Mr. Glover, the Federal and State
Technology, or FAST, Program works with our SBA resource part-
ners to provide technical assistance. Does investing in resources
like this help address concerns about diversity in the program?
And the next question gets at some of the really compelling
points that Ms. Bresler brought up in terms of diversifying, open-
15

ing this up. Can you just talk a little bit about some of the things
that she mentioned in terms of the update to the process, just sim-
plifying a whole host of things that would make it more competitive
and address some of the concerns she raised.
And I ask about the technical assistance in that context because,
you know, on one hand, the technical assistance, I am sure, is ter-
ribly important; on the other hand, the assertion, if I was correct,
is that there is—some folks have more of an advantage than others
as they get that technical assistance.
Mr. GLOVER. Well, first, to answer your question about FAST.
I think FAST is a critical, money well spent, I think, quite frankly,
that should be increased. I think that, quite frankly, there should
be some sort of regional development under the FAST Program to
help the other—the FAST operations. I believe the FAST Program
is responsible for the significant increase in minority——
Mr. LANDSMAN. Sorry, I apologize. Can you repeat the regional
piece? Can you explain that a little bit more?
Mr. GLOVER. Yeah. So you would have some sort of super FAST
Programs that help work with other smaller FAST Programs.
Mr. LANDSMAN. Oh, I see.
Mr. GLOVER. And, quite frankly, 125,000 or whatever it is, is
just simply not enough to run a really good program. So you need
somebody to help you, show you how to do it. That is maybe one
or two people. So it is not enough. But it has had a critical impact
because we are seeing minorities and we are seeing women-owned
businesses numbers going up significantly, and FAST is a critical
part of that.
As far as to the participation, you know, 1,500 new firms every
year, that is a lot of new firms. So we are getting a lot of compa-
nies in. Are we perfect? Nothing ever is. In my opinion, it is the
best program in federal R&D ever created because it has less—it
has a huge return on investment. Over $3 in taxes on loan come
back from these programs.
So the government picks the companies, they pick the topics,
they pick the winners, and they choose. In many cases, especially
in defense, there are technologies that are very sophisticated, and
the government needs that. And, quite frankly, the primes aren’t
providing it. So it is important to have those companies with the
knowledge, experience, and background, and equipment, and ex-
perts to meet those government needs.
Commercialization is one of four goals, only one, getting a small
business percentage. And, as far as size definitions, the general
size standards at SBA for R&D is 1,000 to 1,500, not 500. SBA,
looking at this and all of the criteria, would be more likely to in-
crease the size standard, not lower it.
Mr. LANDSMAN. So let me thank you for that. I am running out
of time, but what I think would be good is if somehow we can get
the two of you in a room and sort out what the changes would be.
I know that you have different feelings, but it does seem like that
could be a very helpful thing as we look to reauthorize, update, im-
prove the process from application to scoring, to—I think, Ms.
Bresler, you talked about having a group that could help sort
through some of this so that it is not just the same folks. I don’t
know if you would be interested in that. Maybe our team can follow
16

up with the SBA to—or this committee to talk through it, but I
think that could be very helpful.
Mr. GLOVER. I think that is a very good idea. Thank you. I will
look forward to it.
Chairman MEUSER. The gentleman yields.
I agree. I think it is a very good idea, as well.
We now recognize Chairman Williams from Texas for 5 minutes.
Mr. WILLIAMS. Thank you, Chairman.
And, Ms. Bresler, I am a small business owner back in Texas like
you are. And you used some words today that the federal govern-
ment doesn’t understand. Okay. It is called ‘‘easier, faster,’’ and
‘‘incentivize.’’ They don’t get that. Okay. They only hear it from the
private sector.
So the Department of Defense SBIR program often lacks instruc-
tions for small businesses to follow. You have said that, and I agree
with you. We have heard from many frustrated small business
owners who have left with more questions than answers about the
requirements and what would be needed for followup on contracts,
when to apply for the SBIR program, or even which DOD innova-
tion initiative actually they should use. So this causes many small
business, as you talked about, to walk away from the defense mar-
ket and not participate in the program because they do not have
a clear picture of what the full investment will be and cannot jus-
tify navigating the complicated regulations.
So, simply, how can this concern be addressed, and how wide-
spread is the issue?
Ms. BRESLER. Thank you for the question. So I think the easi-
est way to assess this would be trying to go through this process
yourself, having as many people who are involved in designing the
process actually go through it and make notes. I think, relative to
some of the complex technological challenges that the Department
of Defense tackles on a daily basis, this is relatively simple, but the
cultural piece is significant.
And you would need to look at not only creating the appropriate
systems, policies, having the right tools, but also requiring that
new steps be taken, requiring certain metrics to be tracked. So,
even this notion of how many new businesses are working in the
SBIR program every year, the reason you can hear different num-
bers is because there isn’t a standard way in which they track that,
for instance.
Mr. WILLIAMS. Mr. Valletta, your testimony indicated that sev-
eral hurdles remained to make the SBIC program cumbersome,
that make it cumbersome, including the limitation and definition
of ‘‘leverageable capital,’’ which could be broadened and made clear-
er. What would you recommend we do on this committee to fix this
particular issue?
Mr. VALLETTA. Yes, actually, thank you for that question. We
really look for the SBIC program to be expanded from that
leverageable capital, with using the venture investment develop-
ment organizations like ourselves, to be able to use that capital,
the returns that we receive from programs, various programs, from
State and local and federal, to be able to get that velocity of invest-
ments from organizations; and then, on the SBIR and STTR type
of programs, leveraging those organizations to make it clear, as Ms.
17

Bresler mentioned, in regards to maybe using an IPart program,
those innovation partnerships like we have in our program at Ben
Franklin, to make the process easier and to note that we have a
28-percent success rate versus the national average of 18 percent.
So I think all those things combined make it easier for the commu-
nities that we serve to refresh, retain, and reimagine jobs for our
great country.
Mr. WILLIAMS. Thank you.
Mr. VALLETTA. Thank you.
Mr. WILLIAMS. Mr. Palmer, our government spending is cur-
rently on an unsustainable path, in case you were not aware of
that.
Mr. PALMER. I am aware of that, yes.
Mr. WILLIAMS. Okay. Overspending poured gasoline on the in-
flation fire. Every single day every American is currently experi-
encing these high interest rates for a—and they are going to be a
decade long. Simply, how does the current economic climate affect
the performance and viability of the SBICs?
Mr. PALMER. The SBIC—the demand for SBIC capital is ex-
tremely strong because the banks have had to pull back. The banks
are—particularly the smaller and regional banks are struggling
with still a loss of deposits. That is a challenge. And the businesses
that have floating rate loans, their costs have gone up significantly.
So I was talking to a fund manager the other day; they had a
business that was growing at 40 percent a year and just rocking
and rolling. And they are down to 5-percent growth, just changes
entirely on interest rates, just the cost of borrowing capital to grow.
And that is hard. But inflation is difficult on consumers, and it is
difficulties on businesses to plan, and it is a challenge.
Mr. WILLIAMS. Real quick, with the time we have got going, as
a followup: I always look at, when evaluating any government pro-
gram or anything, is a return on investment, which they don’t un-
derstand about here in Washington. But, for those people that may
not be familiar with the SBIC program, can you tell us quickly if
any taxpayer dollars have been lost, and what would have to occur
for the federal funds to be wiped out in this program?
Mr. PALMER. Sure. Excellent question. So it is a zero-subsidy
program. So, by law, it cannot. We have to—they charge additional
fees on top of it. There are hundreds of millions of dollars, maybe
$1 billion to the positive as far as excess fees versus losses that are
there. But the key to the program that makes it work and be tax-
payer protection is that the private capital has to be lost first be-
fore the taxpayer is exposed. And, frankly, I think that should be
true for just about any government program that is existing, be-
cause you should have your own money at risk before anybody gets
exposed.
Mr. WILLIAMS. My time has expired. I yield back. Thank you.
Chairman MEUSER. I now recognize Representative Chu from
California for 5 minutes.
Ms. CHU. Mr. Palmer, thank you for your steadfast support for
my and Representative Garbarino’s bipartisan bill, the Investing in
Main Street Act, which would amend an outdated law to finally
allow financial institutions to invest up to 15 percent, triple the
18

current limit of 5 percent, of their capital and surplus into SBICs.
And this will help SBICs, I believe, immensely.
The House has overwhelming passed this commonsense change
for several Congresses in a row now. Can you discuss why this bill
is so needed and what the impact would be on our small business
investment ecosystem if the Senate were to finally take up this bill
and pass it into law?
Mr. PALMER. Well, first and foremost, thank you for your lead-
ership on it. It would be incredibly helpful. It is just a glitch in the
law that different parts of law were written at different times. So
banks were allowed to invest in SBICs so that the money can go
to small businesses, but the SBICs aren’t allowed to accept it,
which is just silly. It is just a percentage question.
And so, thanks to your leadership, it has passed several times.
The Senate is very difficult to get anything through. There is no
cost associated with it. But, as I was saying in my testimony, there
is over 90 SBIC funds in the licensing pipeline currently. They nor-
mally license around 25 a year. Demand for this capital is off the
charts. These funds have to raise, and they need to raise from
banks. And there are a lot of banks who would like to invest more,
but they are just not allowed to, not because the banking law says
they can’t; it is the SBICs can’t accept it. So it would be very help-
ful in getting more private capital that would then be amplified
through the small business ecosystem.
Ms. CHU. And how would it help small businesses?
Mr. PALMER. There would be more capital available, frankly.
There would be more equity capital available under the new pro-
grams that the SBA has rolled out, the new models for debentures.
There would be more debt capital available too, and there would
be more capital in underserved areas that currently aren’t being
capitalized.
Ms. CHU. Well, thank you for that.
And, Mr. Palmer, I was encouraged to hear in your testimony
that, at the end of fiscal year 2023 the amount of capital that
SBICs invested in small business was at record levels and that
about a quarter of those investments were in minority-, women-,
and veteran-owned small businesses or those located in low- to
moderate-income areas.
However, despite this promising growth, we know that these
types of underserved small businesses still face significant barriers
in accessing investment capital. For example, one study found that
the average amount of new equity investment in minority-owned
businesses are only 43 percent of the average equity investment in
nonminority businesses. As another example, in 2020, Black and
Hispanic female entrepreneurs received less than half of 1 percent
of venture capital investments. So can you discuss how the SBIC
program can help close those gaps and what changes in the pro-
gram might be needed?
Mr. PALMER. Sure. And, actually, the SBA changed their regu-
lations last fall, created a couple new models of the SBIC program
underneath the existing debenture program that will allow for
more equity investing, because SBICs do invest at a higher rate in
women and minorities in equity and in venture than does the
19

broader venture market, and so they will be able to do more of
that. That is helpful.
I think, also, one of the things they came up with is this Re-
investor SBIC, sort of a fund-to-funds model. It gets a little com-
plicated, but basically it is almost like a developmental league or
a seed league that they are setting out there to help develop new,
smaller funds in smaller areas.
Also, Congressman Meuser’s bill, the Investing in All of America
Act, has a specific incentive to invest in geographies that are low
income or rural, and that is going to benefit more folks there too.
So I think you are going to see some—there is no quick fixes, but
I think, over the next 5 years, you are going to see a meaningful
uptick in a lot of those areas.
Ms. CHU. So I take it you are in support of this rule, the SBIC
investment diversification and growth rule?
Mr. PALMER. It has been very constructive, yes.
Ms. CHU. Okay. Very good.
Mr. Glover, we know that underserved small businesses remain
underrepresented within the SBIR/STTR programs. As the lead co-
ordinating agency for SBIR and STTR, what steps do you rec-
ommend that the SBA take to enhance education and outreach to
these groups?
Mr. GLOVER. The SBA, to my knowledge, in the last few years
has gone out to historic Black colleges, gone out to areas like that
and done a really good job, and the numbers show that they are
increasing. The socially disadvantaged numbers are up 33 percent;
women-owned businesses are up 18 percent. So we are seeing im-
provement. They need to do more of that.
And, quite frankly, the SBIR program is underfunded at SBA.
They have very few people working there and very little money and
a lot of work to do, but they are doing a good job of making that
happen. But I think, with more resources and more people, the
SBIR office could do a lot more.
Ms. CHU. Thank you. I yield back.
Chairman MEUSER. The gentlelady yields.
We are now going to move into round two of our questions.
So, Ms. Bresler, I am going to recognize myself for 5 minutes and
start with you. SBIR access and awareness for small businesses, I
am sure you have got a couple of things to say about that, and how
to improve it and get more businesses to participate in the pro-
gram. Could you offer some of your suggestions?
Ms. BRESLER. Thank you for the question. First and foremost,
we have to establish metrics that require the program to award a
certain share of contracts, Phase I’s, every year to new businesses
that have never worked in the government space, that would force
these program offices to do some of the hard work of not going with
the usual suspects, and that is critical. There needs to be metrics.
There needs to be requirements, and they need to be held to ac-
count.
In terms of the actual work to reach these businesses that have
not previously participated in the program, it comes down to
awareness in general. I think my experience is that it is an echo
chamber. If you go to a program where you are going to learn
something about SBIR, you look around and it is the same people
20

that are in every room just like it learning about SBIR over and
over again.
So you have to put yourself in front of audiences that are not al-
ready entrenched in these processes. And I think really putting in-
telligent size standards in place where you can’t have multi-billion-
dollar, publicly-traded companies participating in the SBIR pro-
gram will, again, force the program offices to be more effective in
their outreach to truly small firms.
Chairman MEUSER. Thank you.
Mr. Palmer, do you run into some of the same situations with the
SBIC?
Mr. PALMER. The rules can be complicated. They can be un-
clear. They have gotten better, significantly better. But it is—but
trying to broaden out the awareness of the SBIC program is hard,
you know. And I think that that goes to Ms. Bresler’s point is, you
know, breaking out of the echo chamber, and I spend a lot of time
traveling around the country trying to educate on that front. The
SBA actually does some of that too, which I found constructive.
To Mr. Glover’s point, I think, you know, parts of the SBA, par-
ticularly the SBIC program, they are underfunded. They do have
too few people doing too much stuff, and when they are over
stretched, that is a challenge. So I think having a few more people
that can do outreach and education, and putting stuff in plain
English, to Ms. Bresler’s point, is really critical so people can un-
derstand these otherwise complicated programs.
Chairman MEUSER. Okay. Mr. Valletta, I know how close you
are to it all. Could you comment on this?
Mr. VALLETTA. Yes, absolutely Congressman. We believe the
SBIR and STTR award capabilities could be better suited with
leveraging organizations like the Innovation Partnership, the IPart
program that I mentioned, you know. We have 20 years of assisting
Pennsylvania’s small businesses, and the complexity of the applica-
tion process is real. And those small businesses and creating those
programs to increase the quality of proposals, provide better cus-
tomer service, and drive that program applicants to improve the ef-
fectiveness is real and very important.
So organizations across the country like ours, the IPart program
assists, right. So we, Ben Franklin, provide funding for this IPart
program across the State to increase the level of those submissions
so we can increase the level of wins, which I stated in the past that
we have a win rate of 28 percent versus 18 percent. So the capabili-
ties of organizations like the Innovation Partnership reap benefits
for the constituents that we serve.
Chairman MEUSER. Great. I want to ask something about the
TCJA, the Tax Cuts and Jobs Act. We passed a bill in the House
regarding both depreciation, hundred percent R&D reduction, as
well as dealing with the Small Business Tax Deduction.
It is—I hope the word ‘‘languishing’’ is too strong. I hope it is
being dealt with within the Senate.
Mr. Palmer, just quickly, your thoughts on the importance of the
passage.
Mr. PALMER. I think it would be particularly helpful, particu-
larly that R&D side. A lot of smaller businesses that do research
and development were surprised at sort of the way that the tax law
21

was being applied, and so I think it would be very helpful, particu-
larly for small businesses doing really innovative stuff.
Mr. MEUSER. Thanks.
Mr. Valletta?
Mr. VALLETTA. Yes, actually, it is real, and our small busi-
nesses beg us to work with our local lawmakers, as well as our fed-
eral lawmakers, to get that passed, especially in the Senate, so
agreed.
Mr. MEUSER. Ms. Bresler—thank you—thoughts?
Ms. BRESLER. I think it is probably further down in terms of
the bottlenecks that the small businesses that I am working with
deal with, but anything to offset the burdens of working with the
government or trying to operate in today’s economy are important.
Mr. MEUSER. Thanks. My time has expired.
I now recognize the Ranking Member for 5 minutes.
Mr. LANDSMAN. Thank you, Mr. Chair. I heard—since we are
sort of in problem-solving consensus mode here, and trying to be—
and that was the purpose of the hearing, so again want to thank
the Chair for doing this. It is incredibly helpful—and the staff for
putting this together.
It seems like there are some consensus on the importance of di-
versifying. And including more and more businesses—small busi-
nesses—is happening. The question is, you know, what more can
be done?
I assume that this idea of measures and accountability to see
more and more of that is probably worth pursuing. How it is pur-
sued, is a question. The awareness piece and outreach gets at
something I think most people have said or most of you have said,
which is that there is a staffing issue, and how do you ensure that
the programs have the staffing they need or the resources to get
in front of these small—some of it can be staff, but a lot of it, you
know, so many of these folks are on—well, everyone is online—and
is there the kind of digital outreach that has proven to be incred-
ibly successful in other programs to get in front of the intended au-
diences?
And the simplification of the process from application to what is
on the website, there seems to be consensus there. So I am curious
if—what pieces—and maybe just go across the board and finish
with you, Jere—sorry, Mr. Glover—if you could pick three big
changes, or small, but changes that you would think would have
the most impact, what would those three be?
And then we will end with Mr. Glover and just get your thoughts
on those changes and how we can make them happen, because it
does seem like there is consensus on areas for improvement.
Mr. VALLETTA. Thank you for that question. From my perspec-
tive, being able to drive the dollars to venture investment develop-
ment organizations and changing the complexity with allowing us
to leverage the capital of investments that we receive from our in-
vestments, right? That would be one.
Second is that the—really driving the investments to below $3
million, right? So we at Ben Franklin invest in very early stage.
So it is important that—and we are typically the first dollars after
friends and family. So that would be the second change.
22

And then the third, and most important, is the requirement for
being—for being for-profit. We are nonprofit. So, it is important
that maybe some nonprofit organizations can get into the game.
Mr. LANDSMAN. Got you. Very helpful.
Ms. Bresler?
Ms. BRESLER. Thank you. First would be overhaul the size
standards, which I have discussed. The second would be a full over-
haul of the government solicitation process, which would include
SBIR submissions as well as every type of solicitation that the gov-
ernment issues.
And then third is incentivizing transition of the best and bright-
est technologies, specifically bringing the primes into the mix, so
that government stakeholders and prime contractors are required
to integrate a certain subset of SBIR-funded companies that have
demonstrated their technical proficiency and to encourage a break-
down of these stovepipes that have been challenging to deal with,
offer a greater incentive to integrate something initially funded by
a different branch.
Mr. LANDSMAN. Got it.
Mr. Palmer?
Thank you.
Mr. PALMER. First, I would say nothing should change that re-
duces taxpayer protections——
Mr. LANDSMAN. For sure.
Mr. PALMER.—in any way, shape, or form. That is foundational.
Mr. LANDSMAN. Yes.
Mr. PALMER. But I think we should—you know, the passage of
the Investing in All America Act being—adjustments to the lever-
age limits would be incredibly helpful. Expediting the licensing
process for repeat funds so that they are spending their time for
new funds coming in and not people they have known forever.
And then, finally, you know, as far as adequate funding for it,
keeping the fees that we are paying inside the program that we are
paying for because we are the only one that is not.
Mr. LANDSMAN. Yeah. Smart.
Mr. Glover?
Mr. GLOVER. First, if you want to increase the diversity in
things, double the program. It hasn’t been increased in over a dec-
ade. It should be increased. That will quickly double the number
of new firms, number of minorities, and so forth, proportionally.
Secondly, make the primes use SBIR in new technology and in-
corporate it. They are—the law lets them do that. The law encour-
ages them. Army has just started doing it a little bit.
Mr. LANDSMAN. You got one more. Sorry.
Mr. GLOVER. And, number three, it is—we have tried for years,
and we got and then lost—simplify, standardize the contracting
procedures.
Mr. LANDSMAN. Okay.
Mr. GLOVER. But I have got to say, the 174 deduction issue is
going to blow up in everybody’s face, because once you realize you
are going to pay taxes upfront on work you don’t get—you know,
profits you don’t get downstream, it is devastating.
Mr. LANDSMAN. Thank you all very much.
I yield back. Sorry.
23

Mr. MEUSER. The gentleman yields.
Yes, thank you all very much. We want to just formally thank
you, all of our witnesses, for all of your testimony here today.
Without objection, Members have 5 legislative days to submit ad-
ditional materials and written questions for the witnesses to the
Chair, which will be forwarded to the witnesses. And we do ask the
witnesses to do your best to respond promptly.
Today, there is a lot going on, which tends to be the case here
in Washington these days, so we didn’t have all that many Mem-
bers within the committee because of other duties that were com-
pelling, but we greatly appreciate the information that was re-
ceived.
I think the questions were excellent, and I think we derived a
lot of the ideas that we will work on, and we will continue to work
on as was mentioned.
So, if there is no further business, without objection, the com-
mittee is adjourned.
[Whereupon, at 11:21 a.m., the subcommittee was adjourned.]
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