[House Hearing, 118 Congress] [From the U.S. Government Publishing Office] EXPLORING SBA PROGRAMS: REVIEWING THE SBIC AND SBIR PROGRAMS' IMPACT ON SMALL BUSINESSES ======================================================================= HEARING before the SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS OF THE COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED EIGHTEENTH CONGRESS SECOND SESSION __________ HEARING HELD APRIL 16, 2024 __________ [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Small Business Committee Document Number 118-047 Available via the GPO Website: www.govinfo.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 55-251 WASHINGTON : 2024 ----------------------------------------------------------------------------------- HOUSE COMMITTEE ON SMALL BUSINESS ROGER WILLIAMS, Texas, Chairman BLAINE LUETKEMEYER, Missouri PETE STAUBER, Minnesota DAN MEUSER, Pennsylvania BETH VAN DUYNE, Texas MARIA SALAZAR, Florida TRACEY MANN, Kansas JAKE ELLZEY, Texas MARC MOLINARO, New York MARK ALFORD, Missouri ELI CRANE, Arizona AARON BEAN, Florida WESLEY HUNT, Texas NICK LALOTA, New York CELESTE MALOY, Utah NYDIA VELAZQUEZ, New York, Ranking Member JARED GOLDEN, Maine KWEISI MFUME, Maryland DEAN PHILLIPS, Minnesota GREG LANDSMAN, Ohio MARIE GLUESENKAMP PEREZ, Washington SHRI THANEDAR, Michigan MORGAN MCGARVEY, Kentucky HILLARY SCHOLTEN, Michigan JUDY CHU, California SHARICE DAVIDS, Kansas CHRIS PAPPAS, New Hampshire Ben Johnson, Majority Staff Director Melissa Jung, Minority Staff Director C O N T E N T S OPENING STATEMENTS Page Hon. Dan Meuser.................................................. 1 Hon. Greg Landsman............................................... 3 WITNESSES Mr. Angelo Valletta, President and Chief Executive Officer, Ben Franklin Technology Partners of Northeastern PA, Bethlehem, PA. 6 Ms. Amanda Bresler, Chief Strategy Officer, PW Communications, Rockville, MD.................................................. 7 Mr. Brett Palmer, President, Small Business Investor Alliance, Washington, DC................................................. 9 Mr. Jere W. Glover, Executive Director, Small Business Technology Council, Annapolis, MD......................................... 11 APPENDIX Prepared Statements: Mr. Angelo Valletta, President and Chief Executive Officer, Ben Franklin Technology Partners of Northeastern PA, Bethlehem, PA.............................................. 24 Ms. Amanda Bresler, Chief Strategy Officer, PW Communications, Rockville, MD.............................. 45 Mr. Brett Palmer, President, Small Business Investor Alliance, Washington, DC................................... 36 Mr. Jere W. Glover, Executive Director, Small Business Technology Council, Annapolis, MD.......................... 165 Questions for the Record: None. Answers for the Record: None. Additional Material for the Record: MITO Material Solutions Letter............................... 182 EXPLORING SBA PROGRAMS: REVIEWING THE SBIC AND SBIR PROGRAMS' IMPACT ON SMALL BUSINESSES ---------- TUESDAY, APRIL 16, 2024 House of Representatives, Committee on Small Business, Subcommittee on Economic Growth, Tax, and Capital Access, Washington, DC. The Subcommittee met, pursuant to call, at 10:12 a.m., in Room 2360, Rayburn House Office Building, Hon. Daniel Meuser [chairman of the Subcommittee] presiding. Present: Representatives Williams, Meuser, Landsman, Chu, and Davids. Chairman MEUSER. Okay. Ladies and gentlemen, we are ready to get going in our Small Business Committee hearing. Before we bang the gavel and being our proceedings, I want to recognize the Chairman of the full committee, Roger Williams, to lead us in the pledge and the prayer. Mr. WILLIAMS. Please rise. Heavenly Father, God of all people, thank you for allowing us to be here today to do what we can to preserve the greatest country in the world we love to call the United States of America. Let us remind of the Book of Romans. It says we all bring different things to the table. We all have opportunities to do great things, put it together and make it work. But you have to come to the table. I hope we do that today. In your name, we pray. Amen. Join me in the pledge. I pledge allegiance to the flag of the United States of America and to the Republic for which it stands, one nation under God, indivisible, with liberty and justice for all. Chairman MEUSER. Thank you, Mr. Chairman. So, good morning, everyone. We now call the Committee on Small Business to order. Without objection, the Chair is authorized to declare a recess of the committee at any time. I now recognize myself for my opening statement. Again, we want to welcome everyone to today's hearing, including the Ranking Member. And, first, I do want to thank our witnesses for joining us here today. Your time is very much appreciated, and we look forward to your testimonies. Today, our committee, the Subcommittee on Economic Growth, Tax, and Capital Access, will focus on the current function and future of the both the SBIC and SBIR programs. Unlike large corporations, small businesses don't share the luxury of utilizing debt and equity markets for financing. Main street is instead forced to bridge the funding gap and utilize resources like SBIC programs where federal funding is matched with experienced private investors at no risk to the American taxpayer. An SBIC is a privately owned company that is licensed and regulated by the SBA. SBIC has raised capital to invest in small businesses in the form of debt and equity. The SBA doesn't invest directly into small businesses, but it does provide matching funds in the form of loans to qualify at SBICs with expertise in certain sectors or industries. Those SBICs then use their private funds, along with the SBA guaranteed loan, to invest in small businesses. Through the SBIR and STTR programs, main street is also given the ability to develop and commercialize new products from both government and private sector. For example, SBIR works by infusing federal R&D dollars in phases to small businesses, developing new ideas that align with the needs of the federal agency. Federal agencies can offer SBIR and STTR awards by either requesting a product that meets specific requirements or by an open topic in which small businesses propose innovative solutions to meet an agency's mission. The flexibility of open topics allows small businesses to propose new solutions that help agencies meet their mission. The access to and utilization of these two programs is essential to helping many small businesses navigate economic challenges set upon them by Bidenomics and some what one might describe as wasteful, excessive government spending. As we know, it is more expensive than ever to do business because of high interest rates, persistent inflation, and newly proposed banking regulations, such as Basel III, which have forced banks, as we speak, of all sizes to tighten commercial lending standards. In order to ensure small businesses have continued access to capital, this committee must work to reauthorize the SBIR and STTR programs expiring at the end of next September. Our first duty is to address challenges within the program and explore various solutions that were left on the table during the program's last reauthorization. As leading voices for main street, it is our job to work to ensure our nation's job creators have an economic and regulatory environment they cannot only survive but thrive in. Reauthorization is crucial but not without necessary adjustments regarding flaws, like the current CCP infiltration into the SBIR program. During 2022 SBIR and STTR reauthorization, Democrats did not consider the threat China posed in the SBIR, STTR as a serious concern. Republicans successfully fought to combat Chinese infiltration by requiring agencies to develop a due diligence program. While this program has since assessed security risks, Congress has an opportunity to address weaknesses in the due diligence efforts as their effectiveness is further evaluated. As we look to the future of the SBIC and the SBIR and STTR programs, one thing remains abundantly clear: We must continue to fight for main street and work to empower our job creators with commonsense, regulatory relief, and reliable methods of access to capital. These businesses, especially those developing innovative products for federal agencies, work to advance everything from our national security to our education system. We rely on them and their innovation to ensure the U.S. remains a global leader for products across the board. Prioritizing their success and continually motivating their output is essential to America's continued advancement. With that, I will now yield to our Ranking Member, Mr. Landsman. Mr. LANDSMAN. Thank you, Mr. Chair, and thank you for holding this very important hearing. And thank you to all of our guests for being here. Your time is very important, and we truly appreciate your perspective and advice. The hearing really couldn't have come at a better time. We are seeing a record surge in new startup activity, and it is happening at this really important point in our nation's history. We are working, as the Chair said, to evaluate, reevaluate, in some instances, the role of our startups in the global supply chain and the way in which we source products that are critical to our economy and our national security. We all know that innovation is a catalyst for economic growth and resilience, and oftentimes the most innovative ideas come from our startup communities. However, these startups often struggle to grow their ideas and be part of the economy because they just don't have the capital that they need. It takes time and money to turn their innovations into real products. To help, we have prioritized investing in these new startups through important programs at the SBA. The SBA's office of investment and innovation houses two of these programs that we are talking about, the SBIC and the SBIR. Together, these programs help startups research and develop new products and help high-growth companies and disadvantaged communities access private equity capital to grow and scale their businesses. Let's start with the SBIR program, which creates this partnership between federal agencies and startups to develop technologies to support our economy and national security. This program uses a small percentage of research and development spending through highly competitive grants. This program has helped startup businesses like 23andMe, Sonicare, LASIK, and could bring many more promising ideas to the marketplace. In the fiscal year 2020 alone, these programs backed more than 4,000 small businesses and 7,200 projects. But developing technology is only the first step as many businesses with great products face other reasonable barriers to funding. That is why Congress created the SBIC program in 1958 to enhance small business access to patient capital. Under this program, the SBA works with and licenses private institutions to provide financing to small, high-growth companies. In the past, these investments have acted, believe it or not, as a lifeline to firms that have changed the course of history, companies like Apple, Costco, Federal Express, and Intel. Now there are over 300 SBICs. In 2023, they provided $8 billion to over 1,200 startups. This helped create and keep more than 130,000 jobs. Despite the overwhelming success of these programs, some modernizations need to be made. Just last year, the SBA finalized the SBIC investment diversification and growth rule. The rule updated the program and created two new types of SBICs to create greater flexibility in investment repayment opportunities for firms that may not have fit under the traditional rules. We are also just over a year away from another reauthorization of the SBIR program. It is my hope that we work together in a bipartisan fashion to address gaps in the program like better serving women and minority owned businesses that have unfortunately been left out of the program in the past. Once again, I would like to thank the Chairman for holding these hearings, as well as the witnesses for being here today. I look forward to a productive conversation about the state of these programs and hearing ideas to strengthen them, and I yield back. Chairman MEUSER. Ranking Member yields back. I now recognize the Chairman of the full committee from the great State of Texas, Chairman Roger Williams, for an opening statement. Mr. WILLIAMS. Well, thank you, Mr. Chairman. And good morning to everyone here today. I want to thank Chairman Meuser for holding today's subcommittee hearing that will examine the impact and effectiveness of the SBIC and the SBIR programs. Main street. Main street is faced with a continuing disadvantage when it comes to accessing capital. With burdens and regulations and high interest rates, banks are being forced to tighten their lending standards, and when this happens, small businesses are often the ones forced to pay the higher price to much needed funds. This is where the SBA steps up to fill these gaps. Through the SBIC and the SBIR programs, main street is able to access funds that will help them grow and expand their operations. These programs have proven to be successful for a wide variety of businesses in almost every industry. As the authorizing committee of both of these programs, it is our duty to evaluate what is working and what could be done better to ensure that they are helping as many entrepreneurs as possible. I am looking forward to hearing directly from our witnesses today and appreciate all of them being here so we can learn from their firsthand experiences in navigating the SBIC and the SBIR programs. So I want to thank all of our witnesses for being here, for coming here on your own time, and to be with us. And, with that, I yield back the balance of my time. Chairman MEUSER. Thank you, Chairman. I will now introduce our witnesses. Our first witness here with us today is Mr. Angelo Valletta. Mr. Valletta is the president and CEO of Ben Franklin Technology Partners of Northeastern Pennsylvania--I know that neck of the woods a little bit--located in Bethlehem, Pennsylvania. Since 2021, Mr. Valletta has been with Ben Franklin Technology Partners of Northeastern Pennsylvania, which provides investment capital and business support services to both technology startups and established manufacturers. Prior to his current position, Mr. Valletta held several executive leadership roles at FIS Global, one of the largest fintechs in the world. He also served as senior vice president and chief bank operations and information officer at Sun National Bank. Mr. Valletta earned his bachelor of business administration from the Fox School of Business at Temple University before going onto his master of business administration from Philadelphia university. Thank you for joining us here today. Mr. VALLETTA. Thank you, Mr. Chairman. Chairman MEUSER. Our next witness is Ms. Amanda Bresler. Ms. Bresler is the chief strategy officer of PW Communications, located in Rockville, Maryland. PW Communications provides full-service proposal preparation, contract performance, and strategic business development support to companies. At PW Communications, Ms. Bresler has used government data to analyze the impact of federal procurement programs, including SBIR on small businesses. Ms. Bresler currently serves as the global board of directors for AlmaLinks, a global community that connects Jewish CEOs, founders, and seasoned executives to business leaders from Israel and around the world. Ms. Bresler attended the Georgetown University McDonough School of Business, from which she earned her degree in marketing. Thank you for joining us here today. Our next witness with us is Mr. Brett Palmer. Mr. Palmer is the president of the SBIC Alliance, Small Business Investor Alliance, located here in Washington. For over 15 years, Mr. Palmer has served as president of the Small Business Investor Alliance, which does represent a variety of funds investing in American private small businesses, including the SBIC companies and private equity funds. Prior to his current position, Mr. Palmer was managing director of government relations for the National Association of Insurance Commissioners, as well as an Assistant Secretary of Legislative and Government Affairs and Deputy Assistant Secretary for Trade Legislation in the U.S. Department of Commerce. Mr. Palmer was recently appointed to the Small Business Administration's Investment Capital Advisory Committee. Mr. Palmer earned his degree in history from Davidson College. Thank you very much for joining us today. I now recognize the Ranking Member from Ohio, Mr. Landsman, to briefly--you don't have to be so brief--but introduce our last witness appearing before us today. Mr. LANDSMAN. Thank you, Mr. Chairman. Our final witness today is Mr. Jere Glover, the executive director of the Small Business Technology Council, SBTC, a trade association of small, high-tech companies, most of whom are involved in the Small Business Innovation Research, or SBIR, Program. Mr. Glover is considered one of the fathers of the SBIR program. As counsel to the House Small Business Committee, he directed and organized a set of hearings on small business and innovation that led the groundwork for the program in 1978. Throughout the law's existence, he has been one of its most active supporters. Mr. Glover has a unique blend of public and private sector experience. For more than 6 years, he was the federal government's lead defender of small businesses in the regulatory process in the private sector. He has been the CEO or principal of a biotech company, a medical technology company, and a group of medical clinics. He obtained his undergraduate and law degrees from the University of Memphis and an LLM in administrative law and economic regulation from George Washington University. Thank you, Mr. Glover. We look forward to your testimony. Chairman MEUSER. Well, before recognizing the witnesses for your opening statements, I would like to remind you all that your oral testimony is restricted to 5 minutes in length. If you see the light turn red in front of you, it means your 5 minutes have concluded and you should wrap up your testimony. If you start hearing this, it means you should really consider wrapping it up, because I don't want to have to wrap this too hard, all right. I do now recognize Mr. Valletta for his 5-minute opening remarks. STATEMENTS OF ANGELO VALLETTA, PRESIDENT AND CEO, BEN FRANKLIN TECHNOLOGY PARTNERS OF NORTHEASTERN PENNSYLVANIA; AMANDA BRESLER, CHIEF STRATEGY OFFICER, PW COMMUNICATIONS; BRETT PALMER, PRESIDENT, SMALL BUSINESS INVESTOR ALLIANCE (SBIA); AND JERE W. GLOVER, EXECUTIVE DIRECTOR, SMALL BUSINESS TECHNOLOGY COUNCIL (SBTC). STATEMENT OF ANGELO VALLETTA Mr. VALLETTA. Good morning, Chairman Williams, Chairman Meuser, and the esteemed Members of the subcommittee. I am Angelo Valletta, president and CEO of Ben Franklin of Northeastern Pennsylvania and Chair of the Ben Franklin Technology Partners. I am honored to be here today to testify today about the SBIR and SBIC programs' impact. Ben Franklin has been investing in supporting early-stage, technology-focused startups, innovative manufacturers, and technology incubators for over 40 years and generates $4 for every $1 invested and has supported SBIR and SBIC programs for many years. These programs are often referred to as America's seed fund. These programs are a valuable source of capital to help small businesses commercialize research into useful, launchable products and services. Ben Franklin has supported these companies through our statewide program called Innovation Partnership, IPart for short. Pennsylvania companies have been successful in leveraging SBIR programs with PA ranking seventh among participating States. PA's IPart assists primarily first-time SBIR applicants and has a 28-percent success rate versus the national average of 18 percent. Our relationship with SBIC program is program in partnership with licensed SBIC firms. We have invested in SBICs, evaluated SBIC licenses, and leveraged separate for-profit funds. Regulations have limited the use of the SBIC program for early-stage investments. We believe the SBIR and SBIC programs are valuable resources to grow small businesses that translate into highly paid sustainable jobs for the communities that we serve. SBICs use a rigorous analysis of managers' backgrounds and investing experience and an evaluation of the fund's investment thesis, strategy, and structure. The application process to secure an SBIC license can be lengthy and difficult, but it has many benefits. Pennsylvania's SBICs have invested in 84 PA companies in the last 15 years. Of these investments, 81 were at mezzanine, debt, private equity, or other later-stage capital facilities, but only three deals by the same investor were in early-stage funds. Last year, SBA overhauled aspects of the SBIC capital regulations. SBA made several positive revisions to renew the approval process for new SBIC applicants, such as expanding capital, considering the fund's management team's expertise in capital activity, are open to smaller SBIC investments, and, finally, have lowered its fees and streamlined the committee review for newer program applicants. These positive reforms are significant improvements to the SBIC program, and as such, Ben Franklin is considering an SBIC license for its GO PA Fund. Ben Franklin is happy to see SBA implementing the alternative funding structures to supply additional capital for early-stage indexing. However, several hurdles remain: SBICs are required to be for-profit; the size of over 3 million can still be a challenge; and, finally, the limitation of leverageable capital could be better defined. SBIR and STTR programs are referred to as the nation's largest source of early-stage, high-risk funding for startups and small businesses. Again, PA ranking seventh in the amount of SBIRs awarded annually--in the last 5 years, over 1,200 companies receive Phase I and Phase II awards, totaling nearly $850 million in funding, and the Ben Franklin network investing in nearly 25 percent of them, with 27 invested by our IPart program. There is merit to having the SBIR and STTR awards distributed by a rigorous proposal process, but there is some room for improvement. With over 20 years of assisting small businesses seeking awards, IPart assists many clients submitting proposals for funding. SBIR and STTR agencies could require a similar preliminary, Phase I, presubmission, project- focused document for agency-specific vetting and could be standardized to streamline the application experience and to avoid duplicate proposal submission. Furthermore, SBA could coordinate solicitation registration requirements and timing of feedback for a single information channel that would significantly enhance the experience of companies seeking awards, increase the number of companies seeking SBIR and STTR awards, and would likely improve the submissions' quality. I thank you for your time, and I look forward to your questions. Chairman MEUSER. Thank you very much. We now recognize Ms. Bresler for her 5-minute opening remarks. STATEMENT OF AMANDA BRESLER Ms. BRESLER. Chairman Williams, Chairman Meuser, Ranking Member Landsman, and Members of the subcommittee, thank you for the opportunity to testify today. My name is Amanda Bresler, and I am the chief strategy officer for PW Communications. My firm has won SBIR awards from the Department of Defense, and I have published five independent research papers analyzing the impact of federal procurement policies, including the SBIR program, on small businesses. The SBIR program is marketed as a way for innovative small businesses to break into the public sector, yet most SBIR funding goes to existing government contractors. Task a group of the world's most accomplished entrepreneurs with identifying and responding to a Phase I, and you will understand why. The process is so arcane that, irrespective of IQ or business acumen, it is nearly impossible for an outsider to navigate. Many small businesses forego SBIR entirely. Others hire SBIR advisory firms to manage the process in exchange for a percentage of the award funding. It is also why a handful of companies win the lion's share of SBIRs. A recent GAO report showed that a mere 22 companies, less than 1 percent of all SBIR participants, won more than $3 billion in SBIR funding between 2011 and 2020, roughly 10 percent of the entire SBIR budget. The program is designated for small businesses, yet some of these entrenched SBIR companies generate hundreds of millions in government contracting revenue annually, and some are even publicly traded. Both we and the GAO found that these entrenched SBIR companies don't necessarily transition at higher rates. One firm we analyzed won over $320 million in Phase I/Phase II funding and has generated only $10 million in Phase IIIs. The SBIR program isn't held accountable for meeting explicit intragovernmental transition goals. So these large SBIR companies that understand the system aren't incentivized to transition; they are incentivized to pursue more SBIRs. However, for the truly small companies that do manage to break into the program, it is often with the expectation that good performance will translate into follow-on government contracts. Yet the program rarely positions them for success in the broader federal market. They don't receive the resources or guidance needed to identify transition partners. Sam.Gov is poorly designed and has archaic search functionality. It only searches for exact terms within the title and description fields, not the attachments, which is where government stakeholders often outline their needs. In 2021, we analyzed the readability of over 1 million archived solicitations, and less than 4 percent were written in plain English, meaning small companies can't even wrap their heads around what the government is looking for. Similarly, 70 percent of the analyzed solicitations required responses within 21 days of when they were posted, and 30 percent within 10 days or less. Ultimately, the only way for most small SBIR companies to win follow-on contracts is if they pay to play. Compounding this challenge, government stakeholders rarely receive information about the SBIR-funded projects within their branch, let alone what is being funded externally. You can't expect capabilities to transition if prospective transition partners don't know they exist. To address these issues, I offer the following recommendations: Overhaul the SBIR submission process so that small, nontraditional companies can compete. Mandate that a share of Phase Is be awarded to companies with no prior government business. If the SBIR program is intended to serve small businesses, eligible companies should be small. Limit the SBIR program to companies with $40 million or less in total annual revenue. Make it easier to identify and bid on government contracts. Redesign Sam.Gov, improve its search functionality, require solicitations to be written clearly, and give companies at least 30 days to respond. Prioritize and incentivize transition. Mandate that SBIR must meet minimum intragovernmental transition goals. Establish a set-aside program requiring government stakeholders and prime contractors to allocate a share of contract dollars annually to SBIR companies who pass a rigorous assessment of technical merit at the end of their Phase II. Provide greater incentives for integrating capabilities initially funded by a different branch. These recommendations stand to benefit small businesses and government. They will make the program more open and competitive, and encourage wider adoption of SBIR-funded capabilities. Thank you again, Chairman Williams, Chairman Meuser, Ranking Member Landsman, and Members of the subcommittee, for the opportunity to speak. Chairman MEUSER. Thank you very much. We now recognize Mr. Palmer for his 5-minute opening remarks. STATEMENT OF BRETT PALMER Mr. PALMER. Good morning, Chairman Meuser, Chairman Williams, Ranking Member Landsman, and Members of the committee. Thank you for the opportunity to testify today. My name is Brett Palmer. I am president of the Small Business Investor Alliance. Since 1958, SBIA has been the champion of small business investment companies, America's original venture capital and private equity funds. Our association's purpose is to support the entire small business investing ecosystem, and our policy goals are focused on maintaining a robust, healthy, and competitive market. Our Members help small businesses grow, and they are rightly proud of what they do and how they do it, and they are proud of the benefits that their actions have on the people and their communities where their businesses are located. SBICs are an American success story, an example of successful public policy that aligns the power of private markets with the public interest of job creation, economic growth, and global competitiveness. Over the years, SBICs have made over 200,000 investments, totaling over $130 billion, creating millions of American jobs. And SBICs provide many types of capital, including growth equity, minority equity, control equity, mezzanine and private debt, as well as some venture capital and venture lending, and more of that is coming. SBIC investments are often the first institutional capital to ever be deployed into the small business. Further, once SBIC capital is invested into a small business, then the small business is able to access more conventional bank capital. Small businesses that receive SBIC investments have grown into icons of American industry, including Federal Express, Apple, Intel, Callaway Golf, and many others. While these are known globally, many more that were backed by SBICs have grown from smaller businesses into robust, sustainable, midsize businesses. For example, Drug Free Sport International, based in Kansas City, Missouri, they provide drug-testing services that keep athletics fair and safe. Their employment grew 242 percent after the SBIC investment, with their sales growing by 143 percent. JSI Manufacturers, in Milo, Maine, they sell grocery store displays. They doubled their employment to over 200 employees in a town with a population of around 2,000. Hart Systems in Hauppauge, Long Island, a provider of inventory management systems, they increased their employment 77 percent from 69 to 122. And Behavioral Innovation Systems in Dallas, Texas, was founded by three clinicians, two of whom were women. They provide therapy to children with autism, and they now help thousands of children across Texas, Oklahoma, and Colorado, and now have over 2,000 employees. The SBIC Program is a private capital amplifier. Most SBICs are leveraged funds, which means those SBICs are able to borrow money from an SBA credit facility. The private sector leads, and the SBIC leverage follows and amplifies. Individual SBICs can reinforce their private capital with up to two tiers of leverage or $175 million in capital, whichever is less. And I want to stress, this leverage is provided at zero subsidy to the taxpayer, and SBICs pay it all back plus interest and fees. For all companies, small businesses in particular, access to capital often determines success or failure. And the private capital markets are tight right now, and they are particularly tight for small businesses due to higher interest rates, and SBICs are filling some of the capital gaps with record investments that have been--that we have done in recent years. SBA has made several recent major reforms and has several initiatives to increase equity capital and to diversify the type of investors that can become SBICs. Further, SBA recently announced the Critical Technologies Initiative, which is a partnership with the Department of Defense. This is using SBICs to increase investments in small businesses in critical national security industries and supply chains, not necessarily government contracting, just businesses that--industries we want here. Now, there is several policies that we encourage Congress to support, and the first one I am going to actually thank you all for voting for, because everyone here did vote for it. You voted for the Investing in Main Street Act, which passed the House with overwhelming bipartisan support earlier this year. That was led by Representative Chu and Garbarino, and we are working on that in the Senate now. We also strongly support H.R. 5333, the Investing in All of America Act. This is also bipartisan legislation introduced by Chairman Meuser and Skelton, and many Members of this subcommittee are cosponsors. If passed into law, it will bring more private capital into parts of America that are often overlooked and with some of the following benefits: There is no new spending. There is no new mandates, no new subsidies, no subsidies at all, in fact. It is market-led and market-driven. 100 percent of the investments are in American small businesses. It encourages investments in low-income areas, rural areas, and areas of national security importance, and the inflation adjustment allows the program to remain competitive and operational as inflation marches on and time marches on. So, today, there are nearly 320 SBIC licenses managing over $42 billion in domestic investment. This is extremely strong and getting stronger. There are currently 94 licensed applications that are in the licensing pipeline. To put that in context, SBA normally licenses in a normal year 25 to 28 licenses, and there are 94 in the pipeline coming through. The demand for small business capital is there, and the market is following it. That is about $15 billion to $20 billion of additional small business investment that is coming online in the next couple years once those get through the licensing process. So I want to thank the Chairman for having this hearing. Thank you, the Ranking Member, for being here as well, and the full Chairman for joining us for this hearing. Thank you. Happy to take your questions. Chairman MEUSER. Thank you very much, Mr. Palmer. We now recognize Mr. Glover for his 5-minute opening remarks. STATEMENT OF JERE W. GLOVER Mr. GLOVER. Good morning, Chairman, Chairman, Ranking Member. Thank you for the opportunity of appearing here today. I am Jere Glover, the executive director of the Small Business Technology Council. I got my early experience in the federal innovation and technology area back in 1978 when I staffed a joint Senate and House Committee and report that documented clearly the underutilization of small business by the federal R&D programs. Next to the GI bill, after World War II, I believe the SBIR program is one of the most significant pieces of legislation Congress has ever passed. Why is it so significant? Well, one, it revolutionized the way government does business. For the first time there was a law that required federal agencies to award a very small percentage of their R&D budgets to small business. This resulted in the creation and support of tens of thousands of new innovations and small businesses. The benefits of this to the American innovation economy have been tremendous. Two technologies that you use every day: One is the GPS on a chip, which is in your cell phones and on your cars, allows you to track what is going on; the other is the CMOS system, which is the cameras, which are on virtually all cell phones. Those are just two examples of the technology. Thirty-eight percent of SBIR awards go to new firms every year. That amounts to 1,500 new companies that had never gotten an SBIR program, winning an SBIR award. Ninety-nine new drug approvals in the last 24 years were funded by SBIR. And, if you think those were unimportant drugs, 16 percent of the priority review drugs, meaning those that had made significant health advances over prior treatments were, again, funded by the SBIR program. When we also look at the return on investment, several economic impact studies have clearly shown that the return on investment is about 25 percent. For every dollar invested in the SBIR program, there are $11 of commercial sales, nongovernment sales at the National Cancer Institute, and $3 of nongovernment sales at the Department of Defense. Eight percent of all venture capital investments go to funds that have received SBIR funding. Over half of the SBIR Phase II awards go on to be successful. For every dollar invested in the SBIR program, over $3 in taxes are paid State and local. Over 2,800 firms, SBIR firms, and their technologies have been acquired. Over 800 of these SBIR firms have gone public. SBIR firms have acquired 149,000 patents. The purpose of the Small Business Innovation Research Act is to stimulate innovation, to use small businesses to meet federal research and development needs, to foster and encourage participation by minorities and disadvantaged persons, to increase technology and innovation, and to increase private sector commercialization innovations that derive from research and development. Has SBIR achieved these goals? Yes. In 18 National Academy of Sciences that the government spent over $20 million to fund over the years, they have looked at these goals and determined that, yes, they meet all of these goals, with the exception of women and socially and economically disadvantaged small businesses. Recent data from SBA, however, indicates that they are making significant progress, a 33-percent increase in the socially disadvantaged firms winning SBIRs and an 18-percent increase in women-owned businesses. Why does it work? Why does SBIR work? Merit selection based on science and technology, the best proposal wins. It is highly competitive, extremely competitive. Only 1 in 12 proposals get to a Phase II. SBIR solves our federal R&D challenges and supports the agency missions. Agencies select the topics, select the winners, and make awards to meet their needs. University and small business partnerships drive SBIR and STTR solutions. While some people may focus on the big end of the funnel and fight over the crumbs as to who gets what, we need to focus more on the small end of the funnel and make sure that the primes start adopting outside technology or we have a serious problem. Recommendations: First, SBIR should be made permanent; secondly, the proposal and contracting process should be simplified and standardized. The SBIR allocations should be doubled. And, for improved transition, prime contractors should be required to use and report on the use of SBIR and nontraditional firms. Thank you for your time. Chairman MEUSER. Thank you. We will now move to Member questions under the 5-minute rule. I now recognize myself for 5 minutes. Mr. Palmer, I will start with you. Real-world examples of what the SBIC has meant to the overall organization, meant to the SBIC, individual companies, and to those that they were providing investments to, and how would the bonus leverage improve things and benefit small business access to capital? Mr. PALMER. Sure. The SBIC capital, as I mentioned, is the first institutional capital to go into most businesses. So a lot of this is professionalizing the business and helping them scale up. The number of employees increases significantly in almost every case. I can't think of a case where it hasn't been, which has been helpful. Now, the bonus leverage is designed specifically to make it so there is an incentive, not a mandate but incentive, to look off the beaten track to parts of the country that haven't been invested in. So, if you have a fund, the funds have a 10-year lifespan, 5 years of which they invest and then 5 years they harvest, in the first 5 years, it is an incentive to look out for low-income areas and rural areas and industries in these national security sectors. And, if you find a business there that you might not have otherwise gone to, you can access more leverage and doesn't preclude you from doing another deal. And so it just is an incentive to look off the beaten track and find more companies in places that otherwise often get passed over. Chairman MEUSER. Sure. And, in your opinion then, would the SBA, by implementing bonus leverage as drafted in the legislation, Investing in All of America Act, my bill, H.R. 533, would that be advantageous in the manner that it is intended? Mr. PALMER. It would be very constructive. It would be very constructive for every State in the Union. Chairman MEUSER. Okay. Adjusting the leverage caps, is that--you believe that is necessary within the SBIC program? Mr. PALMER. Yeah. So the leverage caps rely--some of them were adjusted back in 2015, some in 2018. And, basically, as inflation has carved up and chewed up 25 percent of the SBIC firepower, as far as under the leverage caps, and so, as time marches on, there just needs to be an inflation adjuster so that they can continue to operate the way they would because just time catches up. Chairman MEUSER. Mr. Glover, congratulations on everything you have done over time for small business. It is appreciated. Do you agree with what Mr. Palmer is saying? Mr. GLOVER. I do. It has been the goal of the founders of the SBIR program forever to have venture capitals focus specifically on SBIR firms. A few have done that. Obviously, many of them do it some. But, to have some of them that are specifically focused on equity funding, the SBIC program, we have talked about this, we have worked on it, we have dreamed about it for 40 years, and so I am glad that you are making some steps to make that happen, and hopefully we get to see this legislation go going. Chairman MEUSER. Good. Mr. PALMER. Yeah, you are going to see a lot more equity investor funds coming in the pipeline. There are a significant number of those, 94 that I mentioned. Chairman MEUSER. Sounds good. Mr. Valletta, SBIC, private investments, fueling the development and innovation of your small business clients? Mr. VALLETTA. Yes. These American seed funds are paramount to small business innovation as well as growth. And, for organizations like ours, so that our venture investment and development organizations, it is extremely important because part of our program--a portion of our funding comes from public sources like State government, public authorities, or bonds, and federal programs like the Small Business Credit Initiative, the SSBCI, are very important programs. Now, as we know, most venture development organizations receive returns on their investments. What we would like to do is have a virtuous cycle of business innovation as well as investment velocity to take our funds that we receive back from those investments, turn them back into SBICs and SBIRs, and so forth, so removing that leverageable capital requirement in regards to being able to leverage those dollars for innovation and investments. Chairman MEUSER. That is great. And you have really done great things for Pennsylvania over the years, so it is appreciated. Mr. VALLETTA. Thank you, Chairman. Chairman MEUSER. Ms. Bresler, so you gave a nice list of ideas and solutions for improvements. Do you find your suggestions as a significant stakeholder here are being heard and that we are advancing in the manner that you would see best? Ms. BRESLER. Thank you for the question. To some extent, yes, I am here in the room with this audience. And, unfortunately, I think some of the most basic recommendations are some of the hardest to implement anywhere but this room. You know, for instance, the size standards, even if you have buy-in from the people involved in these programs, they understand on paper that a company doing $350 million a year in revenue doesn't sound like a small business in the way that everyday Americans view small. Chairman MEUSER. Sure. Ms. BRESLER. They don't have the ability to implement that change. So I think it does depend on having, you know, a caucus of people with, you know, different interests in this broader pool to come together and implement these changes collectively. Chairman MEUSER. Good. We will work on it. Thank you. My time has expired. I am now going to recognize Mr. Landsman for his 5-minute questions. Mr. LANDSMAN. Thank you, Mr. Chair. Mr. Glover, a couple things: One, these are two really important programs, but they are not permanent. Can you talk a little bit about the value of making them permanent as we look to reauthorize them? Mr. GLOVER. Every few years the government thinks---- Chairman MEUSER. Mike. Mr. LANDSMAN. You might want to grab that. Yes. Mr. GLOVER. Sorry. Sorry. Every few years, the government thinks, ``Oh, this program is going to go away, so we don't have to continue funding. We don't have to make long-range plans. We don't have to make that a critical part of our infrastructure to make innovations great.'' There is no question innovation and adoption by the federal government in the R&D world is not working as well as it should. We are fighting against China, and we simply aren't there. But, when--to have one of its critical fundamental programs threatened to be going away every time and have the government think about it going away and to have the businesses not be able to plan long term is very bad. Mr. LANDSMAN. Yeah. Also, Mr. Glover, the Federal and State Technology, or FAST, Program works with our SBA resource partners to provide technical assistance. Does investing in resources like this help address concerns about diversity in the program? And the next question gets at some of the really compelling points that Ms. Bresler brought up in terms of diversifying, opening this up. Can you just talk a little bit about some of the things that she mentioned in terms of the update to the process, just simplifying a whole host of things that would make it more competitive and address some of the concerns she raised. And I ask about the technical assistance in that context because, you know, on one hand, the technical assistance, I am sure, is terribly important; on the other hand, the assertion, if I was correct, is that there is--some folks have more of an advantage than others as they get that technical assistance. Mr. GLOVER. Well, first, to answer your question about FAST. I think FAST is a critical, money well spent, I think, quite frankly, that should be increased. I think that, quite frankly, there should be some sort of regional development under the FAST Program to help the other--the FAST operations. I believe the FAST Program is responsible for the significant increase in minority---- Mr. LANDSMAN. Sorry, I apologize. Can you repeat the regional piece? Can you explain that a little bit more? Mr. GLOVER. Yeah. So you would have some sort of super FAST Programs that help work with other smaller FAST Programs. Mr. LANDSMAN. Oh, I see. Mr. GLOVER. And, quite frankly, 125,000 or whatever it is, is just simply not enough to run a really good program. So you need somebody to help you, show you how to do it. That is maybe one or two people. So it is not enough. But it has had a critical impact because we are seeing minorities and we are seeing women-owned businesses numbers going up significantly, and FAST is a critical part of that. As far as to the participation, you know, 1,500 new firms every year, that is a lot of new firms. So we are getting a lot of companies in. Are we perfect? Nothing ever is. In my opinion, it is the best program in federal R&D ever created because it has less--it has a huge return on investment. Over $3 in taxes on loan come back from these programs. So the government picks the companies, they pick the topics, they pick the winners, and they choose. In many cases, especially in defense, there are technologies that are very sophisticated, and the government needs that. And, quite frankly, the primes aren't providing it. So it is important to have those companies with the knowledge, experience, and background, and equipment, and experts to meet those government needs. Commercialization is one of four goals, only one, getting a small business percentage. And, as far as size definitions, the general size standards at SBA for R&D is 1,000 to 1,500, not 500. SBA, looking at this and all of the criteria, would be more likely to increase the size standard, not lower it. Mr. LANDSMAN. So let me thank you for that. I am running out of time, but what I think would be good is if somehow we can get the two of you in a room and sort out what the changes would be. I know that you have different feelings, but it does seem like that could be a very helpful thing as we look to reauthorize, update, improve the process from application to scoring, to--I think, Ms. Bresler, you talked about having a group that could help sort through some of this so that it is not just the same folks. I don't know if you would be interested in that. Maybe our team can follow up with the SBA to--or this committee to talk through it, but I think that could be very helpful. Mr. GLOVER. I think that is a very good idea. Thank you. I will look forward to it. Chairman MEUSER. The gentleman yields. I agree. I think it is a very good idea, as well. We now recognize Chairman Williams from Texas for 5 minutes. Mr. WILLIAMS. Thank you, Chairman. And, Ms. Bresler, I am a small business owner back in Texas like you are. And you used some words today that the federal government doesn't understand. Okay. It is called ``easier, faster,'' and ``incentivize.'' They don't get that. Okay. They only hear it from the private sector. So the Department of Defense SBIR program often lacks instructions for small businesses to follow. You have said that, and I agree with you. We have heard from many frustrated small business owners who have left with more questions than answers about the requirements and what would be needed for followup on contracts, when to apply for the SBIR program, or even which DOD innovation initiative actually they should use. So this causes many small business, as you talked about, to walk away from the defense market and not participate in the program because they do not have a clear picture of what the full investment will be and cannot justify navigating the complicated regulations. So, simply, how can this concern be addressed, and how widespread is the issue? Ms. BRESLER. Thank you for the question. So I think the easiest way to assess this would be trying to go through this process yourself, having as many people who are involved in designing the process actually go through it and make notes. I think, relative to some of the complex technological challenges that the Department of Defense tackles on a daily basis, this is relatively simple, but the cultural piece is significant. And you would need to look at not only creating the appropriate systems, policies, having the right tools, but also requiring that new steps be taken, requiring certain metrics to be tracked. So, even this notion of how many new businesses are working in the SBIR program every year, the reason you can hear different numbers is because there isn't a standard way in which they track that, for instance. Mr. WILLIAMS. Mr. Valletta, your testimony indicated that several hurdles remained to make the SBIC program cumbersome, that make it cumbersome, including the limitation and definition of ``leverageable capital,'' which could be broadened and made clearer. What would you recommend we do on this committee to fix this particular issue? Mr. VALLETTA. Yes, actually, thank you for that question. We really look for the SBIC program to be expanded from that leverageable capital, with using the venture investment development organizations like ourselves, to be able to use that capital, the returns that we receive from programs, various programs, from State and local and federal, to be able to get that velocity of investments from organizations; and then, on the SBIR and STTR type of programs, leveraging those organizations to make it clear, as Ms. Bresler mentioned, in regards to maybe using an IPart program, those innovation partnerships like we have in our program at Ben Franklin, to make the process easier and to note that we have a 28-percent success rate versus the national average of 18 percent. So I think all those things combined make it easier for the communities that we serve to refresh, retain, and reimagine jobs for our great country. Mr. WILLIAMS. Thank you. Mr. VALLETTA. Thank you. Mr. WILLIAMS. Mr. Palmer, our government spending is currently on an unsustainable path, in case you were not aware of that. Mr. PALMER. I am aware of that, yes. Mr. WILLIAMS. Okay. Overspending poured gasoline on the inflation fire. Every single day every American is currently experiencing these high interest rates for a--and they are going to be a decade long. Simply, how does the current economic climate affect the performance and viability of the SBICs? Mr. PALMER. The SBIC--the demand for SBIC capital is extremely strong because the banks have had to pull back. The banks are--particularly the smaller and regional banks are struggling with still a loss of deposits. That is a challenge. And the businesses that have floating rate loans, their costs have gone up significantly. So I was talking to a fund manager the other day; they had a business that was growing at 40 percent a year and just rocking and rolling. And they are down to 5-percent growth, just changes entirely on interest rates, just the cost of borrowing capital to grow. And that is hard. But inflation is difficult on consumers, and it is difficulties on businesses to plan, and it is a challenge. Mr. WILLIAMS. Real quick, with the time we have got going, as a followup: I always look at, when evaluating any government program or anything, is a return on investment, which they don't understand about here in Washington. But, for those people that may not be familiar with the SBIC program, can you tell us quickly if any taxpayer dollars have been lost, and what would have to occur for the federal funds to be wiped out in this program? Mr. PALMER. Sure. Excellent question. So it is a zero- subsidy program. So, by law, it cannot. We have to--they charge additional fees on top of it. There are hundreds of millions of dollars, maybe $1 billion to the positive as far as excess fees versus losses that are there. But the key to the program that makes it work and be taxpayer protection is that the private capital has to be lost first before the taxpayer is exposed. And, frankly, I think that should be true for just about any government program that is existing, because you should have your own money at risk before anybody gets exposed. Mr. WILLIAMS. My time has expired. I yield back. Thank you. Chairman MEUSER. I now recognize Representative Chu from California for 5 minutes. Ms. CHU. Mr. Palmer, thank you for your steadfast support for my and Representative Garbarino's bipartisan bill, the Investing in Main Street Act, which would amend an outdated law to finally allow financial institutions to invest up to 15 percent, triple the current limit of 5 percent, of their capital and surplus into SBICs. And this will help SBICs, I believe, immensely. The House has overwhelming passed this commonsense change for several Congresses in a row now. Can you discuss why this bill is so needed and what the impact would be on our small business investment ecosystem if the Senate were to finally take up this bill and pass it into law? Mr. PALMER. Well, first and foremost, thank you for your leadership on it. It would be incredibly helpful. It is just a glitch in the law that different parts of law were written at different times. So banks were allowed to invest in SBICs so that the money can go to small businesses, but the SBICs aren't allowed to accept it, which is just silly. It is just a percentage question. And so, thanks to your leadership, it has passed several times. The Senate is very difficult to get anything through. There is no cost associated with it. But, as I was saying in my testimony, there is over 90 SBIC funds in the licensing pipeline currently. They normally license around 25 a year. Demand for this capital is off the charts. These funds have to raise, and they need to raise from banks. And there are a lot of banks who would like to invest more, but they are just not allowed to, not because the banking law says they can't; it is the SBICs can't accept it. So it would be very helpful in getting more private capital that would then be amplified through the small business ecosystem. Ms. CHU. And how would it help small businesses? Mr. PALMER. There would be more capital available, frankly. There would be more equity capital available under the new programs that the SBA has rolled out, the new models for debentures. There would be more debt capital available too, and there would be more capital in underserved areas that currently aren't being capitalized. Ms. CHU. Well, thank you for that. And, Mr. Palmer, I was encouraged to hear in your testimony that, at the end of fiscal year 2023 the amount of capital that SBICs invested in small business was at record levels and that about a quarter of those investments were in minority-, women-, and veteran-owned small businesses or those located in low- to moderate-income areas. However, despite this promising growth, we know that these types of underserved small businesses still face significant barriers in accessing investment capital. For example, one study found that the average amount of new equity investment in minority-owned businesses are only 43 percent of the average equity investment in nonminority businesses. As another example, in 2020, Black and Hispanic female entrepreneurs received less than half of 1 percent of venture capital investments. So can you discuss how the SBIC program can help close those gaps and what changes in the program might be needed? Mr. PALMER. Sure. And, actually, the SBA changed their regulations last fall, created a couple new models of the SBIC program underneath the existing debenture program that will allow for more equity investing, because SBICs do invest at a higher rate in women and minorities in equity and in venture than does the broader venture market, and so they will be able to do more of that. That is helpful. I think, also, one of the things they came up with is this Reinvestor SBIC, sort of a fund-to-funds model. It gets a little complicated, but basically it is almost like a developmental league or a seed league that they are setting out there to help develop new, smaller funds in smaller areas. Also, Congressman Meuser's bill, the Investing in All of America Act, has a specific incentive to invest in geographies that are low income or rural, and that is going to benefit more folks there too. So I think you are going to see some--there is no quick fixes, but I think, over the next 5 years, you are going to see a meaningful uptick in a lot of those areas. Ms. CHU. So I take it you are in support of this rule, the SBIC investment diversification and growth rule? Mr. PALMER. It has been very constructive, yes. Ms. CHU. Okay. Very good. Mr. Glover, we know that underserved small businesses remain underrepresented within the SBIR/STTR programs. As the lead coordinating agency for SBIR and STTR, what steps do you recommend that the SBA take to enhance education and outreach to these groups? Mr. GLOVER. The SBA, to my knowledge, in the last few years has gone out to historic Black colleges, gone out to areas like that and done a really good job, and the numbers show that they are increasing. The socially disadvantaged numbers are up 33 percent; women-owned businesses are up 18 percent. So we are seeing improvement. They need to do more of that. And, quite frankly, the SBIR program is underfunded at SBA. They have very few people working there and very little money and a lot of work to do, but they are doing a good job of making that happen. But I think, with more resources and more people, the SBIR office could do a lot more. Ms. CHU. Thank you. I yield back. Chairman MEUSER. The gentlelady yields. We are now going to move into round two of our questions. So, Ms. Bresler, I am going to recognize myself for 5 minutes and start with you. SBIR access and awareness for small businesses, I am sure you have got a couple of things to say about that, and how to improve it and get more businesses to participate in the program. Could you offer some of your suggestions? Ms. BRESLER. Thank you for the question. First and foremost, we have to establish metrics that require the program to award a certain share of contracts, Phase I's, every year to new businesses that have never worked in the government space, that would force these program offices to do some of the hard work of not going with the usual suspects, and that is critical. There needs to be metrics. There needs to be requirements, and they need to be held to account. In terms of the actual work to reach these businesses that have not previously participated in the program, it comes down to awareness in general. I think my experience is that it is an echo chamber. If you go to a program where you are going to learn something about SBIR, you look around and it is the same people that are in every room just like it learning about SBIR over and over again. So you have to put yourself in front of audiences that are not already entrenched in these processes. And I think really putting intelligent size standards in place where you can't have multi-billion-dollar, publicly-traded companies participating in the SBIR program will, again, force the program offices to be more effective in their outreach to truly small firms. Chairman MEUSER. Thank you. Mr. Palmer, do you run into some of the same situations with the SBIC? Mr. PALMER. The rules can be complicated. They can be unclear. They have gotten better, significantly better. But it is--but trying to broaden out the awareness of the SBIC program is hard, you know. And I think that that goes to Ms. Bresler's point is, you know, breaking out of the echo chamber, and I spend a lot of time traveling around the country trying to educate on that front. The SBA actually does some of that too, which I found constructive. To Mr. Glover's point, I think, you know, parts of the SBA, particularly the SBIC program, they are underfunded. They do have too few people doing too much stuff, and when they are over stretched, that is a challenge. So I think having a few more people that can do outreach and education, and putting stuff in plain English, to Ms. Bresler's point, is really critical so people can understand these otherwise complicated programs. Chairman MEUSER. Okay. Mr. Valletta, I know how close you are to it all. Could you comment on this? Mr. VALLETTA. Yes, absolutely Congressman. We believe the SBIR and STTR award capabilities could be better suited with leveraging organizations like the Innovation Partnership, the IPart program that I mentioned, you know. We have 20 years of assisting Pennsylvania's small businesses, and the complexity of the application process is real. And those small businesses and creating those programs to increase the quality of proposals, provide better customer service, and drive that program applicants to improve the effectiveness is real and very important. So organizations across the country like ours, the IPart program assists, right. So we, Ben Franklin, provide funding for this IPart program across the State to increase the level of those submissions so we can increase the level of wins, which I stated in the past that we have a win rate of 28 percent versus 18 percent. So the capabilities of organizations like the Innovation Partnership reap benefits for the constituents that we serve. Chairman MEUSER. Great. I want to ask something about the TCJA, the Tax Cuts and Jobs Act. We passed a bill in the House regarding both depreciation, hundred percent R&D reduction, as well as dealing with the Small Business Tax Deduction. It is--I hope the word ``languishing'' is too strong. I hope it is being dealt with within the Senate. Mr. Palmer, just quickly, your thoughts on the importance of the passage. Mr. PALMER. I think it would be particularly helpful, particularly that R&D side. A lot of smaller businesses that do research and development were surprised at sort of the way that the tax law was being applied, and so I think it would be very helpful, particularly for small businesses doing really innovative stuff. Mr. MEUSER. Thanks. Mr. Valletta? Mr. VALLETTA. Yes, actually, it is real, and our small businesses beg us to work with our local lawmakers, as well as our federal lawmakers, to get that passed, especially in the Senate, so agreed. Mr. MEUSER. Ms. Bresler--thank you--thoughts? Ms. BRESLER. I think it is probably further down in terms of the bottlenecks that the small businesses that I am working with deal with, but anything to offset the burdens of working with the government or trying to operate in today's economy are important. Mr. MEUSER. Thanks. My time has expired. I now recognize the Ranking Member for 5 minutes. Mr. LANDSMAN. Thank you, Mr. Chair. I heard--since we are sort of in problem-solving consensus mode here, and trying to be--and that was the purpose of the hearing, so again want to thank the Chair for doing this. It is incredibly helpful--and the staff for putting this together. It seems like there are some consensus on the importance of diversifying. And including more and more businesses--small businesses--is happening. The question is, you know, what more can be done? I assume that this idea of measures and accountability to see more and more of that is probably worth pursuing. How it is pursued, is a question. The awareness piece and outreach gets at something I think most people have said or most of you have said, which is that there is a staffing issue, and how do you ensure that the programs have the staffing they need or the resources to get in front of these small--some of it can be staff, but a lot of it, you know, so many of these folks are on--well, everyone is online--and is there the kind of digital outreach that has proven to be incredibly successful in other programs to get in front of the intended audiences? And the simplification of the process from application to what is on the website, there seems to be consensus there. So I am curious if--what pieces--and maybe just go across the board and finish with you, Jere--sorry, Mr. Glover--if you could pick three big changes, or small, but changes that you would think would have the most impact, what would those three be? And then we will end with Mr. Glover and just get your thoughts on those changes and how we can make them happen, because it does seem like there is consensus on areas for improvement. Mr. VALLETTA. Thank you for that question. From my perspective, being able to drive the dollars to venture investment development organizations and changing the complexity with allowing us to leverage the capital of investments that we receive from our investments, right? That would be one. Second is that the--really driving the investments to below $3 million, right? So we at Ben Franklin invest in very early stage. So it is important that--and we are typically the first dollars after friends and family. So that would be the second change. And then the third, and most important, is the requirement for being--for being for-profit. We are nonprofit. So, it is important that maybe some nonprofit organizations can get into the game. Mr. LANDSMAN. Got you. Very helpful. Ms. Bresler? Ms. BRESLER. Thank you. First would be overhaul the size standards, which I have discussed. The second would be a full overhaul of the government solicitation process, which would include SBIR submissions as well as every type of solicitation that the government issues. And then third is incentivizing transition of the best and brightest technologies, specifically bringing the primes into the mix, so that government stakeholders and prime contractors are required to integrate a certain subset of SBIR-funded companies that have demonstrated their technical proficiency and to encourage a breakdown of these stovepipes that have been challenging to deal with, offer a greater incentive to integrate something initially funded by a different branch. Mr. LANDSMAN. Got it. Mr. Palmer? Thank you. Mr. PALMER. First, I would say nothing should change that reduces taxpayer protections---- Mr. LANDSMAN. For sure. Mr. PALMER.--in any way, shape, or form. That is foundational. Mr. LANDSMAN. Yes. Mr. PALMER. But I think we should--you know, the passage of the Investing in All America Act being--adjustments to the leverage limits would be incredibly helpful. Expediting the licensing process for repeat funds so that they are spending their time for new funds coming in and not people they have known forever. And then, finally, you know, as far as adequate funding for it, keeping the fees that we are paying inside the program that we are paying for because we are the only one that is not. Mr. LANDSMAN. Yeah. Smart. Mr. Glover? Mr. GLOVER. First, if you want to increase the diversity in things, double the program. It hasn't been increased in over a decade. It should be increased. That will quickly double the number of new firms, number of minorities, and so forth, proportionally. Secondly, make the primes use SBIR in new technology and incorporate it. They are--the law lets them do that. The law encourages them. Army has just started doing it a little bit. Mr. LANDSMAN. You got one more. Sorry. Mr. GLOVER. And, number three, it is--we have tried for years, and we got and then lost--simplify, standardize the contracting procedures. Mr. LANDSMAN. Okay. Mr. GLOVER. But I have got to say, the 174 deduction issue is going to blow up in everybody's face, because once you realize you are going to pay taxes upfront on work you don't get--you know, profits you don't get downstream, it is devastating. Mr. LANDSMAN. Thank you all very much. I yield back. Sorry. Mr. MEUSER. The gentleman yields. Yes, thank you all very much. We want to just formally thank you, all of our witnesses, for all of your testimony here today. Without objection, Members have 5 legislative days to submit additional materials and written questions for the witnesses to the Chair, which will be forwarded to the witnesses. And we do ask the witnesses to do your best to respond promptly. Today, there is a lot going on, which tends to be the case here in Washington these days, so we didn't have all that many Members within the committee because of other duties that were compelling, but we greatly appreciate the information that was received. I think the questions were excellent, and I think we derived a lot of the ideas that we will work on, and we will continue to work on as was mentioned. So, if there is no further business, without objection, the committee is adjourned. [Whereupon, at 11:21 a.m., the subcommittee was adjourned.] A P P E N D I X [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] [all]