Words from a Winner -
Feature Interview with Errol Arkilic, NSF SBIR Program Manager

By Robert Jaffe, Manager Federal Funding Programs at Innovation Philadelphia

In this week's Words From a Winner column, I have the opportunity to share with you my interview with Errol Arkilic, a National Science Foundation SBIR Program Manager. Dr. Arkilic offers valuable insights for the entrepreneur seeking early-stage funding, and for anyone working within the entrepreneurial community. I would like to thank Dr. Arkilic for his time and thoughtful responses.

What is your position at the National Science Foundation and what does that entail?

I am a Program Manager with the Office of Industrial Innovation at the National Science Foundation (NSF). This office manages the National Science Foundation's Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. I am one of ten program mangers and am responsible for part of the IT portfolio and for Security Technologies.

How long have you been with the NSF?

It will be two years in November

What is your background?

Prior to NSF, I was President and CEO of a venture-backed startup in the San Francisco Bay Area. Prior to that I was an engineer at Redwood Microsystems (also in the Bay area). My educational experience includes a Ph.D. from MIT.

What is the philosophy of the NSF SBIR program?

Overall, NSF supports innovation in 5 broad areas: Advanced Materials, Biotechnology, Chemical-Based Technologies, Electronics, and IT. The NSF vision is 'ENABLING THE NATION'S FUTURE THROUGH DISCOVERY, LEARNING, AND INNOVATION.' We believe that the best way that the NSF SBIR/STTR program can achieve that vision is by providing support so that our nation's entrepreneur community can pursue high-risk/high-reward technical innovations. Our philosophy therefore emphasizes commercialization (high reward) because we believe that America gets the best return on its NSF SBIR/STTR investment if the funds are applied toward innovations that have the potential to make the company lots of money!

We know that there are a lot more pieces to the puzzle of commercialization than interesting concept and strong technical team. By focusing on "commercialization," NSF is trying to drive this point home. It may sound strange coming from the National Science Foundation, but successful innovation is rarely (if ever) solely dependent on the technology. The earlier in the process the company appreciates this, the better.

Does the NSF emphasis on commercial potential limit your program's portfolio?

I don't mean to imply that NSF will only "invest" in $400M market opportunities. The SBIR/STTR program is not risk capital. The program does not have the same expectations on ROI that an equity investor has. Of course NSF and the NSF reviewers love to see huge market opportunities that are credible. But, NSF also invests in innovations that possess the potential for significant societal impact (beyond the commercial potential). As an example, the SBIR/STTR program at NSF has been supporting fuel-cell research for more than 25 years… laying much of the foundation on which the industry is building today. We have also supported Human Computer Interactions for Universal Access. The key point of our philosophy is that a successful NSF SBIR/STTR proposal must simultaneously possess 1) sufficient technical risk and, 2) enough potential impact (commercial or otherwise) to justify an equity-free investment from the American taxpayer. Put another way, NSF will accept technical risk that few others will. But, and this is an important point, there must be some compelling reason to undertake the high-technical-risk activity. This is where the high-reward component comes in.

The NSF is trying something new with this solicitation. Tell me about the current solicitation opening November 8, 2005 and closing December 8, 2005. What are the areas of interest?

The December 8, 2005 solicitation includes Biotech, Chemical-Based technologies, and a new topic: "Emerging Opportunities".

What is the "Emerging Opportunities" (EO) topic and how did it come about?

One of our goals at the NSF SBIR/STTR program is to step into the widening gap associated with very early-stage capital. Recent numbers indicate approximately $400M of Venture Capital went into seed-stage deals last year. At approximately $100M/year, the NSF SBIR/STTR program represents a significant resource to America's entrepreneur community. Our goal is to use the EO topic as a way to facilitate the ease with which entrepreneurs and early-stage investors can work with the NSF SBIR and STTR programs. However, in order for this to be effective, we believe that increased emphasis must be placed on the commercial opportunity or potential at the earliest stages of the innovation process. We want the companies supported with the EO topic to be thinking about their commercialization strategy at "Phase Zero." With the EO topic, we want entrepreneurs to be engaged in the business development process early in the effort. This is directly in line with our philosophical approach to focus on commercialization.

Of course, technical innovation is a bit of "chicken and egg problem" -- the more you know about the technology, the better the visibility on the appropriate strategy to make money with it and, the more you know about customer needs, the better you can focus your technical efforts. The point is, a company has to do both commercial planning and technology vetting at the same time… it is not a serial process. With the EO topic, we are trying to emphasize the need for a balanced approach (technical and business) even at the earliest stages.

For someone thinking about applying through this topic, what should that person think about or do before they go down that path? What is the best advice you can give an applicant?

By far the most significant impact activity associated with any early-stage entrepreneurial effort comes from assumption validation. A team should validate that the concept actually has some value in the market. Talk to potential customers, talk to competitors (carefully, of course) talk to stakeholders, talk to potential investors. Undertake an IP search! How else will the team know that what they are conceiving has any value in the marketplace? How else will they be able to credibly assert that the proposed innovation represents sufficient technical risk and enough potential impact to justify an equity-free investment from the American Taxpayer (stewarded by NSF).

What is the award success rate currently at Phase I?

The success rate is running near 10-15%.

As the point person for this topic, what is the best approach a potential applicant should take when contacting you about whether there is a fit?

To begin with, I am surprised by the number of NSF SBIR/STTR applications in which there has (in some cases clearly) been no communication with a program manager. The best way to contact a program manager at NSF is by e-mail.

Will the reviewer pool be different for these proposals?

The reviewer pool for the EO topic will contain a higher percentage of commercial reviewers than a standard NSF Phase I review panel. The commercial reviewers come from primarily three sources: industry, angel investors, and the venture capital community.

Can we expect this topic to expand to other research areas?

The EO topic is a pilot program. After this round, we will assess the program and work to improve it moving forward.

How does the NSF work with their awardees?

After Phase I is awarded, we provide contracted assistance to prepare the Phase II commercialization plan. We also bring all Phase I awardees to Washington D.C. for a multi-day conference where we provide educational content on innovation and management. Once a year, we bring all current Phase II awardees together to showcase the NSF portfolio.

Does the NSF engage the private or public/private sector in assisting awardees?

NSF works closely with a wide range of public and private sources including service providers, local and state agencies, investors, and business development partners from industry and non-profits in a number of capacities. As NSF program managers, we try to help our portfolio companies any way we can… a key way that we can do that is by providing introductions. If you can tell us whom you want to be introduced to, it is possible that we will be able to help arrange it.

What types of programs or opportunities outside the NSF are critical for propelling a small business towards commercialization?

In terms of programs outside of NSF it is impossible to cite any one single program. However, the support from the local community is critically important. A supportive community that includes service providers, mentors, fellow entrepreneurs, access to capital, access to other resources including intellectual, and human resources acts to propel or accelerate the maturation from concept to commercialization. In fact, such a community is probably THE most important and difficult to develop factor for support of commercialization. Difficult, because it is not one single entity but rather an entire ecosystem. Important, because the community provides the kind of day-in and day-out support that a centralized program like the NSF SBIR/STTR program simply cannot.

Do you see a disparity in the level of support that communities provide their companies across the country?

Of course, there are some parts of the country that have more advanced support systems than others. Still, in most places there are forums and "start-up clinics" and "pitch breakfasts" often hosted by universities or local economic development organizations such as Innovation Philadelphia. These forums provide local entrepreneurs and rest of the cast (service providers, investors, and Business Development Types) the chance to congregate and commingle. My advice to all the grantees that I am fortunate to have in my portfolio at NSF is to go out and engage in these forums. They are important crucibles for commercialization advancement. These forums also provide a support network for when things get tough!

How does the angel and venture capital community play a role in assisting NSF awardees?

The NSF SBIR/STTR program supports innovation at the earliest stages, where even angels fear to tread! It's the hallmark of our program: High-risk/high-reward. Still, after the technology risk has been mitigated with the help of the American taxpayer's support, most of the companies (the ones pursuing high-growth commercialization opportunities anyway) will require financing to grow and or scale their business. This is where the angel and venture communities come in. These communities represent critical parts of the ecosystem and are a vital part of America's economic engine.

Are there any closing comments you would like to make?

I am very proud to be part of the NSF SBIR and STTR programs. Many people don't know that the SBIR program was initiated at NSF in the 1970s and it is still a flagship for NSF. At $100M/year we are not the biggest SBIR program, but I believe that our program is the most progressive and each of our ten program managers is passionate about innovation. We are dedicated to the small business community and do not support ANY other programs besides SBIR and STTR. It's what we do. And, it's a very rewarding job. To be able to contribute by supporting innovation and our entrepreneurial community at the earliest stages of development, I feel privileged.
For more information on Innovation Philadelphia and how it can assist entrepreneurs interested in the SBIR Programs, please contact Robert Jaffe, Manager Federal Funding Programs at Innovation Philadelphia at rjaffe@IPphila.com or visit http://www.innovationpartnership.net.
For more information on the National Science Foundation SBIR Programs, please visit http://www.nsf.gov/eng/sbir/.