One company wants to find a vaccine for a painful disease afflicting soldiers in Iraq. Another is aiming at vaccines that don't need to be refrigerated, easing their transport to Africa. A third is seeking a vaccine against AIDS.

These Colorado companies have much in common, yet they can't agree on which of them is a "small" business.

How the U.S. Small Business Administration interprets that term could mean millions of dollars in federal funds.

The companies - and others across the country - are fighting over $600 million a year in National Institutes of Health Small Business Innovation Research grants. Colorado ranks fifth in the country for SBIR dollars received from all federal agencies, not just the NIH, with $80.9 million in 2003.

The biotech industry has been among the most outspoken groups lobbying the SBA over its rules. Biotech entrepreneurs are rallying at hearings on the matter across the country this month, including one on June 14 in Denver.

The biotechnology industry is riven over whether SBIR grants should go to firms that are majority-owned by venture capitalists.

At a 2003 hearing, the government ruled that companies must be owned by "individuals" - not investment houses - to get SBIR grants, which range from $100,000 to $750,000. Since then, VC-owned enterprises have been excluded.

Those companies warn the interpretation may kill off potentially valuable research. Meanwhile, startups are welcoming the respite from competition.

"The effect (of the interpretation) is it will take people who were actually quite competitive and knock them out of the loop," said Richard Duke, scientific founder of Aurora-based GlobeImmune.

Morrie Ruffin, vice president of business development for the industry association BIO, charges that the quality of research grants has declined since venture- owned firms were excluded two years ago.

"By the NIH's admission, what they are seeing is grant mills, or companies that just live off the SBIR," he said.

Winning venture investment should be a sign a company is viable, he believes.

GlobeImmune won $8 million in venture financing for its cancer vaccine. Now, it wants to do research on an AIDS vaccine, a less popular idea with venture capitalists.

"Our company doesn't really have enough discretionary money to spend in new research projects. So why don't we go back and put in an SBIR grant?" asked Duke. "We can't."

Louisville's RxKinetix is working on a product to treat the side effects of cancer radiation treatments, but it also has trained its sights on how to transport vaccines to poor countries.

"The bulk of our funding is venture capital," said Vice President of Drug Development Gary Rosenthal. "The vaccine effort benefits Third World diseases. SBIR money is a perfect way to get that more altruistic research going."

Just down the hall from GlobeImmune, Claude Selitrennikoff, founder of four-person MycoLogics, takes a different view. Hs company has received nine SBIR grants since 1999, to the tune of $1.5 million.

He, too, believes the SBIR program was designed to fund unconventional research, such as his work into leishmaniasis, a skin infection transmitted by sand flies in Iraq. But the money should also go to -tiny firms beneath VC's radar.

"My own view is that companies funded by venture capital have money," he said. Changing the rules to let them in would flood the NIH with applications, "and then even interesting ideas get eliminated."

The debate comes at a time when the SBA is under fire for handing money to large businesses. One recent government report concluded that in 2002 alone, $1.7 billion in "small-business" contracts went to giant corporations such as Oracle and Raytheon.

The SBA has said the problem arose from miscoding. Sometimes small firms are gobbled up by large firms but not reclassified. Other times, the government relies on companies to "self-certify."

Either way, the SBA is revamping its classification system, and these national hearings are part of the effort.

Lloyd Chapman, president of the American Small Business League, has long been a thorn in the side of the SBA on size issues. He strongly opposes classifying venture-owned companies as "small."

What if a pharmaceutical company or large bank funds a venture firm and then invests in biotechs, he suggested. Where does it end?