New Bush Administration Policy Helps Large Businesses Masquerade as Small Businesses

Press Release

New Bush Administration Policy Helps Large Businesses Masquerade as Small Businesses

New Government Policy Helps Big Businesses Hide in Small Business Database

August 21, 2008

Petaluma, Calif. – A new Bush Administration policy will make it easier for large businesses to land government small business contracts by misrepresenting themselves as small businesses in government supplier databases. Under the new policy, firms will no longer be required to list their annual revenue or number of employees on the federal government’s Central Contractor Registration Database (CCR).

In the past, firms that listed themselves in the CCR database were required to disclose their annual revenue and total number of employees. This specific information was mandatory, because federal guidelines that determine a firm's eligibility to participate in federal small business contracting programs were based on these two fields. (

Making annual revenue or number of employees’ fields optional in the CCR will make it extremely difficult to determine if large firms are misrepresenting themselves as small businesses for the purpose of receiving federal small business contracts.

Since 2002, the Bush Administration has made several modifications to the CCR database as a means of making it increasingly difficult to determine if a firm is small or large.

Despite repeated statements from Bush Administration officials about increasing transparency and improving the accuracy of reported data in federal small business contracting programs, the new policy is seen as another major step backwards in accuracy and transparency.

Since 2003, 15 federal investigations have all found billions of dollars in federal small business contracts actually wound up in the hands of Fortune 500 firms and hundreds of other large businesses. Within the last thirty days, four separate investigations have been released which have found fraud and rampant abuses in government small business contracting programs.  In one instance, the Department of Interior (DOI) Office of Inspector General found that the DOI had misstated the achievement of its small business goals by including Fortune 500 corporations.

In 2005, the SBA Office of Inspector General released Report 5-16, which found large businesses had received government small business contracts by making "false certifications.” (

This policy will exacerbate the problem of large businesses receiving government small business contracts. It will now be even more difficult for federal officials, the public and watchdog groups to monitor the CCR database and uncover large businesses trying to masquerade as small businesses to illegally receive government small business contracts.

The new policy is the latest in a long series of similar Bush Administration policies designed to dismantle federal small business contracting programs and divert billions of dollars in federal small business contracts to large businesses. In February of 2007, former SBA Administrator Steven Preston removed all employee and revenue data from the CCR database in the middle of a CBS investigation on the actual recipients of federal small business contracts. In 2007, Preston adopted a policy that will allow Fortune 500 firms and hundreds of other large businesses to continue to receive federal small business contracts until the year 2012. (

The American Small Business League (ASBL) is concerned that Acting Administrator of the SBA, Santanu "Sandy" Baruah may try to institute more policies that will further damage federal small business contracting programs as the Bush Administration comes to a close. The ASBL believes closing the SBA and ending all federal programs to assist woman-owned firms, minority-owned firms, veteran-owned firms and small businesses was a major goal of the Bush Administration. The ASBL predicts President Bush may still try to close the SBA by combining it with the United States Department of Commerce or some other federal agency. (


National Venture Capital Association Moves to Hijack Federal Small Business Contracts

Press Release

National Venture Capital Association Moves to Hijack Federal Small Business Contracts

August 19, 2008

Petaluma, Calif. – The National Venture Capital Association (NVCA) has blanketed the Congressional small business committees with generous campaign contributions in an attempt to have legislation passed which will allow the nation’s wealthiest investors to cash in on government contracts earmarked for small businesses.

In addition to contributions to most of the members of the House and Senate small business committees, the NVCA and its members have made significant campaign contributions to the Chair of the House Committee on Small Business, Nydia Velázquez (D – NY) and to House Speaker Nancy Pelosi (D – CA).

Federal law requires that 23 percent of all federal contracts and subcontracts, about $135 billion a year, be awarded to small businesses. If the NVCA is successful, a lion’s share of those small business contracts could soon be diverted to firms owned and controlled by some of the largest venture capital firms in the United States.

On September 30, the Small Business Innovation Research Program is set to expire.  With that in mind, the Senate Committee on Small Business and Entrepreneurship has passed S. 3362, the SBIR/STTR Reauthorization Act of 2008.  The bill will allow some of the largest venture capital firms in America to participate in federal small business programs.  The bill caps venture capital participation at 18 percent for the National Institutes of Health and 8 percent for other agencies.  If passed through the Senate, the bill would go to a conference committee between the House and Senate to be finalized.

With S.3362 pending, the NVCA and its members are pushing to include a substantial portion of the legislative language from two House bills which were passed through the House last year and were designed to reauthorize the program. As passed, Both H.R 3567 and H.R. 5819, would allow firms owned and controlled by billionaire venture capitalists and wealthy investors to qualify and participate in government small business contracting programs without limits on the total amount of venture capital participation in the program.

Small business advocates are concerned that if the legislation becomes law, the average American small business will be forced to compete head-to-head with firms owned and controlled by the nation’s largest venture capital companies for even the smallest orders of goods or services.

The American Small Business League (ASBL) projects that thousands of middle class firms across the country will be forced to close their doors if the NVCA is successful.  Larger states like Texas, Florida, New York, Illinois and California could lose billions of dollars in federal contract dollars and thousands of jobs. Smaller states that have been hit the hardest by the current economic downturn will no doubt feel the impact of this legislation, which will pull hundreds of millions of dollars out of the middle class economy in those states. 

Speaker Nancy Pelosi exerted so much pressure on members of the House, she was able to push the bills through in record time. In fact, Pelosi pushed the bills through the House so quickly that many members of the House voted for the bill before they had the chance to read the legislation or receive feedback from their constituents.  As a result, the bills were passed despite opposition from every major small businesses organization in the country, including the Small Business Administration (SBA).

The fate of small business owners and the SBIR program is now in the hands of the full Senate.  Small business owners and advocates were shocked and disappointed when Senate Small Business Committee Chair John Kerry (D – MA) passed the Senate version of H.R. 5819, S. 3362 through his committee shortly before the summer recess.

“Senator Kerry has been complaining for years about loopholes and Bush Administration policies that allow Fortune 500 firms to receive federal small business contracts. Yet, he has done nothing to stop that problem,” ASBL President Lloyd Chapman said. “Now he is backing federal legislation to give small business contracts to venture capital firms and billionaires. I couldn’t be more disappointed in this Congress and it’s leaders.”

The ASBL has pledged to fight both pieces of legislation by organizing opposition from Chambers of Commerce, other small business organizations and small business owners across the country.


Who benefits from this venture?


Who benefits from this venture?

By Deirdre Shesgreen
St. Luis Post-Dispatch
August 18, 2008

WASHINGTON — The St. Louis biotech firm Kereos Inc. might seem an ideal
candidate to receive a special federal grant designed to encourage small
businesses to pursue cutting-edge research.

The 15-employee company is studying promising new methods to detect and treat

But Kereos is excluded from the innovation-grant program. That's because the
firm has raised $22 million in venture capital, making it about 70 percent
controlled by outside investors — and such firms are barred from getting the
small-business grant money.

Congress is on the cusp of loosening that requirement, a move critics have
blasted as a potential boon to multimillion-dollar venture-capital companies.
Small- business advocates say the proposal could squeeze out fledgling startup
firms that can't attract big-dollar investors.

At the center of the legislative storm is Sen. Christopher "Kit" Bond, R-Mo.,
who is pushing the measure to open the small-business grant program to firms
that are majority owned by multiple venture-capital companies.

Bond and other proponents say the move will give a vital boost to small
businesses, especially biotech companies that can't get regular bank loans for
early stage research.

"Our best hope for lifesaving cures and medicines is biotechnology," Bond said
in a written response to questions about the issue. "We should be encouraging
our nation's small businesses to develop these breakthroughs and to take these
breakthroughs from the lab to patients, not throwing up roadblocks."

Robert "Al" Beardsley, CEO of Kereos, said making the grants available to firms
like his could break open new avenues of research for top-notch scientists, who
otherwise may be hamstrung by restrictions that come with venture-capital

While $22 million might sound like a lot, Beardsley said, it is a fraction of
the cost of developing a new drug therapy. "It sounds ridiculous, but I'm
scraping by by the skin of my teeth to make it to the next milestone," he said.

"There's no room for mistakes and if you have a second idea, you have to put it
on the shelf," he said. "Having that (extra federal grant money) would allow us
to pursue some very exciting parallel paths."

But other small-business advocates say Bond's proposal would hurt nascent firms
engaged in high-risk innovation, benefiting well-heeled investors instead.

"It would allow venture capital firms to participate in a program that was not
intended for them," said Chris Gunn, a spokesman for the American Small
Business League. "It could be very bad for small businesses."

The stakes are high. The program steers more than $2 billion annually in
federal grants to small businesses. And at a time of heightened concern about
America's place in the global economy, the grants are designed to bolster U.S.
innovation, funding front-line research to cure chronic diseases, developing
new defense applications and bolstering alternative energy sources, among other


With the program set to expire on Sept. 30, the clock is ticking for lawmakers
to reach an agreement.

After months of delicate closed-door negotiations, Bond and Sen. John Kerry,
chairman of the Senate Committee on Small Business and Entrepreneurship,
reached a compromise on a bill to reauthorize and expand the grant program just
two days before lawmakers left Washington for the August break.

On July 30, the small-business committee approved the measure, which would
reauthorize the Small Business Innovation Research program and a second
technology grant program. But the fate of that deal remains in limbo.

The innovation research grant program was started more than two decades ago in
an effort to channel precious federal research dollars to small businesses for
vanguard projects, at a time when the bulk of federal contracting dollars was
going to universities or big corporations.

The current program mandates that any federal agency with more than $100
million external R&D budget has to direct at least 2.5 percent of those dollars
to the innovation research grants.

The Kerry-Bond compromise would increase the allocations, steering more money
to small businesses. The more contentious element, pushed by Bond, would allow
firms that are majority owned and controlled by multiple venture-capital
companies to compete for a chunk of the small-business grant money — 18 percent
from the National Institutes of Health and 8 percent from other agencies.


At the July 30 committee meeting, Kerry, D-Mass., was decidedly lukewarm about
the agreement. "Neither of us really like it … and everyone is still trying to
figure out who won," Kerry said. "I am told that is the sign of a good

Kerry initially did not want any set-asides for majority-backed venture capital
firms, arguing that it puts entrepreneurs who are pursuing truly high-risk
ideas at a disadvantage and changes the nature of innovation, forcing small
firms to go after bigger market shares and faster returns.

"Venture capitalists have told us that they don't invest in early stage
research because it is too high risk," Kerry said in a statement to the

If government grants are going to small businesses with significant
venture-capital backing, Kerry said, it may steer the program away from
cutting-edge research and toward projects that are designed more to attract
investors than to meet military, medical or energy needs.

"Furthermore," Kerry said, "research from high-tech firms and start-up firms in
rural states, like Missouri, where there is very little venture-capital
activity, could also suffer."

Bond disputes that assessment, and he's been adamant about his position.

SBA's current rule "excludes too many small businesses from competing for funds
to develop life-saving cures and medicines," Bond said. "Everyone will be a
winner when one of these companies finds a breakthrough to curing cancer,
Parkinson's or other life-threatening and debilitating diseases."


The venture-capital provision has been the target of an intense, years-long
lobbying campaign by the Biotechnology Industry Organization and the National
Venture Capital Association.

Biotechnology and venture capital lobbyists argue that current restrictions
hamper innovation and direct money to wasteful projects that will never get off
the ground.

Under the program now, small businesses that have minority venture capital
investment are eligible for the grants; the program only excludes small
businesses that are majority-owned, 51 percent or more, by multiple venture
capital companies.

Alan Eisenberg, an executive vice president at BIO, said it can take 10 to 15
years, and $1 billion, to turn a scientific concept into a commercial product.

"During that time, a company can't go to a bank for a normal small-business
loan. These are not normal small businesses . . . because there's no revenue
coming in," Eisenberg said. "So small businesses have to turn to investors,
selling parts of the company, to raise the funds they need. That's why venture
capital is so important."

He also said small businesses often get venture-capital investment for
mid-stage projects but need government assistance for other nascent initiatives.


And Mark Heesen, president of the venture-capital association, said there are
misconceptions about what venture-capital backing means.

"The premise that you cannot be a small company if you're receiving venture
capital is just ridiculous," Heesen said. "We fund a huge number of small
companies all across the United States, and simply because a company receives
venture capital doesn't mean they're rolling in the dough."

If a small business hasn't secured venture investment, Heesen said, it's
probably for good reason. Investors have decided that "the science is not good,
the management team is not good, or a combination of that," Heesen said, so the
government probably shouldn't invest, either.

Beardsley, of Kereos, said the restrictions "are like saying we're only going
to support people who haven't won the gold medal in the Olympics."


Both BIO and the NCVA heaped praise on Bond for pressing the issue so hard.

"We love him. He really carried our water here," said Ellen Dadisman, a BIO

The groups have contributed to Bond's campaign, but only small amounts. BIO's
political action committee donated $1,000 to Bond in 2004, when he last ran for
re-election. And the venture-capital group gave him $8,000 that cycle. In
addition, a former legislative aide to Bond, Brent Franzel, is a top lobbyist
for the Missouri Biotechnology Association, an affiliate of the national

Still, neither group has endorsed the deal. That's because the House bill goes
even further, with almost no restrictions on the ability of venture
capital-backed firms to win small-business grant money.

Officials with the American Small Business League say both proposals will tilt
the playing field toward well-heeled firms.

In the current economic slump, small businesses need as much help as they can
get, said Lloyd Chapman, ASBL's president, in a release after the Senate
committee vote. But the House and Senate bills are "pandering to wealthy
venture capitalists."

The House has passed its version of the legislation. The Senate has yet to take
up the Kerry-Bond bill.

It will compete for time on a crowded and short legislative calendar when
lawmakers return next month. With only a few weeks remaining in this
congressional session to secure final passage, lawmakers may opt for a
short-term renewal of the current program, leaving the venture-capital
restrictions in place.

But both Bond and Kerry said they are committed to pushing through the



Small-business optimism declines


Small-business optimism declines

By Michael Buettner
The Post and Courier
August 18, 2008

America's small-business owners are pretty unhappy these days, according to a leading organization that represents these enterprises that are the backbone of the national economy.

The National Federation of Independent Business reported recently its monthly survey of entrepreneurs' optimism fell in July to its lowest level since the early 1980s. Within the index, capital spending plans fell to their lowest level since 1975.

Other indicators of weakness: Average employment declined, inventories were reduced and prices rose. The net percentage of owners reporting earnings improvements (i.e., those reporting higher earnings minus those reporting lower earnings) fell to a negative 37 percent.

Small-business owners surveyed by NFIB named price inflation as their No. 1 problem. They saw no problem with credit availability, prompting the organization to comment, "For the 11th straight month since the Federal Reserve declared the existence of a 'credit crunch,' no evidence of serious credit problems has appeared on Main Street. It is a Wall Street issue."

Events on Pennsylvania Avenue may be adding to small-business owners' frustration. The American Small Business League, issued a blast last week against U.S. House Speaker Nancy Pelosi (D-Calif.) and the House Committee on Small Business for backing bills passed by the full House it characterized as requiring "the average American small business to compete head-to-head with firms owned and controlled by the nation's wealthiest investors for even the smallest federal small-business contracts."

The two bills allow companies to continue to be classified as small businesses after they have been acquired by multibillion-dollar venture capital funds. The Senate is scheduled to consider equivalent legislation.

The ASBL has been fighting against what it considers unrealistic Small Business Administration size standards for small businesses. It notes "over a dozen federal investigations and hundreds of newspaper stories ... have all found Fortune 1000 firms have received billions of dollars in federal small-business contract awards" since 1995. The SBA's highly convoluted size policies are laid out at; in the "SBA Programs" drop-down menu on the left, click on "Size Standards."