Under the authority of Section 5107 of the SBIR/STTR Reauthorization Act of 2011 15 U.S.C. § 638(dd), Cheryl Martin, Deputy Director of the Advanced Research Projects Agency-Energy (ARPA-E) notified Sam Graves (R-MO), chairman of the House Committee on Small Business, that the agency will issue Small Business Innovation Research (SBIR) grants to small businesses that are majority-owned by venture capital companies, hedge funds or private equity firms. The SBIR is a competitive program that uses awards to enable highly-qualified companies to explore their technological potential in the nation’s R&D arena and provides incentives for those companies to move to commercialization.

SBIR grants play an important role in helping ARPA-E achieve its goals, which include:

  1. reducing the United States’ dependence on energy imports;
  2. reducing emissions from U.S. energy sources;
  3. improving energy efficiency; and
  4. ensuring that the U.S. “maintains a technological lead in developing and deploying advanced energy technologies.”

Based on these goals, Ms. Martin determined that making SBIR awards available to venture capital majority-owned small businesses would not contradict ARPA-E’s missions.

Additionally, Ms. Martin noted that doing so will induce additional venture capital, hedge fund, or private equity investment in these small business energy innovations. Because ARPA-E supports the pursuit of technologies or innovations that the private sector may find too risky, its funding of small business concerns (defined as businesses that are independently owned and operated and not dominant in their field) de-risks those technologies and entices additional private-sector investment. The SBIR awards will also contribute to ARPA-E’s mission by helping small businesses attract more private investors, which in turn increases business opportunities and assists in pushing the company’s technology to the next generation.

Finally, awarding SBIR funds to venture capital majority-owned small businesses can address a “demonstrated need for public research in advanced energy technologies”. Overall, venture capital funding has decreased in the energy sector forcing small businesses to turn to multiple sources for private funding. Many small business concerns will therefore be majority-owned by multiple investment companies or multiple types of investment companies, but this does not preclude the need for SBIR funding from ARPA-E.

In sum, ARPA-E found that providing SBIR awards to small business concerns that are majority owned by multiple venture capital operating companies, hedge funds, or private equity funds will bring about more private investment for the energy companies, contribute to the agency’s mission, address a need for public research, and fulfill the capital needs of small business concerns for additional financing for SBIR projects.