1. Historically Disadvantaged Background Example
2. Underrepresented Minority And Economically Disadvantaged Programs Examples

Historically Disadvantaged Background Example

One of the four primary congressional objectives for the SBIR program is“to foster and encourage participation by minority and disadvantagedpersons in technological innovation.” Given the explicit congressionalobjective, this chapter focuses more on the SBIR program; the STTR program doesnot have a similar explicit legislative objective, although we believe thatgreater inclusiveness is a concern for both programs. Within the SBIR program,this congressional objective has been taken to mean that the relevant metric forparticipation is company ownership, that is, that participation by women orminorities is equivalent to the participation of companies that are majorityowned by women and/or minorities. It replaces “minority and disadvantaged persons” with“socially and economically disadvantaged smallbusinesses,” which aligns the program not with the needs of womenand minorities that were at the forefront of congressional objectives,but instead with SBA definitions of socially and economicallydisadvantaged.These definitions include in particular Asian Americans. And although in somecontexts Asian Americans have been disadvantaged, they are strongly representedin the world of high-tech companies where, for example, 13.4 percent of startupsin Silicon Valley were owned by immigrants from India. Wadhwa and colleagues found that between2006 and 2012, 43 percent of Silicon Valley startups had at least one immigrantas a key founder and, of these, 33 percent had Indian founders and 8 percentChinese founders.As a result of the definitions provided by SBA, all participation other than viaownership is disregarded by all agencies; no data are maintained by any agencyon female and minority principal investigators (PIs), for example. And as weshall see, SBA definitions of “socially and economicallydisadvantaged” have the effect of largely obscuring agency performance inmeeting congressional objectives to support the participation of AfricanAmericans, Hispanic Americans, and Native Americans.

Underrepresented Minority And Economically Disadvantaged Programs Examples

WOSB share of Phase I awards, FY2005-2014. SOURCE: Based on NIH RePORTER database, Table 127.The growing share of awards to WOSBs is encouraging. However, the sharemust be considered in the context of the success rate (the rate at whichapplications turn into awards). For Phase I grants, WOSB applicationshad a lower success rate in every year during the study period: overall,WOSBs accounted for 13 percent of applications and 10.3 percent ofawards.Although the amount of funding for an award is largely determined by theamount applied for by the company, it is also notable that WOSBsconsistently receive smaller awards than non-WOSBs (see ).

In FY2014, on averageWOSB awards were $10,000 smaller than nonWOSB awards.Patterns of Phase II awards are largely driven by Phase I because, priorto FY2015, only Phase I winners could apply for Phase II awards.Overall, WOSBs applied somewhat more frequently than might be expected:they accounted for 10.3 percent of Phase I SBIR awards and 13 percent ofPhase II applications.As with Phase I, the share of Phase II awards to WOSBs was lower than theshare of Phase II applications. The WOSB share of awards was lower thanthe share of applications for 7 of the 10 years covered by thestudy.The average Phase I funding levels for WOSBs were consistently lower thanthose for non-WOSB, in all years except FY2007 and FY2013. On average,the first year of Phase II SBIR funding was almost $27,000 lower, whichwould normally translate into a difference of more than $50,000 over thelife of a standard 2-year Phase II award. Minority-Owned Small BusinessesThe definition of “minority” provided by SBA and used bythe agencies does not align with the congressional mandate provided inthe authorizing legislation and has the unintended effect of concealingthe extremely low rates of participation by African Americans, HispanicAmericans, and Native Americans in the program.This section focuses on analyzing the data provided by NIH, which usesthe SBA definitions for data collection purposes. Accordingly, analysishere uses the same definition: “minority” includes AfricanAmericans, Hispanic Americans, Native Americans, and AsianAmericans.Participation by minority-owned small businesses (MOSBs) in NIH SBIRPhase I declined on several key metrics.

Both the numbers and shares ofMOSB applications declined across the study period, with the latter at 3percent of all applications in FY2014 (see, ). Number of MOSB Phase I SBIR grant applications andpercentage share of all applications, FY2005-2014.

SOURCE: NIH Division of Statistical Analysis and Reporting,Table 127.The declining application share is exacerbated by low success ratesrelative to other applications. The shows that success rates for Phase I SBIR applicationsby MOSBs were lower than those by non-MOSBs in every year of the studyperiod, and in some years were barely one-half. The average successrates for applications by MOSBs and non-MOSBS were 10.1 percent and 18.3percent, respectively.As a result of these factors, the MOSB share of awards fell from a peakof 3.5 percent in FY2006 to less than 2 percent in FY2014 (See ).

In FY2014, 12SBIR Phase I awards were made to MOSBs. MOSB percentage share of Phase I SBIR awards,FY2005-2014. SOURCE: NIH Division of Statistical Analysis and Reporting,Table 127.The small number of Phase I awards means that the pool of potential PhaseII applicants is also small, which is reflected in the low numbers ofMOSB Phase II grant applicants (see ). Their share of all applications declined quitesharply starting in FY2010 before rebounding in FY2014. It is possiblethat recent outreach efforts are starting to pay off (see ), but data fromFY2015 and later will be needed before conclusions can be drawn. Difference between success rates of MOSB and non-MOSBSBIR Phase II applicants, FY2005-2014. SOURCE: NIH Division of Statistical Analysis and Reporting,Table 127.The net result of these factors is that MOSBs have accounted for adeclining share of SBIR Phase II awards, reaching a low of 1.1 percentin FY2013 before rebounding to 2 percent in FY2014.

These figuresreflect the very expansive definition of “minority” usedby SBA and hence NIH, which includes companies that are owned by AsianAmericans. 2014 SURVEY DATAAs noted above, the SBA's interpretation of one of the fourcongressionally mandated objectives for the SBIR/STTR programs is to“foster and encourage participation in innovation andentrepreneurship by socially and economically disadvantagedpersons.” This mandate has traditionally been interpreted to meansupport for women and members of ethnic minorities listed by SBA.Previous SBIR/STTR studies have focused largely on company ownership by womenand by members of socially and economically disadvantaged groups (SEDGs). Inmost cases, these studies neither addressed the role of the PI nordisaggregated SEDGs by ethnicity. The 2014 survey expands the analysis inboth directions. Woman-Owned Small Businesses and Female PIsWomen have traditionally been viewed as socially and economicallydisadvantaged in the context of the SBIR program, and expandingopportunities for women has therefore been considered as one of thecongressionally mandated goals of the program since the 1992reauthorization.

In most cases, analysts have focused on theparticipation of woman-owned firms. However, because exercising theresponsibilities of a PI may be a stepping stone toward companyownership, the 2014 Survey also addresses the extent to which SBIRawards went to female PIs.Fifteen percent of Phase II respondents identified a female PI (althoughonly 3.8 percent of the 28 Phase IIB respondents did so).Overall, 13.6 percent of respondents reported that the company waswoman-owned. Again, Phase IIB respondents reported a lower rate (8.6percent). Minority-Owned Small Businesses and Minority PIsThe current Academies surveys of the SBIR/STTR programs are, to ourknowledge, the first to probe beneath standard definitions of“socially and economically disadvantaged.” That is,previous SBIR surveys from the Academies and from otherorganizations—as well as agency data—have all simplysought to determine whether the company is majority-owned by members ofsocially and economically disadvantaged groups as defined by SBA.As with the 2005 Survey, the 2014 survey asked whether the PI for thesurveyed project was from a minority population. Seven percent ofrespondents indicated that this was the case for theirproject.The survey also asked respondents to provide details about thePI's ethnic background. Detailed categories were drawn from SBAdefinitions, with the addition of a category for “other”to ensure that all respondents who wished to claim minority status hadan appropriate response category.About 72 percent of respondents reporting a minority PI indicated thatthe PI was Asian Pacific or Asian Indian. Only 2 of more than 600responses indicated that the PI was African American.It must be understood that we are dealing with small numbers ofrespondents—only 57 respondents indicated that their PI wasminority.

Even so, the almost complete absence of Black (AfricanAmerican) and Native American PIs and the limited presence of HispanicPIs is notable (see ). Composition of PIs by Gender and Ethnicity, as aPercentage.Turning from the ethnicity of PIs to the ethnicity of the owners ofsurveyed companies showed that approximately 7 percent of respondentsindicated that the company was majority-owned by minorities at the timeof the award. Probing more deeply into the ethnic distribution ofminority company ownership showed a distribution quite similar to thatfor minority PIs, in that 68 percent of minority-owned companiesreported majority owners of Asian Indian and Asian Pacific ethnicity(see ). Whether the attendee is from a WOSB and/or a MOSBOverall, NIH spent about $2 million in administrative funds on outreach inFY2014. Areview of the activities described in the NIH Annual Report to SBA indicatesthat numerous other outreach activities appeared to be higher priority thanoutreach to women and minorities. Of all the activities listed, only onementions underrepresented groups.Most NIH outreach activity is conducted through partnerships with other eventorganizers. The FY2014 report included participation in conferencessponsored by the Advanced Medical Technology Association, the Association ofUniversity Technology Managers, and the International Meeting for AutismResearch.

Because it has only limited influence over their activities, NIHhas focused on improving reporting from these partners. NIH now sends eachorganizer a request form that asks the organizers to track attendance fromIDeA states, WOSBs,and MOSBs (although, using SBA terminology, the latter are owned byindividuals from socially and economically disadvantaged groups). NIHprogram managers acknowledge that acquiring accurate data through eventorganizers is challenging.NIH and the Department of Health and Human Services (HHS) are also targetingevents to reach out specifically to women- and minority-owned smallbusinesses. NIH has held a well-attended WOSB/MOSB workshop within its ownAnnual Conference in each of the past several years and has begun outreachto professional societies for women- and minority-owned small businesses.The NIH Program Office expects that its staff will attend events from thoseorganizations in the future.

The Program Office is also working to reachyounger potential entrepreneurs, and its staff will attend the AAAS MinorityFellowship conference in 2016 to present on the agency's SBIR/STTRprograms.Finally, NIH is participating and supporting the SBIR Road Tour, organized bySBA, to reach underrepresented states and women- and minority-owned smallbusinesses. This effort, however, is primarily focused on the states ratherthan on underrepresented groups. The Challenge of Improving DiversityThe committee recognizes that small businesses often introduce theradical ideas that can transform industries and markets, and thatmobilizing all skilled individuals, regardless of race/ethnicity orgender, strengthens the economy and the nation.

To this end, thecommittee convened a workshop to draw attention to participation ofwomen, minorities, and both older and younger scientists, engineers, andentrepreneurs in the SBIR program and to identify mechanisms forimproving their participation rates. The workshop also drew attentionto the fact that improving the participation of women and minorities inthe SBIR program is a part of a broader national challenge. Expanding Participation of Women and Minorities inSTEM.

The 2011 publication by the National Research Council,Expanding Underrepresented Minority Participation:America's Science and Technology Talent at aCrossroads, notes that underrepresented minorities,definedParticipants in the workshop examined broad demographic trends in thescience and engineering workforce and statistical measures from the SBIRprogram for women and minorities, and searched for pragmatic solutionsto boost SBIR awards to women and minorities. The workshop highlightedthe fact that women comprise 51 percent of the U.S.

Population and 27per cent of STEM graduates, but woman-owned companies have received onlyabout 6 percent of SBIR awards. Hispanics, African Americans, AsianAmericans, and Native Americans together comprise 36 percent of the U.S.population and 26 percent of STEM graduates, but less than 10 percent ofall SBIR awards. Beyond NIH's SBIR program, the currentparticipation of women and minorities was found to be low anddecreasing, and participation of African-Americans and Hispanics isparticularly low.Steps identified by participants to stimulate participation byunder-represented populations included steps to expand the applicantpool, eliminate barriers in grant applications and selection, andprovide greater education and support for entrepreneurship training andcommercialization efforts. SUMMARY: WOMAN AND MINORITY PARTICIPANTS IN THE NIH SBIR/STTRPROGRAMAlthough participation of WOSBs in the NIH SBIR program appears to beimproving, there are areas of continuing concern. Their share ofapplications is still relatively low, despite the high percentage of femalePhDs in the life sciences.

The fact that success rates for WOSBs for bothPhase I and Phase II were persistently lower than those for non-WOSBsrequires further analysis by NIH. Although the amounts involved are not verylarge (perhaps 5 percent of award size), it is important to determine whyWOSB award sizes are consistently lower than those for non-WOSBs.The review of the data reveals that NIH experiences serious difficulties inattracting MOSBs to the SBIR program. Using the SBA definition, award sharesto MOSBs have declined and now account for only 2 percent of Phase IIawards.

Success rates for MOSB applicants are persistently lower than fornon-MOSB applicants, for both Phase I and Phase II.Low participation rates are even more apparent when African American andHispanic American participation is considered, both as PIs and throughcompany ownership. Here the numbers are extremely small: 2014 Surveyrespondents reported 2 African American and 12 Hispanic American PIs. It istherefore concluded that NIH is finding minimal success in attracting MOSBparticipants into the SBIR/STTR programs. Furthermore, decliningparticipation trends are a matter of concern.The Committee considered the question of whether woman- and minority-ownedfirms could be assigned a percentage of awards as a way to enhance programdiversity. It concluded that the size of the applicant pool of women- andminority-owned businesses is so small that setting quotas would not be aseffective as increasing the size of the applicant pool through some of thelong-term initiatives that were suggested by speakers in thecommittee's workshop.NIH is aware of this issue and understands the need to improve outreachtoward women- and minority-owned businesses as part of its overall outreachefforts. Success rates for NIH SBIR WOSB and non-WOSBapplications, FY2005-2014. SOURCE: Based on NIH RePORTER database, Table T127.Thus while the share of applications grew, the number of awards madeto WOSBs remained essentially flat across the study period,averaging about 66 annually, with a high of 89 in FY2007 (anoutlier) and a low of 55 in FY2005.

In FY2014, WOSBs received 67awards.Overall, the number of Phase I awards declined in recent years, sothe percentage of awards made to WOSBs increased slightly (see ). But the shareof awards was consistently lower than the share of applications inevery year across the study period. Overall, WOSBs accounted for 13percent of applications and 10 percent of awards. WOSB share of NIH SBIR Phase I awards,FY2005-2014. SOURCE: Based on NIH RePORTER database, Table T127.Finally, NIH awards differ in size. Phase I awards to WOSBs wereconsistently smaller on average than those to non-WOSBs (see ).

WOSBs receivedsmaller awards on average in every year except FY2007. Because theamount applied for is largely at the discretion of the company,explanations for this difference are not obvious. Furthermore, thedifference neared or exceeded 10 percent of the average award sizein only 3 years.

This is a metric that NIH needs to watch closely incoming years. WOSB SBIR Phase IILevels of Phase II applications from WOSBs for each year are somewhathigher than the share of relevant Phase I awards (for the previousyear) almost without exception. Although the lags between Phase Iand Phase II at NIH vary, there is no simple explanation for thispattern. It may simply be that WOSBs have less access to othersources of funding, but that reasoning is speculative. Across thestudy period as a whole, WOSBs accounted for 10.3 percent of Phase Iawards and 13.3 percent of Phase II applications. They accounted for11.9 percent of Phase II awards. Patterns of access: WOSB Phase I applications, Phase Iawards, Phase II applications, and Phase II awards,FY2005-2014.

SOURCE: NIH Division of Statistical Analysis and Reporting,Table 127.As with Phase I, Phase II WOSB success rates were persistently lowerthan those for non-WOSBs (see ). They were lower in 7 of the 10 years of thestudy period, on average by 5 percentage points. Also, as with PhaseI, the Phase II WOSB share of awards was lower than the share ofapplications (see ). WOSB shares of awards were lower than the shares ofapplications for 7 of the 10 years covered by the study.

MOSB SBIR Phase Iillustratesthe number and share of MOSB Phase I applications across the studyperiod. The number and share of applications declined. The latterfell from a high of about 6 percent in FY2006 to 3 percent inFY2014.Declining application rates are reinforced by relatively low successrates. Phase I success rates for MOSBs were lower than those fornon-MOSBs in every year of the study period, and in some years werebarely half. The average success rate for MOSB applications was 11.5percent, while that of non-MOSB applications was almost 18 percent(see ). MOSB Phase II SBIR AwardsThe small number of Phase I awards made to MOSBs means that the poolof potential applicants is also small, which is reflected in the lownumbers of SBIR Phase II grant applicants (see ).

However, the MOSB percentageof all Phase II applications rebounded in FY2014 after several yearsof steady declines. In recent years MOSB Phase II applicantsaccounted for a higher percentage of the total applicants than theydid for Phase I awards. This suggests either that MOSB firms aremore committed to the SBIR program or that their projects are moresuccessful at Phase I, permitting relatively more to apply for PhaseII.Success rates for MOSB Phase II applicants are lower than those fornon-MOSB Phase II applicants. Shows the gap: MOSB rates are lower in everyyear except FY2012 and FY2010 and are on average 6 percentage pointslower, at 32 percent for MOSB compared to 38 percent fornon-MOSBs.As a result of the small applicant pool for Phase II and the lowersuccess rates, MOSBs won only a handful of Phase II SBIR awards atNIH—receiving a maximum of nine grants in any year of thestudy period. The share of awards dipped to a low of 1 percent inFY2013 before rebounding to 2 percent in FY2014 (see ). These figuresall reflect the expansive definition of “minority”provided by SBA, which includes Asian-owned firms. The numbers ofAfrican Americans, Hispanic Americans, and Native Americans wouldall likely be lower (as we found through the 2014 Survey, whosefindings are discussed above).

MOSB SBIR Phase II awards and percent share of all suchawards, FY2005-2014. SOURCE: NIH Division of Statistical Analysis and Reporting,Table 127.MOSB award sizes were also considerably lower than those fornon-MOSBs, being on average almost $70,000 smaller in the firstyear, which translates into a gap of about $140,000 over the life ofa standard 2-year award. Shows a gap in award size in every year exceptFY2009; the substantial variations year to year are in partexplained by the low number of awardees (less than 10 per year).