Rebuilding US Manufacturing: The Role of SBIR

From Upstate New York Roots to a Vision for American Manufacturing

My formative years were marked by economic hardship in upstate New York, yet I benefited from the opportunity to pursue engineering studies at Rensselaer Polytechnic Institute. Subsequently, I established a company that achieved a public offering when I was 28 years old, and the resulting capital was channeled into investments in emerging startups.

Witnessing Innovation and Remembering Lost Industries

Observing the success of numerous founders has been incredibly rewarding. However, revisiting upstate New York frequently brings into sharp focus the abandoned factories, stark reminders of sectors left behind by the technological revolution.

The Decline of American Manufacturing

The statistics associated with these derelict structures are deeply concerning. Even prior to the onset of the COVID-19 pandemic, in late 2019, U.S. manufacturing constituted only 11% of the GDP, representing the lowest proportion in 72 years.

A significant portion of this decline can be attributed to the rise of low-cost competitors, particularly in China, which surpassed the United States as the world’s leading manufacturer in 2011.

A Critical Window for Restoration

We are now facing a limited timeframe to revitalize manufacturing as a cornerstone of American economic strength. A remarkably effective, yet often overlooked, federal program holds a crucial role in achieving this goal.

SOSV and the Future of American Industry

My firm, SOSV, concentrates on supporting founders in transforming technically complex concepts from the research phase into tangible products. Many of these ventures embody the future of American industry, particularly in areas of national importance like industrial automation and decarbonization.

The Venture Capital Gap

Despite their potential, these startups often struggle to attract substantial venture capital investment. They are generally perceived as carrying a higher degree of risk compared to more conventional sectors such as SaaS and consumer technology.

The Genesis of the SBIR Program

Recognizing this gap, the U.S. Congress established the Small Business Innovation Research (SBIR) program in 1982. As envisioned by its originator, Roland Tibbetts, the program aimed to “provide funding for some of the most promising early-stage innovation concepts—ideas that, while potentially groundbreaking, are considered too risky for private investors, including venture capital firms.”

SBIR’s Impressive Track Record

With an annual investment of slightly over $3 billion in contracts and grants awarded by federal agencies, the SBIR program has yielded 70,000 patents, spurred $41 billion in subsequent venture capital investments, and resulted in the creation of 700 publicly traded companies.

Facilitating the Transition from Research to Market

The SBIR program’s ingenious structure has empowered thousands of technology-focused entrepreneurs to successfully navigate the transition from research to viable products, new markets, and venture funding. A significantly larger number of skilled scientists, technologists, and entrepreneurs will be needed in the coming decade.

While they can initiate their work from modest settings, such as a home garage, they require more than just an idea to succeed.

A Call for SBIR 2.0

Congress should promptly enact an “SBIR 2.0” initiative, incorporating three key enhancements to the current SBIR framework.

Increased Funding is Paramount

First, at least a tenfold increase in SBIR funding is essential. Even at $30 billion, the program’s budget would remain a negligible fraction of overall federal spending, such as the $693 billion allocated to defense in 2020, and a small portion of the total U.S. venture capital investment, which reached $156 billion in the same year.

However, it could arguably be the most impactful investment in the federal budget for bolstering American industry.

Strategic Focus on Decarbonization and Advanced Manufacturing

Second, new SBIR funding should be strategically directed towards critical areas, notably decarbonization and advanced manufacturing. The former is vital for safeguarding the future of our planet, while the latter will enable us to regain a competitive edge in key sectors, including robotics, battery technology, artificially intelligent systems, and additive manufacturing.

Accelerated Review and Funding Processes

Finally, the review and funding process must be expedited. The U.S. Air Force’s “pitch day” programs in 2019 and 2020, which awarded funds based on founder pitches within minutes, provide an excellent model. In today’s competitive talent landscape, lengthy deliberation and disbursement delays are counterproductive.

The Biden Administration’s Focus on Supply Chains

The Biden administration’s executive order on America’s supply chains, issued in late February, indicates a commitment to addressing these issues. While the administration will likely pursue a multifaceted approach, a central focus must be on harnessing the untapped potential of American ingenuity and drive.

Rebuilding American Manufacturing Through Entrepreneurship

Revitalizing economically depressed regions of the country requires empowering their residents with the resources to rebuild American manufacturing through entrepreneurial endeavors.