Helping hand for V.C. firms, or windfall for big companies?

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Proposals in Congress to increase access for Small Business Innovation Research grants have garnered both accolades and aspersions.

One bill that has passed the House of Representatives would allow all companies that receive venture capital funding to be eligible to compete for the grants. A bill being considered by the Senate caps venture capital at 18 percent of the National Institutes of Health budget of $650 billion, limiting the number of companies that can compete for the grants.

While bioscience industry groups laud the House bill, claiming it will allow more capital into a starved industry, others inside the industry say the bill goes too far.

“Your support depends on what you want to accomplish as a country,” said Russ Farmer, of PBC Inc., a Denver company which helps small business apply for the innovation grants. “Right now, between 80 (percent) and 97 percent of the net new jobs created in this country are by small businesses, and the House bill will change that.”

Farmer said that the legislation will allow large companies to form venture capital divisions, giving them access to “funds that are destined for small business only.”

“Not only that, this bill will allow venture capital funds run by foreign governments to participate,” said Farmer, who also is on the board of directors for the Small Business Technology Council.

Current regulations, in effect for six years, require most of the firm to be owned by American citizens. It also limits venture capital money in a company’s operating budget. That regulation inhibits growth, said John Collar of the Colorado Bioscience Association.

“Anything that increases the availability of capital is a positive step forward,” he said. “It will increase the grants for start up, no matter what size the company is. Anything that will do that right now is a good thing, it’s huge.”

Bioscience companies, many of which spend billions of dollars before a product reaches commercial viability, would have a new place to go for money.

“We have companies that are floundering in this recession,” Collar said. “Opening these grants will mean a great deal to them.”

From a venture capital standpoint, the House bill makes sense, said Loren Lancaster, managing director of Core Capital Group.

“The focus right now is to stimulate small business development — not increase the deeper pockets of larger corporations,” he said. “Companies funded by venture capital can take advantage of grants — and that means they have a better chance for success.”

But increasing the profits of corporations is exactly what the legislation will do, Farmer said.

“This bill simply caters to special interests — BIO (the Biotechnology Industry Organization) and the National Venture Capital Association pushed this through,” he said. “And they jammed it through without any discussion in the House, or allowing any amendments. The House bill will just allow large companies to walk away with grants meant to stimulate small business development.”

Farmer supports the Senate version, which extends the regulation for eight years and limits venture capital money. The House version only extends the venture capital credit for two years.

“Special interests have made this far more complicated,” he said. “And it makes me nauseous to think about how they control our government. You really do get the government you pay for.”

Under current regulations, 40 percent of the grants go to companies with 10 or fewer employees and about 70 percent go to companies with 25 or fewer. But Farmer believes the House bill will change that.

“With no restriction on venture capital, large companies will bleed the program,” he said. “There might be some successes, but not nearly to the extent we have now. Thousands of small business will be driven out of business.”

BIO, the industry group that helped craft the House version, applauded the bill’s passage.

“This is a critical step toward ensuring that all innovative companies can compete for SBIR grants, based on the promise of their science rather than the structure of their capital,” said president and CEO Jim Greenwood. “This change will allow more small biotechnology start-ups to continue critical research and development of medical advancement and breakthroughs.”

The competing legislation will be resolved by a conference committee.

“What we’re hearing right now is that it won’t be finished in time for the August recess,” Farmer said.