Sean O'Sullivan
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I grew up in poverty in upstate New York, but I was lucky enough to study engineering at Rensselaer Polytechnic Institute. I founded a company that went public when I was 28, and I used that wealth to invest in startups.
It’s been exhilarating to watch many founders flourish, but when I return to upstate New York, the desolate remains of long-closed factories remind me of the sectors that the tech revolution never reached.
The numbers behind those empty facades could not be more dire. In late 2019, even before COVID struck, U.S. manufacturing fell to 11% of GDP, the lowest level in 72 years. We ceded much of that ground to low-cost competitors in China, which became the world’s top manufacturer back in 2011. We now have only a small window of time to restore manufacturing as a foundation of American prosperity, and a remarkable but underappreciated federal program has a big role to play.
My firm, SOSV, specializes in running programs that help founders take technically difficult ideas from research to product. Many of these companies represent the future of American industry, especially when it comes to such national priorities as industrial automation and decarbonization.
You might think those startups would be ripe for venture investment, but in reality, only a fraction of venture capital flows to them. They are simply too risky compared with categories like SaaS and consumer.
That is exactly why in 1982 the U.S. Congress established the Small Business Innovation Research (SBIR) program, which, in the words of its founder, Roland Tibbetts, aimed to “provide funding for some of the best early-stage innovation ideas — ideas that, however promising, are still too high risk for private investors, including venture capital firms.”
For a little more than $3 billion per year in contracts and grants disbursed by federal agencies, the SBIR has produced 70,000 patents, $41 billion in follow-on venture capital investments and 700 public companies.
SBIR’s brilliant design has helped thousands of technology-minded entrepreneurs cross the chasm from research to real products, new markets and venture backing. We’ll need thousands more brilliant scientists, technologists and entrepreneurs to step up in the decade ahead. They can do this from their garage, but they can’t do it out of thin air. Congress should act quickly to create an “SBIR 2.0” with three critical improvements over how SBIR works today.
First, we need at least 10 times more SBIR funding. Even at $30 billion, SBIR’s funding would be a rounding error compared to many budgets in Washington, like $693 billion for defense in 2020, and just a fraction of total U.S. venture investing, which in 2020 reached $156 billion. Yet, arguably, nothing in the federal budget could do more to help American industry.
Second, we need to focus new SBIR funding on critical strategic areas, especially decarbonization and advanced manufacturing. The first will save humanity’s future on this planet. The second will help us leap over our missed generation of manufacturing investment to establish leads in critical areas, including robotics, battery technology, artificially intelligent devices and additive manufacturing. Who could ask for better markets?
Finally, the review and reward process needs to be fast. One great example is the innovative U.S. Air Force “pitch day” programs in 2019 and 2020, which granted funds to the best founder pitches (carefully pre-qualified) in a matter of minutes. In our almost frictionless market for talent, long waits to deliberate and disburse funds is not a winning approach.
The Biden administration’s late-February issuance of an executive order on America’s supply chains suggests that the White House is already working hard on policy measures. No doubt the administration’s effort will draw on many approaches, but the key must be a relentless focus on America’s primary unspent fuel: the ingenuity and drive of our people.
We will only pull the depressed regions of this country out of poverty by giving them the tools to, with their own hands, rebuild American manufacturing through entrepreneurship.
Editor’s note: Former TechCrunch COO Ned Desmond is now senior operating partner at SOSV.
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