While Washington waits for an accord between Republicans and Democrats to lift a government shutdown, a separate standoff threatens the flow of funds from a $4 billion-plus program to help small tech businesses.
The Small Business Innovation Research program expired at the end of September without a deal, amid a showdown between Senator Ed Markey, a Massachusetts Democrat, and Senator Joni Ernst, a Republican from Iowa.
Essentially, they’re fighting over whether frequent users of the program should be excluded. Many startups — notably, iRobot and Ginkgo Bioworks in Massachusetts were once among them — participate to help subsidize product development, but then “graduate” as they look for commercial options, while many research-oriented firms go back for more grants to support their work.
Ernst is pushing a bill to reform the program, including by imposing a “lifetime” cap of $75 million in awards, immediately freezing out more than a dozen Massachusetts companies. Ernst also wants to impose a new threshold for commercial revenue versus SBIR revenue for participants.
Markey, the ranking minority leader of the Senate’s small business committee, has fought back, saying it’s unfair to exclude companies just because of their success when they could have the best solutions to offer the federal agencies that participate in the program.
As time was about to run out on Sept. 30, Markey and Ernst debated on the Senate floor. Markey wants a “clean” one-year extension to keep the program going and give Congress more time to hash out this issue, while Ernst wants to ensure some reforms get on the books. (Markey plans to run for reelection next year, while Ernst does not.)
The Alliance for Commercial Technology in Government sent a letter on Oct. 2 asking Markey to keep SBIR alive by agreeing to reforms in Ernst’s bill. The letter was signed by around 50 Massachusetts startups, a number that increased to around 70 on Oct. 7.
Rohit Gupta, chief executive of Cambridge data and analytics firm Sentenai, said he likes two elements of Ernst’s bill in particular. They include a proposal to expand funding for helping innovation get to the stage in which soldiers can actually use it in the field. The other element he appreciates: a new benchmark to ensure program recipients get a certain amount of funding from commercial revenue rather than relying too heavily on federal subsidies.
“If I’m still talking about SBIR in five years, it’s not the type of company I’m looking to build,” Gupta said.
Austin Gray, cofounder of Blue Water Autonomy in Lexington, said the program provides an important entry point for startups looking for Pentagon contracts. But he said his autonomous-ship tech firm consists almost entirely of engineers, and has little chance of competing with regular SBIR users that are “really good at the paperwork.”
A spokesperson for Markey says he’s willing to negotiate on any points, but a simple one-year extension, which the House has already passed, is the more sensible option to allow for more negotiations without hurting small businesses. The spokesperson notes that the letter sent to his office glosses over punitive parts of Ernst’s bill, and many of the signatories prefer the simple one-year extension.
In a statement, Markey called the SBIR program “critical” for his home state.
“There are many ideas on the table that will take time to work through, which is why I supported and moved to pass a one-year extension to give Congress time, without letting the program lapse,” Markey said. “The one-year extension is the only bipartisan, negotiated solution to getting the program back up and running.”
Bill Marinelli is among those cheering on Markey. Marinelli leads Physical Sciences Inc., an employee-owned company in Andover that’s by far the biggest SBIR user in Massachusetts, racking up at least $650 million over several decades. The federal program provides about half of the revenue at PSI, which specializes in tech such as radiation detection systems and optical sensors.
Marinelli said there’s room for both kinds of companies: startups that are looking to move on to commercial applications, and businesses like his with a “mission model” that solve problems for the government with innovations that have limited commercial potential. (PSI also has manufacturing operations, and is in the process of taking over a battery-making operation in Methuen.)
“Maybe there needs to be a realization on both sides that they need to give something to get something,” Marinelli said. “But it can’t be at the expense of killing companies that have added value and built themselves on ‘the mission model’ for no rational reason.”
Jon Chesto can be reached at jon.chesto@globe.com. Follow him @jonchesto.
