Small Business Innovation Research: Few Agencies Made Awards to Small Businesses Majority-Owned by Multiple Venture Capital Operating Companies, Hedge Funds, or Private Equity Firms

What GAO Found

Among the 11 agencies participating in the Small Business Innovation Research (SBIR) program, from fiscal years 2015 through 2018, 3 agencies awarded contracts and grants to small businesses majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms (investment companies and funds). Specifically, the Department of Health and Human Services' National Institutes of Health (NIH), the Department of Energy's Advanced Research Projects Agency-Energy, and the Department of Education's Institute for Education Sciences made a total of 62 awards and obligated $43.6 million to such businesses during this period. This amount constituted between 0.1 percent and 2.7 percent of these agencies' obligations for the SBIR program each year.

NIH is the only agency that made awards to small businesses majority-owned by multiple investment companies and funds in all 4 fiscal years in GAO's review. Also during this period, the Department of Defense submitted a written determination to the Small Business Administration and certain Congressional committees as is required prior to making SBIR awards to such companies, but it did not make any such awards. The other seven agencies elected not to use the authority for various reasons. Officials from most of the agencies that elected not to use the authority told GAO they believe that opening their programs to small businesses with majority ownership by multiple investment companies and funds would not substantially contribute to the agencies' missions.

Why GAO Did This Study

To stimulate technological innovation, the Small Business Innovation Development Act of 1982 amended the Small Business Act to, among other things, call for the establishment of the SBIR program. Federal agencies with obligations of $100 million or more for extramural research or research and development--which is generally conducted by nonfederal employees outside of federal facilities--are required to establish an SBIR program. In fiscal year 2017, the 11 federal agencies that participate in the program awarded about 4,800 federal contracts and grants totaling nearly $2.3 billion to small businesses. The SBIR/STTR Reauthorization Act of 2011 amended the Small Business Act to authorize agencies to allow participation in their SBIR programs by small businesses that are owned in majority part by multiple investment companies and funds. Upon providing a written determination to the Administrator of the Small Business Administration (SBA)--the agency that oversees the SBIR program--and congressional committees specified in the act, agencies may make SBIR awards to such small businesses.

The Reauthorization Act also included a provision for GAO to conduct a study of the impact of requirements relating to involvement in the SBIR program by investment companies or funds and submit a report to Congress regarding the study every 3 years. This report updates GAO's previous work on this subject by examining, for fiscal years 2015 through 2018, agencies' use of the authority. GAO reviewed agencies' data on their use of the authority and found it reliable for its purposes. GAO also reviewed information in the SBIR program policy directive and conducted semi-structured interviews with program managers from the 11 participating agencies and SBA.