HispanicBusiness

"At a time when capital is increasingly hard to come by, it doesn't make sense to limit funding options for small businesses," Velazquez said at a recent hearing on the matter. "It should be up to the entrepreneurs themselves, not bureaucrats here in Washington, to decide how these firms are financed."

In essence, the clash pits the notion of keeping the Small Business Administration focused on businesses that are legitimately small versus the need to address what some say is a slump in not only the economy, but also SBIR-inspired innovation.

Critics have gone after Velazquez, chair of the House Small Business Committee, saying she accepted a sizable amount of campaign contributions from the National Venture Capital Association. In recent years she has floated two bills seeking to return to the days when venture capitalists could own a majority of the companies in the SBIR program.

Those bills passed in the House, but died in the Senate. But this week, one of her allies in the matter -- Congressman Sam Graves (R-MO) -- introduced a similar bill, and critics fear that it will have more success.

This is partly because their side now appears to be bolstered by the addition of a powerful political player: President Barack Obama, who -- like Velazquez -- received generous campaign contributions from venture capitalists. Plus, Obama has appointed two prominent officials in the federal Small Business Administration who have been venture capitalists: Winslow Sargeant, the Chief Counsel for the SBA Office of Advocacy, and SBA leader Karen Mills, heiress to the Tootsie Roll Company.

"They are trying to repeal the Small Business Act, and create these loopholes that will divert the money to something other than small businesses," Lloyd Chapman, president of the American Small Business League, told HispanicBusiness.com.

For their part, the venture-capital proponents are armed with a recent study by the National Research Council finding that the 2003 ruling has taken a disproportionate toll on promising firms.

They also note that since the 2003 ruling, the number of applicants for SBIR grants from the National Institutes of Health has plunged by 40 percent.

Among the companies cut off from SBIR grants because of venture-capital investors is Maryland-based Innovative Biosensors, which, incidentally, is a minority-run firm.

Innovative Biosensors develops technology allowing for the rapid detection of infectious agents, such as anthrax.

In 2005, the company was working on a product that would detect the infectious agent leading to mad cow disease. But it had to drop the mad cow program, because it couldn't receive SBIR funds, as the company was majority-owned by venture capitalists.


"We're a 20-person company," Joe Hernandez, the company's president and CEO, told HispanicBusiness.com. "We are, by all definitions, a small fish.

"If you really look at the competitiveness of the SBIR, it's really decreased over the years," he said, adding that the SBIR program also needs to boost the amount of its grants and contracts. "It's silly to exclude these companies that have been vetted, have capital, and just need additional federal funding to move these risky products into the pipeline."

Graves' legislation, meanwhile, could bring companies like Innovative Biosensors back to the game. It allows venture capital groups to combine forces to own more than 50 percent of an SBIR-participating small business.

However, HR 2767, or "Investing in Tomorrow's Technology Act," still prohibits a single venture-capital firm from owning a majority of a participating small business.

"I don't think they should be penalized because they've got venture capital," Graves told HispanicBusiness.com. "They are still small businesses."

Opponents of the bill say it sets a dangerous precedent.

"All of a sudden, your little guys are going to have to compete with some corporate giants," said Rick Shindell, who produces a newsletter called the SBIR Insider. "Is that fair? It's no longer a small business program if you allow that."

They also attack Velazquez and Graves for accepting campaign donations from venture capital groups.

Of the two, Velazquez receives significantly more money from venture capitalists. However, aides point out she hails from New York, where financial companies reign supreme.

In any event, among her top contributors is the National Venture Capital Association, which gave her $21,500 between 2003 and 2008, and has kicked in an additional $3,000 for her for reelection campaign in 2010, according to OpenSecrets.org, a Web site that tracks campaign contributions to federal lawmakers.

As for Graves, he has received about $10,000 from the venture capital industry since 2003, according to Maplight.org.

Graves said criticism based on venture-capital campaign contributions is "goofy."

"You can go round and round and round on that deal," he said. "The bottom line is it needs to be updated. This thing has not been updated in 49 years, and a whole lot has changed. We need to bring the law into the 21st Century."

A spokesman from the House Small Business Committee told HispanicBusiness.com that Velazquez -- who chairs the committee -- is in support of changing the policy back to the way it used to be.

"Chairwoman Velazquez has consistently said that small business owners should have access to the capital they need and how they raise that capital should be their decision, not Washington bureaucrats'," spokesman Alex Haurek wrote. "That was her position under the Clinton Administration, when venture capital was permitted in the program, and it remained her position after the Bush Administration changed the rules in 2003."

Haurek added: "Given the difficulty small firms continue to face in accessing capital, making sure they can find the capital they need to grow their businesses is even more important now than ever. Implying that the Chairwoman's position is motivated by anything other than these facts is simply unfounded."