Innovation policies for SMEs in the U.S.

-By INSME Secretariat

 

Kenan Jarboe, Technology Policy Consultant and Knowledge-Economy International Expert and Giuseppe Gramigna, former Chief Economist at the United States Small Business Administration (SBA) and SME Expert were the protagonists of the 7^th session of the INSME Innovation Management Programme held on the 9^th of July 2020 and focused on innovation policies of SMEs in the U.S.

The session was opened by Ken Jarboe who offered an overview of innovation policies in the U.S. which can be grouped into four categories:

• Funding
• Technical Assistance
• Networking and information sharing
• Workforce development and education.

There are several state and federal programmes and initiatives to support SMEs. Firstly the R&D tax credit which is a measure dedicated to companies which can – for example – claim tax credits for employees’ salaries involved in research activities. In order to take benefit of the R&D tax credit, the company must be pre-commercial, and there are a series of activities that allow tax claim such as prototyping, the development of specific tooling, the evaluation of process alternatives or improving qualities.

Then the speaker talked about two specific manufacturing programmes: the Manufacturing Extention Partnerships (MEP) and the Manufacturing Innovation Institutes (Manufacturing USA). The first one’s purpose is to provide technical assistance and networking opportunities to SMEs. It has been created by the federal government and differs from the R&D tax credit as the activities that can be implemented include market research, marketing and sales, product design and development.

The Manufacturing USA is a real research programme, it is a government initiative sponsored by R&D consortia focused on specific manufacturing technologies which includes SMEs but is not specifically dedicated to them. The programme rewards three main activities: R&D itself, technology transition and workshop development. The mission is to build an ecosystem of specialized experts and facilities.

The I-Corps programme aims at helping SMEs and other innovators. It is a team based training programme that during 7 weeks provides not necessarily with a commercialization plan, but at the least with a precise way to build it. It can be defined as an entrepreneurial training that stimulates the translation of fundamental research to the market place.

The U.S. – as reported by Ken Jarboe – has a very strong industrial policy at a state level and one example is offered by TBED, the State-level Technology-Based Economic Development built on a series of very coherent guiding principles:

1. a research base that generates new knowledge by funding research, facilitating the creation of consortia
2. mechanisms to transfer knowledge to market
3. building an entrepreneurial culture
4. sources of capital
5. a skilled workforce that is able to develop and utilise technologies.

The reason that drives federal governments (or in general any government) to assist SMEs, in particular the innovative ones, is that they are the best agent to create new economic activities and modalities that generate new economic paths and new economic growth. As stated by Giuseppe Gramigna innovative SMEs are often ideas rich, but capital poor and given their huge potential support measures are fundamental.

In particular Giuseppe Gramigna referred to two U.S. programmes implemented by the Small Business Administration: the Small Business Innovation Company (SBIC) Programme and the Small Business Innovation Research (SBIR) Programme. The Small Business Innovation Company (SBIC) Programme works with Venture Capital Funds whereby the Agency:

1. Certifies that these VCs are able to meet SBA policy objectives of investing in innovative SMEs
2. Invests $ 2 for every $ 1 raised by the VC
3. Securitizes the SBIC Debt Instruments to leverage a fixed funding amount
4. Periodically monitors and audits their activities.

There are several advantages for the SBICs and for the government for joining this public-private parnership. The first one is that the Agency provides the so-called Patient Capital, meaning that it provides ten-year debenture with semiannual interest payments, so that it minimizes the capital duration mismatch that SBIC has. Secondly it allows to rapidly deploy funds and to raise two-thirds of capital from SBA; the low cost of capital increases returns to private investors. For the government the motivation is that it leverages the SBIC investment expertise and capital to provide risk credit to SMEs at no cost for the tax payer.

Mr. Gramigna than talked about the SBA role in basic R&D funding from the government side by referring to:

• the Small Business Innovation Research (SBIR) programme: where Federal agencies with an annual extramural R&D budget in excess of $100 million must reserve 3.2% for competitive bid to small businesses
• the Small Business Technology Transfer (STTR) Programme: with Federal agencies having an annual extramural R&D budget in excess of $ 1 must reserve 0.45% for competitive bid to small businesses.

These programmes are three phases programmes:

1. in a first phase companies can receive an award up to $ 250,000 to evaluate the feasibility the scientific and technical merit of an idea for a period of up to six months
2. in the second phase the projects that successfully passed the first phase can potentially receive fundings up to $ 1.5 million for further development of the ideas in a two-year period
3. the third and final phase is the commercialization one where no SBIR funding is provided. The private sector investment and support are used to bring the innovation to the market but what normally happens is that a government contract kicks in. This helps to better understand how federal governments assist in these projects: different federal agencies participate, the role of the SBA is that it establishes rules, monitors activities and publishes results. The publishing part is the incentive to participate in the programme.