[Senate Hearing 119-20]
[From the U.S. Government Publishing Office]


                                                         S. Hrg. 119-20

                       GOLDEN AGE OF INNOVATION:
                REFORMING SBIR-STTR FOR THE 21ST CENTURY

=======================================================================

                                HEARING

                               BEFORE THE
                               
                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP

                                 OF THE

                          UNITED STATES SENATE

                    ONE HUNDRED NINETEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 5, 2025

                               __________

      Printed for the use of the Committee on Small Business and 
                            Entrepreneurship
                            
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        Available via the World Wide Web: http://www.govinfo.gov
        
                                __________

                   U.S. GOVERNMENT PUBLISHING OFFICE                    
59-574                     WASHINGTON : 2025                  
          
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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
                    ONE HUNDRED NINETEENTH CONGRESS

                              ----------                              

                        JONI ERNST, Iowa, Chair
            EDWARD J. MARKEY, Massachusetts, Ranking Member
JAMES E. RISCH, Idaho                MARIA CANTWELL, Washington
RAND PAUL, Kentucky                  JEANNE SHAHEEN, New Hampshire
TIM SCOTT, South Carolina            CORY A. BOOKER, New Jersey
TODD YOUNG, Indiana                  CHRISTOPHER A. COONS, Delaware
JOSH HAWLEY, Missouri                MAZIE K. HIRONO, Hawaii
TED BUDD, North Carolina             JACKY ROSEN, Nevada
JOHN R. CURTIS, Utah                 JOHN W. HICKENLOOPER, Colorado
JAMES C. JUSTICE, West Virginia      ADAM B. SCHIFF, California
JOHN HUSTED, Ohio
                Meredith West, Republican Staff Director
                 Sean Moore, Democratic Staff Director
                            
                            
                            C O N T E N T S

                              ----------                              

                      Witness Prepared Statements

                                                                   Page
Mr. Austin Strawhacker, Associate State Director, America's Small 
  Business Development Center Iowa, Ames, IA.....................     8
Dr. Ken Mahmud, Executive Vice President, Triton Systems, 
  Chelmsford, MA.................................................    15
Mr. Caleb Carr, Chief Executive Officer, Vita Inclinata 
  Technologies, Broomfield, CO...................................    23
Mr. David Rothzeid, Principal of Investments, Shield Capital, 
  Washington, D.C................................................    31

              Additional Letters/Statements for the Record

Alliance for Commerical Technology in Government-Letter dated 
  March 7, 2025..................................................    54
Iowa Economic Development Authority-Letter dated March 5, 2025...    56
MassBio-Letter dated March 5, 2025...............................    57
MassMEDIC-Letter dated March 5, 2025.............................    61
New England Innovation Alliance-Statement dated March 5, 2025....    63
Open Source Investigation into Triton Systems Connections to 
  China..........................................................    70
Small Business Technology Council-Letter dated March 5, 2025.....    85
Software in Defense Coalition-Letter dated March 4, 2025.........    86
The Technology Association of Iowa-Statement.....................    89
Triton Systems Inc.-Memo dated March 19, 2025....................    90
Triton Systems Inc.-Chair Ernst Additional Statement.............    94

                        Questions for the Record

Dr. Ken Mahmud
    Responses to questions submitted by Senators Cantwell and 
      Hirono.....................................................    97
Mr. David Rothzeid
    Responses to questions submitted by Senator Cantwell.........   105
Mr. Austin Strawhacker
    Responses to questions submitted by Senator Hirono...........   108

 
                   GOLDEN AGE OF AMERICAN INNOVATION:.
                REFORMING SBIR-STTR FOR THE 21ST CENTURY

                              ----------                              


                        Wednesday, March 5, 2025

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:34 p.m., in 
Room 428A, Russell Senate Office Building, Hon. Joni Ernst, 
chairwoman of the committee, presiding.
    Present: Senators Ernst [presiding], Young, Hawley, Budd, 
Husted, Markey, Shaheen, and Rosen.

               OPENING STATEMENT OF SENATOR ERNST

    Chair. Thank you everyone, and I call the Committee on 
Small Business and Entrepreneurship to order. With its 
authorization expiring at the end of this fiscal year, today we 
turn our attention to the Small Business Innovation Research 
and Small Business Technology Transfer programs, or SBIR/STTR. 
This program has effectively partnered federal agencies with 
private sector entrepreneurs to scale research and development 
projects aimed at addressing the pressing challenges of the 
day.
    While we've seen a measure of success over the years 
through the committee's oversight efforts, agency studies and 
GAO reports, it is clear SBIR is in need of additional reforms 
to safeguard taxpayer funds and enable this program to meet its 
full potential. Despite the funding spanning 11 agencies and 
countless critical technology areas, SBIR has demonstrated an 
incredible potential to revitalize our small business 
industrial base and preserve America's technological 
leadership. The cutting-edge technologies being generated are 
already serving to enhance competition, improve supply chains, 
and increase overall readiness.
    For these reasons, I am excited to announce that today I'm 
introducing the Investing in National Next Generation 
Opportunities for Venture Acceleration and Technological 
Excellence or INNOVATE Act--we have to come up with these fancy 
names, okay--the INNOVATE Act, a bill to reauthorize and 
comprehensively reform the SBIR/STTR program.
    My legislation streamlines and simplifies existing 
processes, directs the funding toward projects based on merit, 
channels funding to help accelerate the most promising projects 
towards final stage commercialization, protects against waste 
and abuse, and introduces enhanced protections and 
accountability tools to prevent these new technologies from 
getting into the hands of our foreign adversaries.
    First, the INNOVATE Act reforms Phase I to provide new 
applicants with a simplified two-page proposal process with 
smaller, one-time awards, so that more innovators throughout 
the country can have access to this program, even if they can't 
hire professional grant writers. My bill also eliminates DEI 
preferences. These measures enable agencies to scout the best 
proposals based on substance from across the country. I am 
committed to ensuring open competition for innovators with 
traditionally lower engagement in the program.
    Second, my bill addresses the practice of SBIR Mills, where 
firms benefiting from their beltway connections and grant 
writing expertise have been able to collect an outsized portion 
of the funding, with fewer results to show for it. This problem 
was verified by both the GAO, the Government Accountability 
Office, and the DOD's Defense Industrial Board, which reported 
that the firms that got the most awards were less productive in 
terms of commercialization, investments, and patents than those 
who got fewer awards.
    To prevent the use of Phase I or II funding as a permanent 
source of revenue, my bill imposes a $75 million lifetime cap. 
It forces small businesses with dozens of awards to demonstrate 
commercial traction or follow on contracts with non SBIR 
dollars.
    Third, my bill empowers DOD to repurpose, underutilized and 
overly regulated STTR Phase II funding, to more efficiently 
scale the most promising technologies for long-term contracts 
for deployment through strategic breakthrough awards. For these 
awards of up to $30 million, the bill limits eligibility to 
small businesses making clear progress towards 
commercialization, and with an identified DOD end user.
    It also requires 100 percent matching funds to ensure that 
firms have skin in the game, and aren't just in it for 
corporate welfare. These reforms will enable more flexible use 
of SBIR funding to help bridge the valley of death for the 
companies on the verge of success.
    Finally, my bill builds on my longstanding work to 
safeguard these new SBIR technologies from being stolen by our 
adversaries. For years, China and other state actors have 
stolen intellectual property and proprietary secrets from 
American businesses and universities. That is why I championed 
the Foreign Ties Due Diligence Program Reforms in the 2022 
reauthorization. But we have found that more needs to be done.
    That's why my INNOVATE Act introduces a new definition of 
foreign risk, to create a stronger risk assessment baseline 
standard, that must be applied consistently across all 
agencies. It implements a clear list of ties to foreign 
countries of concern, that disqualify an applicant. And it 
empowers agencies with clear clawback authority if a small 
business exposes SBIR funded products to adversarial influence 
post award.
    By targeting SBIR funds to the very best innovators in the 
country, by cutting off the unserious applicants who are just 
after corporate welfare, by providing a boost to the best 
companies who need it to get over the final hurdles and by 
better protecting our taxpayer funded innovations from going 
directly to China, the SBIR/STTR program can expedite new 
technologies, increase economic opportunity, and attract 
investment back into our towns and cities, and help to usher in 
a new golden age of innovation for America.
    I look forward to working with my colleagues to get this 
across the finish line. It's up to us, the members of this 
committee, to work together to optimize this important program. 
I'd like to thank the witnesses for being here today and being 
willing to share their experience and expertise with us. I now 
recognize Ranking Member Markey for his opening statement.

                  STATEMENT OF SENATOR MARKEY

    Senator Markey. Thank you, Madam Chair. And today's hearing 
centers on American innovation and the small businesses that 
lead the way every day of the year.
    For decades, the Small Business Innovation Research 
Program, or SBIR, and the Small Business Technology Transfer 
Program, or STTR, have played an essential role in driving our 
country's innovation. And I'm extremely proud that 
Massachusetts small businesses have played such a prominent 
role.
    The Commonwealth is the second highest recipient of total 
awards in the country, receiving more than 24,000 SBIR awards, 
totaling $8.3 billion, and 2,000 STTR awards totaling over $720 
million.
    This success is due to the Massachusetts business plan: 
attract the best and the brightest, provide a world class 
education, and provide opportunities for small businesses to 
compete on a level playing field, while having the best 
educated and the best trained workforce in the country. We 
start in the fourth grade, we're number one in the fourth, 
eighth, and 10th grade in America in math and verbal. It's a 
business plan; it provides that workforce.
    This has led to the development of America's high-tech 
highway, Route 128, which extends outside of Boston and into 
the surrounding area, akin to Silicon Valley in California, or 
the research triangle in North Carolina.
    SBIR was codified in 1982, and STTR 10 years later, both on 
a bipartisan basis. During this time, Congress was keenly aware 
that the federal research and development needs of the country 
were not being met. SBIR and STTR were designed to use 
America's small businesses to drive innovation.
    These highly competitive programs have contributed to the 
golden age of innovation in our country. We have experienced 
that over the last 40 years. Without these programs, Americans 
would not have novel technologies at their fingertips as they 
do today. For example, the very popular LASIK eye surgery, was 
developed in part due to an SBIR funding. SBIR also funded 
earlier Qualcomm wireless communications systems.
    I'm proud of the SBIR and STTR advancements that have come 
from Massachusetts. Just as Iowa is rich in nutrient filled 
soil makes it the premier producer of corn, it is Massachusetts 
technology ecosystem that provides a fertile ground for 
innovation in the technology sector, which is why we're not 
just the Bay State, we're also the brain state.
    For example, Massachusetts small businesses have received 
more than 70 awards for projects related to the treatment of 
Alzheimer's disease, the brain, and it's approaching it for 
many different avenues. Today we'll hear from Triton Systems, a 
company from the Commonwealth, that used an SBIR award to help 
create the world's smallest heart pump, which is now 
universally used in hospitals because of an SBIR grant.
    Without SBIR and STTR funding, many of these products may 
have never seen the light of day. These programs are highly 
efficient and pay dividends for the American people. The return 
on investment for every dollar the government spends on these 
programs is anywhere from $20 to $30.
    SBIR and STTR awards from the Department of Defense alone 
creates over 65,000 new jobs every year. The SBIR and STTR 
programs work because they prioritize merit and competition-
Darwinian paranoia inducing competition--that's the hallmark of 
STTR and SBIR. That's what it's all about-Darwinian 
competition; the best ideas prevail.
    We should not place limits on the number of awards or the 
amount of funding that goes to deserving small businesses. We 
should not put a limit on the best ideas or the best 
technologies. That's what we're going to need to compete 
against China. We would never limit the number of contracts 
that a large defense contractor receives from the Federal 
Government. So why would we consider limiting our most nimble 
allies in innovation-our small businesses?
    We don't tell Raytheon or Lockheed Martin, ``You've had 
enough Federal contracts; we're going to start with a smaller 
firm.'' We don't do that. We go to where the best ideas are. 
While SBIR and STTR have enjoyed bipartisan support for several 
decades, we have not yet been able to make them permanent. 
They're currently set to expire at the end of September.
    I've worked throughout my time in Congress to make 
improvements to the programs and ensure that their 
authorization never lapses. It's critical that we do so again, 
and I'm looking forward to working with you, Chair Ernst, on 
this issue, and I want to thank all of our witnesses for your 
help in us understanding this issue today.
    Chair. Great. Thank you, Ranking member Markey. And again, 
I want to extend a warm welcome to all of our witnesses today, 
and I will now introduce the three witnesses who are testifying 
today on behalf of the majority. I am thankful that all of you 
took time out of your busy schedules to join us in front of the 
committee and share your expertise and insight into the SBIR 
and STTR programs with this committee.
    First is Mr. Austin Strawhacker, who is the Associate State 
Director at America's SBDC in Iowa, at Iowa State University in 
Ames, Iowa. The Iowa SBDC operates 15 centers across the state, 
providing expert business counseling to entrepreneurs and small 
business owners. Mr. Strawhacker oversees the Iowa's SBDC's 
Technology and Commercialization team, which supports 
innovative entrepreneurs in leveraging federal and state 
resources in all 99 counties.
    He also chairs the Association of Small Business 
Development Centers Research and Data Committee, and serves on 
the Iowa Rural Development Council. Mr. Strawhacker also holds 
bachelor's degrees from Grandview University and a Master of 
Public Administration from Drake University, both in Des 
Moines, Iowa. So, Austin, thank you very much for being here 
today.
    Next, Mr. Caleb Carr is the CEO of Vita Inclinata, an 
aerospace and industrial company headquartered in Broomfield, 
Colorado. Vita Inclinata received six SBIR awards totaling just 
over $4 million that were crucial to the company's success. Mr. 
Carr serves as a board member for the Software and Defense 
Coalition, and is a professor of entrepreneurship at the 
University of Colorado. He graduated with a bachelor's degree 
from the University of Colorado at Denver and holds a Juris 
Doctor from Mitchell Hamline School of Law.
    Our third witness, Mr. David Rothzeid, is a Principal at 
Shield Capital, a venture capital firm focusing on investing in 
early-stage companies, developing technologies critical for 
national security. He served for eight years as an acquisition 
officer in the United States Air Force. Thank you very much for 
your service to our country, including a deployment with 
Special Operations Command in Afghanistan.
    He subsequently worked at the Defense Innovation Unit, 
ending his time there as Director of Acquisition Pathways. Mr. 
Rothzeid has a bachelor's degree from Miami University, and an 
MBA from the University of Colorado, Colorado Springs. Thank 
you again. And I now recognize Ranking Member Markey to 
introduce his witness.
    Senator Markey. Thank you, Madam Chair. The minority 
witness today is Dr. Ken Mahmud, who is the executive Vice 
President of Triton Systems, which is a business at the cutting 
edge of innovation. Triton Systems is a multi-award winning 
SBIR and STTR company and was awarded the Small Business 
Administration's TIBBETTS Award in 2016 for its success in the 
SBIR program.
    Dr. Mahmud has more than 35 years of experience in research 
and development, including managing Triton's participation in 
the SBIR and STTR programs. And we welcome you, Doctor, to the 
panel today. Thank you, Madam Chair.
    Chair. Thank you, Ranking Member. And briefly, I'd like to 
take a moment to explain our lighting set system to the 
witnesses. There are three lights in front of you; green means 
go, yellow means you are running out of time, and red means to 
go ahead and wrap up those remarks. So, I ask unanimous consent 
that the witness's full statements be included in the record. 
Without objection, so ordered.
    As your written testimony has been made part of the record, 
the committee asks that you limit your oral remarks to five 
minutes. And with that Mr. Strawhacker, you are recognized for 
five minutes for your testimony.

STATEMENT OF MR. AUSTIN STRAWHACKER, ASSOCIATE STATE DIRECTOR, 
  AMERICA'S SMALL BUSINESS DEVELOPMENT CENTER IOWA, AMES, IOWA

    Mr. Strawhacker. Chair Ernst, Ranking Member Markey, and 
distinguished members of the committee, thank you for the 
opportunity to testify on the reauthorization of the Small 
Business Innovation Research and Small Business Technology 
Transfer Programs.
    As the Associate State Director of America's SBDC Iowa, I 
provide oversight to our technology and commercialization 
center, which provides guidance to innovators, often including 
the exploration of SBIR and STTR funding. I'm proud to work for 
an organization that is vital to the success of so many small 
businesses. The Iowa SBDC fosters innovation, strengthens local 
economies, and drives small business success.
    We engage with approximately 5,000 clients annually, that 
in 2024 alone launched 225 new businesses, created 101,795 new 
jobs--I wish it was the bigger number, generated $174 million 
in sales and secured $57 million in new capital. This yields an 
ROI of 3.7 on all of our funding sources.
    Hosted by Iowa State University, the Iowa SBDC collaborates 
with various partners to provide tailored services that support 
businesses in both urban and rural areas. Our regional centers 
act as a pipeline to lead technology driven businesses to our 
technology and commercialization center for assistance with 
SBIR/STTR proposal development, intellectual property, and 
commercialization assistance.
    Today I would like to focus on three main points: the 
importance of the SBIR/STTR programs, the importance of 
localized support, and outline a couple of challenges and 
opportunities. For over 40 years, SBIR and STTR have ensured 
that small businesses play a significant role in the federal 
research and development.
    These programs help develop groundbreaking technologies, 
create high quality jobs, and enhance our global 
competitiveness. In Iowa SBIR and STTR fundings help bridge the 
gap between research and market deployment, particularly in key 
sectors like advanced manufacturing, agricultural technology, 
and biosciences. These programs also attract follow on 
investment, drive job creation, and expand local supply chains.
    In fact, over 50 percent of successful SBIR and STTR 
applications that we have assisted with, have leveraged their 
awards to generate additional funding that has more than 
doubled the overall investment in these companies. Rural 
entrepreneurs in particular exemplify the grit and innovation 
that define American small businesses. Despite facing 
challenges such as limited access to capital, workforce 
shortages and geographic barriers, they drive technological 
advancement and local economic growth. SBIR and STTR often 
provide the critical support needed for these entrepreneurs to 
take risk, push innovation, and continue to contribute to the 
national competitiveness.
    The success of small businesses, particularly in rural 
communities, depends on access to localized support. A prime 
example in Iowa is Senator Ernst Entrepreneur Expo, an annual 
collaboration between the Senator, the Iowa SBDC, and Iowa 
State University Center for Industrial Research and Service. 
This event connects small businesses with industry experts, 
government resources, and potential investors, fostering 
collaboration and showcasing innovation.
    Additionally, we have established the Great Plains SBIR 
working group with our partners in Kansas, Nebraska, and 
Oklahoma. This group meets monthly to share best practices, 
develop solutions and strengthen the regional support network.
    While SBIR and STTR have been highly effective, there are 
opportunities to enhance their impact. Streamlining the 
application process and introducing a smaller Phase I award 
could lower barriers for first time applicants, particularly in 
rural areas. This would allow early-stage research to explore 
commercialization potential before full feasibility and 
commercialization work begins.
    Many companies also receive very little feedback on their 
Phase I proposals if they're declined. Often the reason for 
declaration is something that SBDC could help with proactively 
if more guidance was provided. Increasing transparency and 
structured feedback would help applicants refine proposals and 
improve success rates.
    There should be recognition that innovation exists 
everywhere across our nation, yet just five states receive 46 
percent of SBIR/STTR awards and dollars according to public 
data on sbir.gov. Addressing this disparity through targeted 
outreach, regional training, and improved evaluation 
transparency, could ensure fair access to funding no matter the 
geographic location of the business.
    In conclusion, SBIR and STTR awards have driven innovation, 
strengthened local economies, and created high quality jobs in 
America for over four decades. By leveraging SBDC's support, 
small businesses can access commercialization experts, funding 
strategies and technical assistance to maximize program 
benefits.
    Continued collaboration among federal agencies, local 
resource providers and entrepreneurs will be essential in 
maintaining the United States leadership and innovation. I 
thank you for your time and consideration today, and I welcome 
any questions.
    [The prepared statement of Mr. Strawhacker follows.]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chair. Thank you very much, Mr. Strawhacker, and we will go 
next to Mr. Mahmud, and you are recognized for five minutes for 
your testimony.

 STATEMENT OF DR. KEN MAHMUD, EXECUTIVE VICE PRESIDENT, TRITON 
               SYSTEMS, CHELMSFORD, MASSACHUSETTS

    Dr. Mahmud. Good afternoon, Honorable Chair Ernst, Ranking 
Member Markey, and all other members of the Senate Small 
Business Committee. Thank you for the opportunity to speak at 
today's hearing. I'm pleased to share my insights into how 
Triton has supported SBIR's successful track record of both 
advancing national security and the economy. I'd like to share 
a few examples with the committee, mainly to show the different 
paths to commercialization and the benefits to both the war 
fighter and the United States as a whole.
    First, a few words about myself. I received my Master's and 
Ph.D from RPI in upstate New York, in chemical engineering. I 
have been in leadership roles as Senator Markey mentioned in 
U.S. industry for over 35 years. I'm an inventor with over 30 
patents, and I received the Tibbetts award from the SBA on 
behalf of Triton for commercial success and commercializing 
SBIR derived technologies.
    Triton is a hundred percent U.S. owned company with 
significant employee ownership. Most of our technical staff 
have security clearances and carry an incredible passion for 
helping the country and the war fighter, as you will see. Let 
me show you some examples of the impact on national security 
and the economy as a whole.
    We supply a critical component to the F-35 aircraft, which 
is the largest DOD platform ever. It is expected to save the 
Air Force over $550 million in sustainment costs. We supply 
another critical component to the F-22 aircraft, which will 
enable another $200 million in sustainment cost savings for the 
Air Force.
    We have set up a venture in the state of Washington to 
manufacture long range aerial mobility systems, to support a 
Navy program of record. To do this, we are setting up an entire 
Berry compliant U.S. supply chain, bringing back capability 
that had moved overseas. This involves companies across the 
country, primarily starting with North Carolina, but also 
companies in Tennessee, Massachusetts, Rhode Island, 
Pennsylvania, and of course final manufacturing in the state of 
Washington.
    Our hearing protection product is being qualified for Army 
helicopter air crew. I do want to point out here that hearing 
loss and tinnitus is two of the biggest health issues affecting 
our veterans. With over a million veterans affected, it is 
estimated that the VA provides over a billion dollars in 
disability benefits related to these conditions.
    Our bladder relief product for aviators is being qualified 
for navy combat missions, and Air Force recon missions. Our 
SBIR derived sensor technology enabled the world's smallest 
heart pump for use in cardiac failure intervention. I do want 
to mention here that heart disease is the number one cause of 
death for Americans today.
    We are also investing in the first large area metallic 3D 
printing capability in the country, with internal funding. This 
will be a new capability for the United States, allowing for 
the manufacturer of 3D printed large metallic parts for 
aircraft, missiles and other DOD platforms. I would like to 
finish by offering some suggestions to the committee for 
improving the SBIR program based on our experience with it.
    The SBIR program is one of the most successful technology 
programs in the federal government, as indicated by all 
National Academy of Science Studies and multiple agency 
studies. We believe this is because of the merit-based nature 
of the program, the competition, the ruthless competition that 
it fosters, and the flexibility, and this is very important, 
the flexibility given to the agencies to adapt it to their 
needs.
    Our suggestions to the committee include: number one, 
provide meaningful incentives for transition to Phase III for 
DOD platforms in particular. I will just add on a personal 
note, that you know, for a small business when most of the 
platforms are owned by the prime contractors, it is incredibly 
hard for a small business which is focused on a sub component 
or a component to de-risk it, mature it, qualify it, and 
integrate it. It requires a tremendous amount of cooperation 
with the primes.
    And I do want to add here that, small businesses like ours, 
who have developed a rare expertise in working with academia to 
reduce ideas to practice and working with primes, to then take 
them to a platform and transition it to a program of record, 
offer a unique skillset in our innovation ecosystem.
    Number two, streamline the contracting process. I believe 
this is a request that all of the witnesses will make, 
streamline the contracting process by mandating standard 
contracts. Number three, adequately resource the agencies to 
implement the foreign risk management provisions.
    And number four, reauthorize permanently, or at least for a 
longer term so that small businesses and agencies have some 
certainty in their business planning. I wish to end by thanking 
the members of the committee for your continuing support for 
the program, and for the opportunity for me to speak to you 
today.
    [The prepared statement of Dr. Mahmud follows.]
   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chair. Thank you very much, Mr. Mahmud. I appreciate that. 
We'll move next to Mr. Carr. You're recognized for five minutes 
of testimony.

  STATEMENT OF MR. CALEB CARR, CHIEF EXECUTIVE OFFICER, VITA 
          INCLINATA TECHNOLOGIES, BROOMFIELD, COLORADO

    Mr. Carr. Chairwoman Ernst, Ranking Member Markey, and 
members of the committee. Thank you for having me today.
    I founded my company following the death of a friend of 
mine. While we were on a search and rescue exercise in the 
mountains, he experienced active cardiac arrest and we called 
the rescue helicopter to come and rescue him. The helicopter 
proceeded to lower a rescue basket down to us, but due to the 
winds of the helicopter, the rescue basket kept swinging, and 
because of it, we couldn't get it through the trees above. As a 
result, we called off the mission and called time of death.
    Several years later, my business partner and I founded what 
would be known today as Vita, a company focused on designing 
technology that would eliminate the swing and sway of suspended 
loads on rescue helicopters and save lives. Preventing the 
reality that happened to my friend over a decade ago and 
drastically improving upon the current solution that our war 
fighters and rescue personnel use today, a rope.
    We started in a cold garage in Denver, Colorado, working 
tirelessly to find a solution to the problem. Investors would 
turn us down, left, and right due to the lack of market 
knowledge on the issue and more importantly, the amount of 
complexity that designing a solution and selling said solution 
to the U.S. government would entail.
    It wasn't until something else took a risk on us in late 
2018-the SBIR program, specifically the open topic AFWERX SBIR 
program. The SBIR program took a risk on us, our three-page 
white paper, and our idea. And in doing so, it empowered us to 
quit our jobs, hire a team, and design a solution that we now 
call the Vita Rescue System. Subsequently, the company went on 
to secure two Phase II contracts and eventually a Phase III 
transition, $50 million IDIQ to the U.S. Army, which we 
anticipate putting into motion later this year.
    Meanwhile, that system is now deployed to the battlefields 
of Ukraine, CALFIRE's fire attack helicopters that were used 
recently during the Palisades in Eaton fires, multiple Army 
National Guard units, including South Carolina and across the 
entire Air National Guard.
    Yet that was just the beginning. Thanks to that investment 
by the SBIR program, Vida expanded into providing the essential 
gear that crews need to fight the mission, such as harnesses 
and rescue bags, to the point whereby just two weeks ago, we 
received the following message from a son. ``I just wanted to 
thank you for making such a great product. My father was in a 
horrific helicopter accident and his best friend died on 
impact. He was in the backseat and had your harness on, and 
despite the helicopter being destroyed, he actually walked away 
from the incident with only bumps and bruises''.
    It's this type of mission, this type of capability, these 
products, would not be here today without the support of the 
SBIR program. You are going to hear a lot today about what the 
SBIR program is and is not. But I come to you as someone who 
used the SBIR program for what it was meant to do-transition 
real life solutions into the hands of the people that need it 
most.
    What I can tell you is the SBIR program should not be a 
welfare program to award 50 plus contracts to the same party. 
The SBIR program is an investment program, an investment in 
ideas to facilitate solutions that take what was a rope for 
decades, and make it into a technology solution. An investment 
to empower Americans and frankly, the market to validate scale 
and deploy new capabilities that never thought about until 
today.
    The SBIR program is a mission-focused initiative, that 
advances the objectives of the agencies it supports, providing 
structure and funding to enable companies to directly address 
these missions head on, whether for organizations like CALFIRE 
or the South Carolina Army National Guard. I wonder, would 
those crews have this capability today if the capability 
remained in the R&D environment. Yet at the end of the day, the 
SBIR program is the bedrock of transitioning the future into 
reality.
    Therefore, as you consider how to improve the SBIR program 
during the upcoming reauthorization, I encourage you to support 
the following. One, dedicated funding mechanisms for companies 
that can demonstrate, private sector demand for commercialized 
technology and government demand for innovative solutions. As 
we must provide the tools to transition and transition quickly.
    Two, the use of firm fixed price contracts for SBIR's 
default contracting vehicle, reducing the bureaucratic 
overhead, and allowing the SBIR program to take the small risk 
on people like me, and empower us to do something great.
    And three, limits on SBIR awards for those repeat 
offenders, specifically companies that continue to receive SBIR 
awards without commercializing a viable product from the vast 
majority of their SBIR awards, directly to the end user, not to 
a prime to an end user. In doing so, you'll prevent the SBIR 
program from becoming a welfare program, and keep it focused on 
being an investment vehicle to allow entrepreneurs like me to 
ideate, innovate, and create the critical solutions that don't 
just sit on the shelf for someone to talk about one day, but 
instead are used in reality, executing the mission that it was 
designed to complete. Thank you for your time today, and I look 
forward to your questions.
    [The prepared statement of Mr. Carr follows.]
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    Chair. Thank you very much, Mr. Carr. And now I recognize 
Mr. Rothzeid for five minutes of testimony.

  STATEMENT OF MR. DAVID ROTHZEID, PRINCIPAL OF INVESTMENTS, 
                SHIELD CAPITAL, WASHINGTON, D.C.

    Mr. Rothzeid. Thank you, Chair Ernst, Ranking Member 
Markey, the members of the committee, Senator Rosen, thank you 
for the opportunity to testify.
    I'm an investor at Shield Capital, where I work with over 
40 early-stage startups, building technology at the 
intersection of national security and commercial applications, 
colloquially known as dual use technology. Before this, I spent 
over a dozen years on active duty as an Air Force acquisition 
officer, including at Defense Innovation Unit, where I helped 
pioneer a new model for working with venture-backed startups.
    The reality is that America's technological edge is 
eroding. While we maintain clear dominance in Iraq and 
Afghanistan, we face a very different challenge in the People's 
Republic of China, yet our defense and commercial technology 
ecosystems continue to operate in parallel universes. If we are 
going to win the global power competition, then we must 
leverage America's private capital markets backing the most 
innovative ideas.
    Private capital is critical to accelerating the development 
of next generation defense tech. Venture capitalists bring 
funding, expertise, and a culture of iteration needed to 
develop cutting edge capabilities. Venture-backed startups 
thrive on rapid R&D, allowing them to develop, test, and scale 
disruptive technologies efficiently.
    In recent years, the investment in defense tech has surged, 
growing from 8 billion in 2016 to 42 billion just last year, 
seven x increase. And this trend, it's driven by geopolitical 
instability and emphasis on streamlined processes from 
organizations like DIU and AFWERX, and a growing recognition of 
private capitals value in national security.
    The SBIR and STTR programs were created as America's seed 
capital for innovation, avenues for non-dilutive funding, which 
have contributed to major technological breakthroughs developed 
by venture-backed companies. These program, SBIR or STTR should 
be reauthorized, but with vital improvements. I outlined a 
number of policy solutions in my written testimony, including 
addressing an obstacle course that favors entrenched companies 
so-called SBIR Mills.
    A naval postgraduate school study found that of nearly 
5,000 SBIR companies, the top 25 alone secure 18 percent of all 
DOD Phase I And Phase II funding. That's over 2.3 billion 
between 2012 and 2021. Many of these firms focus on securing 
grants rather than fielding operational capabilities. 
Meanwhile, true high growth startups like the one here on my 
right, the ones building the technology of the future, 
organized to scale, employing thousands, and attracting 
billions of private capitals, are often locked out. We must 
ask, shouldn't America's government backed seed capital be an 
entrepreneur's first step and not a bureaucratic bottleneck?
    Even when startups win SBIR awards, too few transition to 
Phase III procurement contracts. That same MPS study found that 
only 16 percent of SBIR companies transition beyond Phase II, 
the rest remain stuck in perpetual R&D. Programs like TACFI and 
STRATFI in the Air Force and Space Force and Catalyst in the 
Army provide a model for bridging this gap.
    As a former acquisition officer, it is these types of 
programs that would incentivize a federal government program 
office to engage with SBIR companies rather than ignore them to 
the purview of government labs. Without these transition 
pathways, startups struggle to gain meaningful traction and 
investors hesitate to back them.
    At Shield Capital, we have four startups that have 
successfully transitioned from a SBIR Phase II to winning a 
STRATFI contract, enabling them to integrate into emerging 
programs of record. We expect these startups will likely 
graduate from the SBIR program, creating an onramp to scalable 
operational technology. This is the paradigm we need to solve 
for.
    VC financing on a grand scale-it is small but mighty force. 
Just like SBIR within federal R&D, by working together, we 
ensure that SBIR will be a true launchpad. Venture-Backed 
startups will gain a real onramp into government markets, and 
both private capital and federal investment can work together 
to co-fund the technologies our war fighters need.
    R&D-it's a bipartisan issue that impacts the workforce and 
economy of every state in America. Chair Ernst, Ranking Member 
Markey, your states represent two critical sectors of American 
innovation. Iowa's ag tech drives food security, while 
Massachusetts biotech sector pioneers' life-saving 
advancements. Neither thrives without investment, scale, and 
clear pathways to impact.
    In conclusion, I want to thank all the members of the 
Senate Small Business Committee. Now is the time to modernize 
SBIR as a bridge between government needs and America's private 
capital system. The golden age of American innovation will not 
be won by government funding alone, it will be secured by 
unlocking the full potential of America's arsenal, leveraging 
our free market system, ensuring economic prosperity, and 
national security resiliency. I look forward to being a 
resource and answering your questions. Thank you.
    [The prepared statement of Mr. Rothzeid follows.]
   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chair. Great. Thank you, Mr. Rothzeid. And now I recognize 
myself for five minutes of questions. We'll move into 
questions. So, we'll start with you. Mr. Strawhacker, thank you 
for your amazing work and support of small businesses in Iowa. 
I am very familiar with what you do, and thank you for it.
    I believe it's in our national interest to scale the best 
technologies with strong potential to solve America's 
challenges no matter where they are located. What bureaucratic 
obstacles exist for small businesses who are new to SBIR and 
what reforms should Congress consider?
    Mr. Strawhacker. Thank you, Chair Ernst, for that question. 
As I mentioned in my testimony, local support is critical for 
early-stage development, particularly when it comes to learning 
about what these programs can and cannot do for companies. The 
expo that we jointly host in the state has done tremendous work 
in educating people about these resources, but it has also 
brought federal agency representatives to our state to have 
firsthand conversations with those business owners. That's 
where I believe the most work occurs.
    When someone can sit down with someone who can answer their 
questions, right then and there, and provide firsthand 
technical assistance in the moment, leads to significantly 
better planning as people start to enter this space.
    In 2022, the year before the expo was launched, we held a 
very similar event. And while it was impactful--because it was 
the first one that we had done in quite some time, it was very 
difficult to get a lot of our agencies to come and have a 
presence at that event. Those that did come, were blown away by 
the amount of innovation that occurs in our state.
    Thankfully we have many more of them coming to our event 
right now. But in addition to the expo, the other things that 
were mentioned in the testimony such as introducing a smaller 
Phase I award, will be very helpful as well as increasing the 
transparency and feedback when awards are not approved. Thank 
you.
    Chair. Thank you. And if we could move on to you, Mr. 
Rothzeid. In your written testimony, you stated, ``innovation 
thrives in a competitive market where the best ideas rise to 
the top''. Over the past five years, just 10 percent of DOD's 
SBIR/STTR funding went to companies without prior government 
contracts. I'm concerned about whether SBIR is living up to its 
potential, and from what I've been able to see, a system so 
skewed towards the status quo and entrenched players is not 
utilizing competition to drive the innovation America needs to 
stay ahead. So how can we ensure real and open competition in 
the SBIR program?
    Mr. Rothzeid. Thank you, Senator Ernst. And I agree with 
you, it is not okay that only 10 percent of SBIR recipients are 
new entrants. This ought to be seed capital for the next 
emerging ideas. I think one of the major bottlenecks for that 
program is the idea of these esoteric, very nuanced, specific 
topics that are clearly wired for specific companies based on 
prior existing relationships with a company and government 
labs.
    If we can start to generalize the topics more around 
different technology areas that an innovator can come and 
create a new solution around, that is what's going to create 
disruptive technology for the future. It's also what's going to 
address the problems for the program officers that are 
responsible for fielding operational equipment to the war 
fighters.
    The labs have a different perspective with R&D, versus the 
program office that are trying to deal with near and dear 
issues. Additionally, I do find it hard to believe that a 
company, a small business, can work on a myriad of different 
technology areas. For my startups any more than two or three, 
and they're very tapped out. So, we sort of have to ask 
ourselves, why is there such a market efficiency where a 
company can still be a small business, but work across a dozen 
different SBIR at the same time? Thank you, ma'am.
    Chair. Thank you for pointing that out. I appreciate it. 
And I will now turn to Ranking Member--Oh, I can, yes, sir, I 
can. I will now turn to Senator Rosen for her questions. Thank 
you.
    Senator Rosen. Thank you, Madam Chair, thank you. Senator 
Markey. I have a 3:30 and I didn't want to miss, this is such a 
great hearing and it's so important. And I just want to thank 
you all for your ideas, for your energy to bring them into 
reality and to really think out of the box when you see a 
problem, be that those real problem solvers, and it is very 
exciting. This is a great committee to see the entrepreneurship 
and the way people think.
    And so, the SBIR, the STTR, the programs, they're just 
critical sources or capital for startups, and for people who 
see a problem and think, how can I make it better? How can I 
fix it? How can I find that solution? But unfortunately, some 
states aren't receiving their fair share of this vital R&D 
funding.
    Like the Chair, State of Iowa, Nevada sadly is ranked in 
the bottom third of SBIR and STTR award recipients. In 2023, we 
received only 23 of the SBA awards compared to the national 
average of 118 awards per state. I hope to maybe move that up. 
But the Federal and State Technology Partnership Program was 
created to address this gap. The FAST program provides funding 
to economic development entities, research institutions, and 
that in turn provide that technical assistance and support to 
the small businesses who are applying, you often just don't 
know how to get started, right? That's a big issue.
    So FAST Mission to strengthen the competitiveness of 
underserved businesses seeking the SBIR/STTR grants, it's 
critical. And Congress, I believe must continue to support it 
alongside its innovation initiatives. So, Mr. Strawhacker, as a 
FAST recipient, I know you know how important it is, can you 
discuss the ways your SBDC has better served businesses who 
struggle to navigate the SBIR/STTR process. And what challenges 
are you facing that we can address here?
    Mr. Strawhacker. Thank you, Senator Rosen. You are 
absolutely correct that the FAST program is tremendously 
valuable to this overall equation, but it does play a 
complimentary role to the business owners and the innovators. 
We are there to connect them to resources, connect them to 
people who can ultimately invest in these companies. But it's 
their idea and their innovation that drives us forward.
    We have brought on a myriad of different proposal 
development tools. We have sent our advisors to as many 
trainings as we can possibly get to. And I'm confident in 
saying that the proposals coming out of Iowa right now are as 
strong as they have ever been.
    We have developed deeper partnerships with state agency, 
Iowa Economic Development Authority, who provides some of the 
matching funds. But there is still a lot of work to be done. I 
hope that other states will look at implementing an 
entrepreneur expo where they can bring firsthand agency 
representatives.
    Senator Rosen. I've already written that down. We're going 
to contact you on that.
    Mr. Strawhacker. Happy to share any details. Thank you for 
your question.
    Senator Rosen. Thank you. I want to talk a little bit about 
rural business access to SBIR funding. Because we know small 
businesses are the key economic drivers in every Nevada 
community, in fact, Nevada is known for our large, obviously, 
casinos in Las Vegas, but to be honest, 99 percent of 
businesses in Nevada are small businesses. They bolster our 
industries, they support the good paying jobs, local jobs. It's 
true both urban and rural.
    And despite their importance, rural small businesses 
historically face a lot of challenges accessing capital and 
small business resources, I know you know this as well. So 
again, I'm going to stick with you today, Mr. Strawhacker. What 
challenges do you think the rural businesses have and how can 
we help them address that maybe more specific need they have 
and the ways the FAST program can really better connect our 
resource partners to the SBIRs?
    Mr. Strawhacker. Thank you, Senator. It is often remarkably 
difficult to physically get to certain parts of rural states.
    Senator Rosen. You've been to Nevada, so, you know, deep 
frontier, rural states, most mountainous state in the lower 48, 
I might add.
    Mr. Strawhacker. I did not know that. Thank you. 
[Laughter.]
    That is why we have utilized the longstanding success of 
the SBDC network to come alongside the FAST program. We have 15 
offices strategically located around the state of Iowa through 
11 partnerships with community colleges. And then four centers 
hosted by our three public institutions in the state.
    Those people are in the community where those business 
owners are developing their ideas. They're constantly 
networking with different economic development agencies, 
different lenders. They serve as the pipeline for that 
technology-based business into our technology and 
commercialization center who can ultimately get them to that 
finish line.
    Senator Rosen. Well, good. We might be reaching out to you 
for some connection with Nevada.
    Mr. Strawhacker. Absolutely.
    Senator Rosen. Thank you all for being here and what you 
do. And thank you again, Senator Markey, Madam Chair.
    Chair. Yes. Thank you so much, Senator Rosen. Next, we'll 
go to Senator Husted for five minutes of questions.
    Senator Husted. Thank you, Chair Ernst. Appreciate that. So 
business is hard. Many startups fail, particularly if you're in 
tech because there's somebody else out there, all the time, 
who's also innovating and trying to identify a path, a use for 
their technology.
    And how do you go about the process of identifying who 
should receive assistance, who shouldn't? Because in a 
marketplace, it's so much easier in the sense that when it's 
your real money and it's your decision, you are far more 
discerning than when it's not. And so, how does that process 
work right now? And how can we make it more like how a real 
marketplace works? And I'm open to whomever can answer that 
question the best.
    Mr. Carr. I mean, I'll jump in, it's an elevator pitch. At 
the end of the day, it's a quick white paper with a quick 
summary, 1, 2, 3 pages, and that's it. The reality is, the SBIR 
program has continuously gotten longer and longer and longer in 
regards to its proposals. I can tell you with a team of three 
people working in a garage, I did not have time to write a 
hundred-page proposal. I have an elevator pitch. And the 
question is, are you-as the person on the other side, willing 
to buy into that elevator pitch or do you think that something 
else should be awarded instead?
    Senator Husted. And does the process that we're using in 
this, is it entrepreneurial enough? Does it work?
    Mr. Carr. I think the bureaucracy, as much as I would love 
to make it simpler, it forces you to be an entrepreneur. 
Because at the end of the day, you got to figure out how to 
navigate the market. And if you're trying to navigate the U.S. 
government, you've got to learn and be that entrepreneurial 
self to be able to figure out how you complete that navigation.
    And so, from my perspective I believe a lot of the 
proposals, supporting, making that elevator pitch much easier 
for smaller companies to make it, you will continue to see more 
and more entrants coming into the program to be able to 
validate whether it's real or not.
    Senator Husted. As I was doing a little research on this, 
one of the common complaints is that, hey, the people who do 
figure it out are the ones who are getting all the money. And 
the people who haven't figured it out, you know, and there's 
just a barrier that it's like a mystery of, what door I go into 
and how I do this? How do we improve upon that?
    Mr. Rothzeid. Well, if I may, you know, I've been somebody 
on the other side as a government evaluator. And a big part of 
it, because on certain areas, you get so many proposals that 
you try to take the easy way out, and you say, who didn't cross 
their t and dot their i perfectly. And so that sort of 
sentiment certainly favors those who have gone through the 
process before because they're able to rinse and repeat a lot 
of their proposals going forward.
    And I think that's why with Chair Ernst and her 
recommendations of putting a cap, sort of gets us away from 
being more process oriented and more about the spirit of the 
idea. Because when the same companies can submit 50 
applications at a time in a given window, and the resources to 
be able to evaluate all of the incoming solicitations, there 
has to be a level of empathy for the reviewer on the government 
side.
    As a venture capitalist, I take pitches all the time. 
Right? I've got three more scheduled later today on different 
companies. Most of them are going to receive a no, and that's 
just the reality. Because I'm looking at the competitive 
marketplace, the ins, you know, how good is the founder? What 
is the opportunity for them to sell into? These are difficult 
things that you learn over years and reps. And our government 
stakeholders don't necessarily have that same background, but 
we just need to make it easier for them to evaluate less 
companies.
    Senator Husted. Thank you. My time is going to run out. And 
I want to ask a question because I'm not sure how to do. Is it 
more difficult the way we set up particularly for our 
contracting with the U.S. military? I was told one time that 
small businesses--that the big contractors welcome them as long 
as they stay in their box. And if they can't have a they really 
try to--we have bidding rules that make it hard for a small 
business to do entry. Is that accurate for anybody who's worked 
on that?
    Mr. Carr. I can jump up and say absolutely not. As a 
lawyer, one of the best things I ever did was go to law school, 
because I'll tell you the NDAs that I signed with some of the 
big primes, they take your IP, they absolutely take the 
knowledge, the idea, and then they fit you into that box, and 
they force you into that box.
    Senator Husted. And you must stay in that box.
    Mr. Carr. You must stay in that box, which is completely 
against the idea.
    Senator Husted. Yes. Madam Chair, an opportunity maybe to 
explore that issue on another occasion. Thank you.
    Chair. Yes, absolutely. Thank you, Senator Husted. And 
Senator Markey, we'll go back to you.
    Senator Markey. Thank you so much. And I agree with--
listen, this whole idea of the big companies, like Microsoft 
just swiped the browser idea, you know, from Netscape, just 
swiped it. Oh, we're going to give it away. We've innovated it 
so we can give it away--the Internet Explorer. Big companies 
actually don't make breakthroughs, it's just a joke, they steal 
it from younger companies, whoever, they'll buy it up. But a 
lot of stealing goes on. You got to protect these people from 
the highway robbery of Silicon Valley companies. They just put 
more police on that beat.
    The SBIR and STTR programs provide small businesses early-
stage funding when private sector funding is less likely. Many 
small businesses have said that without SBIR and STTR funding 
their businesses and the technologies that they successfully 
develop may not exist.
    More often than not, companies utilize SBIR to develop 
technologies that ultimately reach the market to benefit 
Americans across the country and provide critical technology to 
the government. So, Dr. Mahmud, can you speak to the impact 
that SBIR and STTR funding have had on Tritons ability to 
innovate technologies that benefit everyday Americans?
    Dr. Mahmud. Thank you, Senator, for the question. So, as I 
had mentioned at the beginning, just because of the passion of 
our employees, we do target benefiting the war fighter for a 
lot of the technologies that we develop. And it turns out in 
many cases that the technologies have a dual use. In fact, in 
our business model, when the technology has a commercial use, 
we completely spin off the company to go raise money in the 
venture capital market, as has been discussed. Because the 
commercial market operates, you know, the venture capital 
industry has very tight timelines and expectations, as was just 
mentioned.
    So, one example that I can cite, which is benefiting 
everyday Americans, is when we started and we created a spinoff 
for a sensor technology, a location sensor technology, and the 
application--the biggest application turned out to be for a 
heart pump. A heart pump that is used as I had just mentioned, 
for Cardiac disease, heart attacks and cardiac disease are the 
number one cause of deaths, for Americans.
    This heart pump used this sensor, they enabled the heart 
pump to become the smallest heart pump and heart pumps are 
inserted through the artery, it has to be very small. And so, 
it enabled this technology and that heart pump is now widely 
used. So, this is an example of something that has widespread 
application, but did come from an SBIR technology that was 
targeting a different application.
    Senator Markey. Again, half all SBIR and STTR awards are 
made by the defense department.
    Dr. Mahmud. Correct.
    Senator Markey. The Defense Department has to approve these 
SBIR awards, this is the technology the defense department 
wants, to protect our country. And, ultimately our advantage 
over China or any other country is that we're technologically 
superior to them.
    My mother would always say to me, when she was disappointed 
in me as a boy, she would say, Eddie, your father and I are 
going to donate your brain to Harvard Medical School, it's a 
completely unused human organ. Okay? So, you have to learn how 
to work smarter, not harder. So that's what technology is, and 
it has to be the best technology if you're going to surpass the 
Chinese, this is a ruthless Darwinian world that we're in right 
now.
    So, in your opinion, doctor, does the Defense Department 
make those kind of ruthless Darwinian decisions to enhance our 
defense capability when they're deciding who gets these SBIR 
awards?
    Dr. Mahmud. I can only speak to my company's experience; I 
can't speak to DODs practices. In our experience, we tend to 
focus on trying to understand what the gap is for the war 
fighter. We focus a lot to understand that. Oftentimes the 
commercial application may not be obvious to us. And when we do 
find a commercial application, as I said, we spin off the 
company to raise money in the venture capital market.
    And as I've showed in our examples, when we understand the 
problem, and I'll give you the example of the F-35, there was 
two problems there. One is of course sustainability costs, the 
source was a foreign source, and then the second problem was 
that it was causing a significant health hazard to the war 
fighter, the maintenance depots, and the service depots.
    And so, we worked with the primes, and as I mentioned, you 
do have to work with the primes because they own the F-35. They 
own most platforms. We work with the primes closely to 
incorporate this new material to solve this problem, which as 
the Air Force has announced, is going to save them over a half 
a billion dollars. So, I'm not sure if I answered your 
question.
    Senator Markey. Well, you did. You have a technology that 
the military's going to use, would work smarter, not harder, 
saves money, you know, it works better. It's a smart 
technology. And you did it in conjunction with the Defense 
Department wanting a solution and you did it with the prime, 
but the prime itself wasn't coming up with the answer. And the 
SBIR incentivize you to find the answer to the problem. Is that 
correct?
    Dr. Mahmud. That's correct, Senator. And if I may add, you 
know, cost savings that we bring to the government, like in 
this case, and there are other cases, there's another case 
where we save $200 million for the F-22 platform. They do not 
show up in any metrics. None of our metrics, SBIR metrics, 
success metrics, they don't show up.
    So, it's highly unlikely if we don't solve this problem 
that anyone else will do it. Because there's no financial 
incentive for most companies to take on a problem that has a 
low return for the company, relatively speaking, versus the 
government.
    Senator Markey. And if I may, so you are saying essentially 
venture capital money is looking to make a big profit. And here 
there's not a big profit, but there's a big problem that has to 
get solved by the Defense Department because of some medical 
condition that they want to see solved.
    Dr. Mahmud. I will just say, you know, our spinoffs are 
very active in the venture capital market, so we understand, 
you know, how the venture capital market works very well. I 
will just say that there are problems that are debilitating and 
life-changing and very, very difficult for the war fighter. I 
just mentioned the hearing loss problem. The hearing loss 
problem is a significant problem for the war fighter.
    The F-35 problem was really exposing them to a lot of toxic 
dust. The bladder relief problem which we worked on, and is now 
being evaluated by the pilots in the Navy and the long-range 
recon missions that the Air Force is running over our 
adversaries. You know, there is no restroom for female pilots. 
There is no solution. You know, some pilots practice tactical 
dehydration. It is not a good situation. And, you know, we came 
in with a solution that was optimal for female pilots, female 
aviators actually. And also, for male aviators now.
    So, these are not problems that the traditional marketplace 
looks to address because the market is too small. There's only 
so many pilots. There's only so many--the market is just not 
big enough to attract those investments. And those are the ones 
where we feel we have brought tremendous benefit to the war 
fighter.
    Senator Markey. Thank You, doctor. Thank you.
    Chair. Thank you. And I now recognize Senator Shaheen. 
Thank you.
    Senator Shaheen. Well, thank you Madam Chair and Ranking 
Member. I'm delighted that we're doing this hearing on the SBIR 
and STTR programs. Thank you to all the witnesses for being 
here. I apologize for missing your testimony. I was at Armed 
Services hearing subcommittee, so that's why you weren't there, 
Senator Ernst. [Laughter.]
    Senator Shaheen. But the reason I'm so enthusiastic about, 
one of the reasons I'm so enthusiastic about the SBIR program 
is that it was created by New Hampshire Senator Warren Rudman 
back in the 1980s. And so, I've had a chance to see it up close 
from that time to see how it's grown and to see the difference 
that it's made for small business in New Hampshire. And I know 
that you have stories about the differences that it's making in 
Massachusetts and Iowa and across the country.
    And you may have already asked this question, question, 
Senator Markey, because I just came in on the end of it. But as 
I understand Dr. Mahmud, in your testimony, you described 
millions of dollars in savings to the Defense Department from 
SBIR work that your company has done. And do you know if those 
savings are counted in statistics about the SBIR return on 
investment or on in the commercialization data that's provided?
    Dr. Mahmud. Thank you, Senator. I did, you missed that 
part, that question was asked, but I will repeat that. Thank 
you for asking that. So, you know, cost savings that we realize 
for the government and just as importantly benefits to the war 
fighter's health, preventing hearing loss, once a war fighter 
is exposed to noise, and they are exposed to a lot, air crews 
are exposed to a lot of noise, it is a permanent condition, 
it's impossible to reverse it. It's very difficult to reverse 
it, I should say. It's not impossible, it's very difficult to 
reverse it.
    And I also mentioned that the VA, there's a million 
veterans with hearing loss right now, and 2 million with 
tinnitus, which is related. So, we have focused in terms of our 
support to the war fighter on developing technologies for air 
crew protection that's being qualified for Army helicopters. 
And we are developing bladder relief for female pilots for long 
distance recon mission.
    Senator Shaheen. I did hear you talking about that.
    Dr. Mahmud. Okay. Thank you.
    Senator Shaheen. Apologize my attention because you were 
talking about hearing loss, and we have a New Hampshire company 
that's developed a new hearing protection helmet system for 
aircraft carrier deck crew for that very reason. And they 
estimate that the Navy's going to save about $500 million 
because of their SBIR award. So, it is something that I think 
we ought to think about how we include that information in the 
statistics about the program.
    Mr. Strawhacker, I think you talked about working together 
with neighboring states on the FAST program. Do you think more 
funding for FAST would help with those partnerships and or how 
can we encourage that kind of collaboration?
    Mr. Strawhacker. Well, I do think that that type of 
collaboration should definitely be looked at being implemented 
everywhere across the nation. Especially those FAST awardees 
who exist within an SPDC program. We already have a nationwide 
network that builds in geographic subgroups, that meet together 
some annually, some quarterly. I know the Southeast area is 
very strong in the SPDC network.
    Those that have the FAST grant in addition to the SBDC 
program, have that natural group already there. They just need 
to tap into bringing the right advisors to the table and having 
that. The FAST grant plays a complimentary role to the business 
owners, they are the innovators, it's their technology. They 
just need us to support them and help them access the correct 
resources. Thank you, Senator.
    Senator Shaheen. Thank you. Dr. Mahmud, I know that there 
has been some discussion about limiting the number of awards 
that a business can get through the SBIR program. And I would 
ask you and others on the panel, if that's something that would 
be helpful. I know that we have a number of companies in New 
Hampshire that have been very successful at getting multiple 
awards, and I would hate to have them be limited in what they 
could get. So, I don't know, maybe you could speak to that and 
others could speak to it if you have a view on that issue.
    Dr. Mahmud. Sure, thank you, Senator, for the question. I 
think one of the most powerful foundations of the SBIR program, 
it was set up very wisely, that the agencies have a tremendous 
amount of flexibility to adapt the program to their mission 
needs. So, they have the flexibility to decide on limiting the 
number of applicants. They have the flexibility to decide on 
how many open topics, they have tremendous flexibility to 
adjust to what they need.
    So, you know, from our view, we support the mission of the 
agencies. And if we are allowed to, if we see a problem, we'll 
put in our idea. And if it is a good idea or the best idea, it 
is often recognized. And if it's not, its not. We think the 
tent is wide and we have a shrinking defense industrial base. 
We have no opportunity to take out good ideas. We are not going 
to win if we take out good ideas. So, there's no reason to cap 
good ideas.
    Senator Shaheen. Thank you. I'm out of time, Madam Chair, 
but I don't know if anybody else would want to speak to that?
    Mr. Carr. I would just add, so I'm a large proponent of 
putting some type of cap in, especially for Phase I and Phase 
II. And the specific reason for it, is we're talking about 
small businesses here, we're not talking about primes. If 
you're a small business, I can't chase 20, 30, 50, a hundred 
different technologies with different market applications and 
different things. I can't raise money for it. These guys would 
never give me money. Because the reality is, I've got to be 
super focused as an entrepreneur, to be able to scale that 
capability into an actual product and then naturally into a 
company.
    So, if we have companies that have hundreds of different 
products and technologies, what are they working on? And in 
fact, I would argue that they're absolutely getting 
disincentivized to be able to take that one particular 
technology that we say.
    Senator Shaheen. And do we have any that fit in that 
category? Is there information that shows that we have multiple 
companies that fit into that category?
    Mr. Carr. I would argue that SBIR Mills would be the way to 
do it.
    Senator Shaheen. And do you also feel that way if it's done 
not simultaneously, but serially, so the company gets an award, 
is successful, then applies again, and gets another award and 
is successful or not, applies again. Are you concerned about 
that aspect of it as well?
    Mr. Carr. I mean, for us we actually--because of the dual 
use aspect of the SBIR program going into, we actually 
diversified into construction cranes and now stabilize loads on 
suspended cranes. But it's tangential technology specific to 
what we are building. What I would argue there is that if it 
continues to be linear and you go from one technology to the 
next, are you really exiting the business or are you just 
continuing to basically create kind of a new product at the 
bequest of the U.S. government, i.e., the SBIR program, but 
never taking that to the final step, which is, Hey, you're my 
customer. How do I get this to you? And how do I get it to you 
as fast as I can? But not just you, but the whole market as a 
whole.
    Senator Shaheen. Thank you. Thank you, Madam Chair.
    Chair. Thank you. And Senator Budd, you are recognized for 
five minutes.
    Senator Budd. Thank the Chair and thank you all for being 
here today. Mr. Rothzeid, every day I hear from small 
businesses in North Carolina particularly small businesses with 
innovative solutions to real problems facing our war fighters 
who discuss challenges to working with the DOD. We hear it all 
the time.
    So, the PPBE reform report, or the commission on Planning, 
Programming, Budgeting and Execution, I'm sure you're familiar 
with it, highlights the barriers to new and emerging defense 
companies in working with the DOD. Specifically, PPBE 
commission finds that ``A challenge SBIR faces, is that 
promising Phase II projects are not deployed as often as would 
be preferred by the DOD.'' So, what do you see as the principal 
barriers to Phase II projects deploying further within DOD?
    Mr. Rothzeid. Thank you, Senator Budd. And I would just 
recognize that the managing partner of Shield Capital Raj Shah, 
was one of the commissioners on the PPB and E.
    Senator Budd. You might have a little insight then.
    Mr. Rothzeid. So as far as you know, the transition rates 
which I highlighted in my testimony being about 18 percent, 
moving from Phase II to Phase III, is a low number. And I'm not 
here to argue that it needs to be a hundred percent right. 
We're talking about seed innovation; we're trying out ideas. 
The war fighters can provide feedback. If it's not meeting a 
need or if it's not a scalable need, then there's no need to 
continue it forward.
    But I think one of the areas that really hampers the 
Department of Defense is, while you can win an SBIR in the year 
of execution, so within this current fiscal year, the planning 
programming and budgeting, and execution is inherently a two 
year long process. So, there's no gap year to be able to fill 
that need, so that what the war fighter likes and sees and 
wants to scale, they now have to sort of sit on their hands and 
wait for the PPB and E to now catch up for the ensuing fiscal 
year, often two fiscal years ahead.
    And that can be a really big challenge for a company that 
is trying to sell a product that is very specific to the war 
fighter. Now, in a lot of cases in the companies that we invest 
in, they're dual use tech. So yes, we want them to sell to the 
Department of Defense National Security, we also want them to 
be selling to the commercial environment. That sort of leverage 
provides them an opportunity to stay afloat while the PPBE 
cycle catches up.
    However, why should our war fighters have to wait for a 
solution that they need today? Right? We're working for a 
readiness that allows us to be prepared tomorrow.
    Senator Budd. So, in simple terms, what's the fix there? 
Other than just getting cash flow, I imagine from the 
commercial applications.
    Mr. Rothzeid. Absolutely. And so, one thing that the 
Department of the Air Force came up with in March of 2020 was 
the STRATFI/TACFI program. And it allows them to leverage 
additional SBIR funding up to 15 million with just SBIR 
funding, to carry forward on promising technology that has 
matching funds. In that so far as the DOD has non SBIR funding 
allocated to them, and they've also erased third party venture 
capital.
    Senator Budd. Okay. So, you mentioned that 18 percent kind 
of make that gap over to Phase II, right?
    Mr. Rothzeid. From Phase II to Phase III.
    Senator Budd. Phase II to Phase III. So, 82 percent don't. 
So, with this new system, if you will, in place that you just 
mentioned, what does that number go to? It goes from 18 percent 
to--what would you estimate it to be?
    Mr. Rothzeid. Well, with the reality of an opportunity 
cost, where now more of that funding that would've gone to fund 
more Phase I, more Phase IIs being put into this other bucket 
of STRATFI or a bridge if you will, you're probably going to 
see a shrinkage of the amount of total number of SBIR Phase I, 
Phase IIs, a larger number of opportunities to transition to 
Phase III. I would expect it to go more to the 35 percent, 
ideally doubling.
    Senator Budd. And you're saying in that 82 percent, which 
would diminish in this scenario, the 82 percent fails. There's 
a lot of good useful things. It doesn't, need to be a hundred 
percent that passes, but the 82 percent that fails, there's a 
lot of useful things in there for our war fighters that are 
unnecessarily failing.
    Mr. Rothzeid. Unfortunately, that is the case.
    Senator Budd. Okay. The PBBE Reform Commission also 
recommended aligning the SBIR program to the DOD overall 
science and technology strategy by ensuring that the 
programming and budgeting process includes specific analysis of 
SBIR and STTR projects as budget requests are being developed. 
So, can you speak to your views on that recommendation?
    Mr. Rothzeid. I'm sorry, sir, I wasn't quite following.
    Senator Budd. So, I think there's the question of, they 
want to align the PBBE Reform Commission, they want to align it 
with the DoDs overall science and technology strategy. And they 
want the budgeting process to include specific analysis of SBIR 
and STTR projects as the budget requests are being developed. 
So, do you have any thoughts on that?
    Mr. Rothzeid. I would just say that 11 of the 14 critical 
technology areas as identified by the Department of Defense, 11 
of them are commercially developed. We need to align our S&T 
strategy with where the emerging market trends in the 
commercial sector are occurring, and make sure we are providing 
healthy amount of financing in those areas for DOD programs.
    Senator Budd. That's very helpful. Thank you all.
    Chair. Thank you, Senator Budd. I'll go ahead and start, if 
you'd like a second round.
    Senator Markey. If I may, if you don't mind.
    Chair. I'll go ahead and--if you want to go ahead, I'll 
close up after you. Absolutely, Ranking Member, go ahead.
    Senator Markey. No, I thank you so much. Two weeks ago, the 
House Small Business Committee held a hearing on SBIR and STTR 
where Chairman Williams in the house, talked about the 
importance of preserving merit-based competition in the 
program. He said, innovators thrive in an environment where 
competition reigns supreme, where they are free from the 
limitations or caps on their success. And I agree with that. We 
should prioritize merit without adding extra layers of 
bureaucracy.
    So, Dr. Mahmud, through Triton Systems we have seen great 
success in meeting the increased commercialization benchmarks 
for experienced small businesses. And I understand that the 
company did not meet the increased transition benchmarks 
leading to a limit on the number of Phase I and direct to Phase 
II awards Triton can receive. How have these caps impacted your 
company's strategy in determining what you would be proposing 
in the future?
    Dr. Mahmud. Thank you, Senator, for the question. I think 
we can all agree that the commercialization benchmark, this is 
what everybody's talked about, is very important. Everything 
needs to have a purpose. Everything needs to--we need to 
maximize commercialization. That's how all companies should be 
measured, at least in my opinion. The Phase I to Phase II 
conversion metric does not have a commercialization meaning, 
you know.
    For example, we just talked about bringing in more 
companies, giving out a lot of Phase I awards. Air Force did 
that, by the way. They gave out a lot of small Phase I awards, 
and then maybe they had one or two Phase IIs in mind. I don't 
know.
    Senator Markey. Maybe they had one or two?
    Dr. Mahmud. Phase II's in mind. Because they want to see 
what's out there. So, this is the idea, is to make small 
investments and capture the best idea. So, I certainly don't 
feel that the Phase I to Phase II conversion metric carries any 
commercialization meaning.
    Having said that, the Phase II awards as was discussed 
here, it was just discussed in a number of questions. 
Oftentimes the small business has no control, the need may have 
gone away. The customer no longer needs it, or the agency no 
longer needs it, or there's no funding. Or they will award 
many, many Phase Is and determine one Phase II. So, what we 
have done based on these new benchmarks is really become 
extremely risk averse and we only focus now on Phase Is where 
we totally understand how to transition this, you know, what is 
the best endpoint----
    Senator Markey. So, you just look now at surefire 
commercialization?
    Dr. Mahmud. That's right. We do not take high risk.
    Senator Markey. You don't focus as much on the breakthrough 
technology that can be transformative because it's not a 
surefire commercialization yet. We need to be taking the risk 
to find the breakthrough because, in China, they're throwing 
tens of hundreds of billions of dollars at the breakthroughs.
    Dr. Mahmud. Correct. We do not pursue high risk 
opportunities even if we have a good idea because we are not 
sure what the outcome is.
    Senator Markey. Which is very, very helpful. And can you 
explain the process of transitioning from proof of concept, or 
a Phase I award, to a Phase II award and how rigorous that 
process can be even for the most innovative technologies? Dr. 
Mahmud.
    Dr. Mahmud. Would you like me to explain the process, or 
excuse me, I didn't catch the question?
    Senator Markey. The question is, can you explain the 
process for transitioning from a proof of concept or a Phase I 
award to a Phase II award? How rigorous is that process?
    Dr. Mahmud. I'd be delighted to. So, you know, the, the 
philosophy of the SBIR program is to invest low in the Phase 
I's and then to see which of these proof of concepts is 
demonstrated. That's the process. But agencies have very 
different practices, as I just mentioned. Some may have a path 
to a Phase II, some may have no funds for a Phase II, this 
happens quite a bit. So, the agency itself may not have a plan 
on moving it forward, and oftentimes the need goes away.
    So, the process for a general small business is understand, 
you know, if you can show the concept in the Phase I, then 
compete to demonstrate you have the best solution for the Phase 
II. And you know, that's the process. But as I said, because 
the agency practices are very different and the situations are 
different, the Phase II may become irrelevant, and then the 
small business has no control.
    Senator Markey. No, and I thank you for that. And I thank 
all the witnesses. I thank you, Madam Chair. And I can just 
finish up, if I may, just by saying that we've heard the word 
``Mills'' thrown around today disparaging some of the most 
innovative and dedicated small businesses.
    Massachusetts is proud of its mill culture. Our economy was 
built off of the textile mills during the Industrial 
Revolution. The only reason Thomas Markey left Ireland to go to 
Dover, New Hampshire was the mills were in Dover, New 
Hampshire, where Senator Shaheen's husband was being raised. So 
that's the only reason I'm here--is those mills.
    And today the Senate Republicans, they're trying to paint a 
picture that innovative, ambitious, and productive small 
businesses or ``mills,'' as they like to call them, are bad. 
These mills that they want to end, they're small businesses 
that delve into novel ideas and bring them to reality. They are 
small businesses that develop cancer therapy technology and the 
world's smallest heart pump. Small businesses that save 
hundreds of millions of dollars for the federal government and 
have a huge return on investments, small businesses that 
advance the national security interest of our country.
    If being a mill means being an efficient and effective 
small business innovator, then I don't think that's a bad 
thing. And Massachusetts and many other states are hubs of 
innovation, and that's why we produce such tremendous 
technology. And we don't have big businesses that much in 
Massachusetts that drive our economy, we have small businesses 
that come up with good ideas that serve our nation and save 
lives, especially in this defense sector. Okay, this is where 
we specialize.
    Department of Energy is high on the list as well, but 80 
percent as we know of the Department of Energy budget is just 
nuclear weapons, nuclear management. Right? You need the 
smartest people thinking about that, NASA all the way down the 
line. Those are the agencies that are asking for these 
technologies to be invested in, okay? And it's to keep us ahead 
of our geopolitical rivals in the rest of the world. It's using 
our brain power, and we just have to ensure that these small 
businesses are able to freely compete for government funding 
and are not penalized for their excellence. If someday they 
want to sell to a big company, Raytheon or Lockheed, that's 
their right.
    But the innovation's going to come for our defense and for 
many other areas, from these smaller companies, and that has to 
be the primary thing. Is it going to likely produce that 
breakthrough or not? And does the Defense Department want to 
take a risk over here with some breakthrough technologies that 
may or may not get the result they're looking for in the first 
or second round? Okay.
    That's the decision I think we have to make as a country. 
And I thank you, Madam Chair, for this very valuable hearing.
    Chair. Thank you. I do have just a couple of additional 
questions and we'll demonstrate why we think there is a need 
for reform. And so, Dr. Mahmud, again, thank you for being 
here. And please answer yes or no for this question. Are you 
aware of any ties between your leadership team, personnel, or 
spinoff companies with foreign countries of concern?
    Dr. Mahmud. May I answer the question?
    Chair. Yes.
    Dr. Mahmud. So, we are a cleared facility. We are audited 
by the Defense Counterintelligence and Security Agency (DCSA). 
We work closely with DCSA on vetting out any kind of foreign 
intrusion into the company. As I had just mentioned, when our 
spinoffs go out in the venture capital market, you know, we 
have no control of them. The spinoffs, you know, they will go 
and raise money in the venture capital market. We have no say 
on that.
    We have taken in consultation with DCSA incredible 
safeguards to isolate our technologies and our personnel from 
everyone, including the board and the management of our 
company. We have worked very closely with DCSA to do that 
because of this exact concern that spinoffs, we have no control 
over what they do.
    Chair. So, you are aware though, that there have been ties 
to countries of concern?
    Dr. Mahmud. I've read in the press. I am not personally 
aware, but I've read in the press that, you know, one of the 
spinoffs, has made--raised money globally. So, there is concern 
about that, and we cut off all ties with those spinoffs a long 
time ago.
    Chair. Okay. And just so for the record, Triton has 
received 902 SBIR/STTR awards, accounting for more than $350 
million. And that is really hard for me to explain to Iowans 
how someone who has received over $300 million can still be 
considered a small business. So that's really difficult for me 
to explain in the Heartland.
    So, I do want to enter into the record open-source data 
that I found on ties between Triton CEO and joint ventures with 
Triton spinoff companies. You did state that you can't control 
those companies, but they are ties between your spinoff 
companies and companies in China, and without objections, so 
ordered.
    Chair. So again, what we found in 2020, was that Tritons 
current CEO then was appointed to serve on the board of CITIC 
Capital Acquisition Corporation, which is a Chinese financial 
service sponsored by a state-owned financial conglomerate in 
China. Further, FRX polymer, a spinoff again of Triton, 
received $22 million from CITIC and pursued a joint venture 
with a Chinese company in 2019. Tritons biotech division also 
merged to become Chinook Therapeutics, which in 2021 pursued a 
joint venture with Pivotal bioVentures China.
    Triton, CEO was the chairman of FRX until last month, and 
was a board member of Chinook Therapeutics. I would like to 
enter into the record open-source data on these ties with 
China, and without objection, so ordered.
    Chair. I also want to point out the SBIR due diligence 
disclosures require Triton to disclose joint ventures and 
foreign investment. Spinning these companies off to do joint 
ventures and taking Chinese investment appears to be a 
loophole, and this track record should be accounted for when 
Triton applies for SBIR awards.
    Triton does not seem to care who they are selling taxpayer 
funded research to. This is a national security risk and why 
I've proposed strengthening the due diligence evaluation 
standards, to make sure agencies are catching all of this open-
source analysis and making prudent judgment calls on who they 
award repeat contracts to.
    So, again, the SBIR mills, I understand that while there 
may be opportunity out there for these small businesses, I'm 
going to set the record straight with this. Success is not 
measured in the number of SBIR awards a company wins, but 
rather the commercial and mission impact made by leveraging 
SBIR dollars. I think a number of you stated that. We should 
not reward firms that game the system and use SBIR known by 
many as America's Seed Fund, as their primary revenue source, 
yet have fewer sales, fewer investments, and fewer patents as 
GAO reports.
    SBIR mills push out innovators in the heartland states like 
mine of Iowa, and like Senator Jackie Rosen's in Nevada. I have 
a hard time justifying again to Iowans that companies that can 
take hundreds of millions of dollars of SBIR grants can still 
pass as a small business. So those concerns outline exactly why 
I am pursuing changes to the SBIR/STTR program. I do hope that 
we will have a bipartisan bill that we will be able to move 
forward. We have been joined by Senator Young. Senator Young, 
do you have questions before we close today's hearing?
    Senator Young. Well, I do Chairman. Thank you so much, 
Chair Ernst, I thank the Ranking Member for holding this 
important hearing. Thank all of our witnesses for being here.
    As Congress continues to consider reauthorizing this 
important SBIR/STTR program, I think it's critical that we take 
this opportunity to review the framework, look for ways in 
which we can improve it. Relatedly, over the last year or so, 
I've had the privilege of chairing a commission, the National 
Security Commission on Emerging Biotechnology.
    And one of the topics that will be included in our report 
to Congress, is how China is outspending and out strategizing 
the United States when it comes to critical technology 
investment, and development of those technologies, especially 
in the area of biotechnology. And, and so I asked Mr. Rothzeid, 
how can the federal government better ensure that funds of this 
program are translating into material technology innovation, 
especially in the areas that require sustained capital to 
scale?
    Mr. Rothzeid. Thank you, Senator Young. In my mind, the 
only way that the U.S. can compete with China when it comes to 
technology is by leveraging its greatest asset, and that's the 
private capital marketplace, the envy of the world, because it 
attracts entrepreneurs both here in the United States and 
abroad to want to come build here.
    The days of the government being able to foot the bill with 
its R&D budget are long gone past, but the systems and the 
programs and the structures that we've put in place, were 
predicated on that paradigm. Just going back to 1960, 24 
percent of all the world's R&D expenditure were happening in 
government labs, today, it's less than 1 percent.
    So, if we're going to compete, we have to get smarter about 
how we're leveraging taxpayer dollars and leveraging third 
party capital providers, to build technology companies of 
consequence. Thank you, sir.
    Senator Young. Well, thank you. Your points of emphasis are 
well received, especially in light of the fact that I've been 
working with, I think every member of this committee, on 
something outside of the jurisdiction of this committee, but 
it's to preserve research and development deductions through 
the tax code for our small businesses and frankly, for emerging 
high growth potential businesses pre profitability, to offer 
them an R&D tax credit to incentivize their early-stage R&D and 
then hopefully growth as a company. Mr. Rothzeid, to continue, 
do you have additional thoughts on how the SBIR/STTR program 
can better support American tech innovation and biotech and 
other critical sectors?
    Mr. Rothzeid. Yes. Senator Young, I think what Chair Ernst 
has proposed with creating bridge programs within the SBIR 
program to provide larger pots of funding for technology of 
consequence as signaled by the federal agencies, similar to 
what the Air Force and Space Force have done with STRATFI and 
the Army with Catalyst, these are the types of signals that 
help ensure that the investors can then understand what's 
really important to the federal agencies, provide additional 
capital to those companies so that they can hire the right 
amount of people, invest in cutting edge equipment, and 
continue to scale and grow.
    Because if we're not building companies that want to scale 
and grow, then they won't be able to meet the needs of national 
security and outfitting thousands of soldier sailors, marines, 
airmen, and guardians.
    Senator Young. Thank you for that. I have about a minute 
left and would just like to briefly explore with you, Mr. 
Rothzeid, something related to DODs integration of open topic 
solicitations. My office has been impressed with these and 
their importance. These allow small businesses to propose 
solutions, to more broadly define problems. As we think about 
ways to support small businesses that are working on innovative 
technologies, it seems like expanding what departments and 
agencies can solicit open topic proposals for, might make some 
sense. Can you offer any reflections on this topic?
    Mr. Rothzeid. Senator, I believe that the open topic is the 
reason why this convening is happening today, getting interest 
from venture capitalists like myself and startup founders, like 
Mr. Carr. It's because innovators are building solutions that 
the department hasn't even imagined.
    If we leave it to the whims of the department, they'll come 
up with very bespoke requirements around the things that 
they've already thought of. But that's a very small pool of 
people. Instead, we need to open it up to open topics. What are 
the solutions to the problems I didn't even know I had, and let 
the entrepreneurial class of America go to work.
    Senator Young. In light of the fact that I've already gone 
over my time. Might I work with you on an ongoing basis to 
explore ways to expand the scenarios and situations with which 
open topic proposals can be utilized and related topics?
    Mr. Rothzeid. Senator Young, absolutely.
    Senator Young. All right, great. Thank you, Chair.
    Chair. Thank you. Are there any additional questions? Okay. 
And with no further questions, I want to thank the witnesses 
for being here today. I ask unanimous consent that the record 
of today's hearing remain open for two weeks for members to 
submit questions, revise, and extend their remarks, and submit 
additional information into the record.
    Chair. Without objection, so ordered. And with that, the 
Committee on Small Business and Entrepreneurship stands 
adjourned.
    [Whereupon, at 4:11 p.m., the hearing was adjourned.]
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