On August 13, President Donald Trump signed the bipartisan 2019 National Defense Authorization Act, providing $717 billion in national security funding for the upcoming fiscal year. Overlooked amid last month’s national security headlines are a slew of important provisions that constitute a robust entrepreneurship policy agenda – one that promises to bolster the federal government’s ability to commercialize groundbreaking research and tap entrepreneurial firms as a source of cutting-edge science and technology for critical national security applications.
What follows is a summary of the legislation’s key entrepreneurship provisions and why they matter.
SBIR: More I-Corps, More Commercialization (Sec. 854)
The last thirty years have yielded important new models to facilitate commercialization and entrepreneurship, such as startup accelerators, proof of concept centers, methodologies such as Lean Startup, and angel networks. Yet over that same span the federal government’s Small Business Innovation Research (SBIR) program has changed comparatively little, offering startups and small businesses modest grants for phased research, typically without corresponding entrepreneurship training or commercialization assistance to help bring the fruits of their research from the lab to the marketplace.
Only through a recently expired pilot program designating flexible “admin funds” have SBIR agencies like the Defense Department (DoD), the National Institute of Health (NIH), and the Department of Energy had significant discretion to fund important non-research activities such as I-Corps entrepreneurship training for awardees. I-Corps puts teams of researchers and founders commercializing federal research through an entrepreneurship “boot camp” to test their market assumptions with actual customers. Despite the program’s promising early results, agency leaders hoping to establish new I-Corps programs for SBIR awardees have indicated that they would not have the flexibility to do so absent a renewal of the “admin funds” pilot.
Agencies have also used “admin funds” for road tours to raise SBIR awareness among potential applicants, application support for under-represented entrepreneurs, and efforts to improve and streamline application and award processes.
Critically, the 2019 NDAA renews and extends this flexibility to 2022, giving agency program managers license to experiment with I-Corps and other commercialization activities. Agency program managers who rely on this flexibility to invest in innovative startups are understandably jubilant that Congress has recognized its importance.
The legislation also includes several other important SBIR provisions:
- Commercialization Assistance Pilot (Sec. 860): Agencies are directed to create a commercialization program that would support promising Phase II award recipients (i.e., those with R&D projects originally funded through Phase I funding that have received follow-on funding because of their strong technical merit and commercial potential) with an additional (i.e., a third) Phase II award to promote commercialization. The program requires a matching investment from a small business, venture firm, or government entity. Unfortunately, matching investment from larger firms – including the agency prime contractors or corporate investment firms that are often responsible for a significant share of investment in SBIR awardees – would not qualify, erecting a potentially significant barrier to the utilization of this new authority.
- “Phase flexibility” Pilots (Sec. 854): Pilot authorities – including direct to Phase II funding, Commercialization Readiness Pilot funding (civilian agencies), Phase Zero Proof of Concept funding (NIH) – are all reauthorized through 2022.
- Business Assistance (Sec. 854): The NDAA permits agencies to award up to $6,500 and $50,000, respectively, to Phase I and II awardees for a broader range of business and technical assistance – including commercialization and IP-related activities – a boost over the prior limit of $5,000. These changes will allow awardees to gain access to important business assistance, though the requirement that awardees contract for these services rather than develop in-house capabilities may prove a frustrating inflexibility in some cases.
Opening DoD Labs to Entrepreneurs (Sec. 222)
The Army Research Laboratory (ARL) has found that research conducted behind its locked gates may never reach full potential absent collaborations with outside researchers, entrepreneurs, and industry. With over 150 such collaborations underway generating nearly $40 million in in-kind research for ARL along with significant new commercialization efforts, ARL has pioneered and proven a new open model for federal labs.
The 2019 NDAA authorizes DoD to replicate this successful approach across all of its labs, which would provide valuable IP, personnel, and equipment as fuel for new entrepreneurial ventures to develop market-ready technology with important applications for defense and beyond.
Establishing a DoD Venture Fund (Sec. 230)
Aiming to fill a gap in risk capital for defense-relevant technology, Congress through the NDAA directs DoD to establish an investment fund – akin to CIA’s In-Q-Tel – focused on making equity investments in startups developing hardware-intensive technology systems. With the upcoming appropriations process set to determine the initial size of the fund, there remain lots of scoping questions still yet to be answered. Nonetheless, creation of the fund has potentially far-reaching significance, especially if the fund can replicate a measure of In-Q-Tel’s success.
Codifying DoD’s Tool to Prepare Startups for Acquisition Opportunities (Sec. 224)
DoD’s Rapid Innovation Fund helps startups that are commercializing defense-applicable technologies to de-risk and defray technical costs in order to ready them for DoD acquisition opportunities. The 2019 NDAA codifies this program – which dates from 2011 – into law, sending DoD a clear signal of Congressional commitment to ensuring that DoD can reach beyond the usual suspects to access the best emerging technologies regardless of source.
Evaluating Existing Innovation and Entrepreneurship Education Programs (Sec. 233)
In the 2018 NDAA, Congress recognized that a proliferation of national security innovation and entrepreneurship training programs – from Hacking for Defense to SBIR to Defense Digital Service – has outpaced understanding of what works. The 2018 legislation encouraged DoD to develop metrics to assess these programs.
The 2019 NDAA legislation underscores the very real need for evaluation and coordination, while adding two more entrepreneurship programs to the list: I-Corps and the National Security Technology Accelerator. CAE commends Congress for its ambition to help identify when and how to deploy each of these tools for maximum impact – an overlooked but important priority.
Connecting Over $1 Billion in SBIR Funding to the DoD Research Agenda (Sec. 857)
DoD’s SBIR program funds over $1 billion in research performed by innovative startups and small businesses. It’s a staggering amount of potential fuel for innovative firms to pursue scientific and technical breakthroughs with defense applications – and yet DoD currently neglects to include the program in its requested budget, making it more difficult to coordinate SBIR investments with its broader R&D agenda.
Through the 2019 NDAA, Congress directs DoD to include SBIR funding in its Congressional budget submissions. In addition to the immediate benefits of better research coordination, fully incorporating SBIR into DoD’s overall R&D agenda may yield a greater emphasis on strategically deploying DoD SBIR funds in support of innovative high-growth startups developing technologies with strong commercialization potential.
Helping Startups Navigate DoD Procurement (858-859)
Complex federal procurement processes can present an insurmountable barrier, especially for resource-strapped startups and small businesses. To help these firms, DoD already funds a nationwide network of Procurement Technical Assistance Centers. The 2019 NDAA authorizes DoD to devote additional resources to create startup/small business-specific training materials and programming. While some measure of skepticism is warranted, if done right these resources could help unlock important new partnerships for DoD with firms that are often unable to otherwise find their way to the table.
Together, these provisions represent an ambitious yet entirely overlooked entrepreneurship agenda, focused on new DoD activities but reaching all SBIR funding agencies. Now it’s up to the Administration to ensure they succeed.