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Free money — but not easy money

West Michigan entrepreneurs receive SBIR/STTR grants, despite intense national competition

June 21, 2013
| By Pete Daly |
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Free money — but not easy money
The third time seeking a SBIR grant was the charm for Carey Boote and his Perfect Cycle Natural Bedding for horse stables. Photo by Johnny Quirin

Congress funds the SBIR and STTR programs with more than $2 billion each year to support research and development of new technology-related products or innovative new services, which can range from ultra high-tech electronic engineering like DornerWorks’ U.S. Navy project, to a small Holland company’s innovative horse bedding.

SBIR stands for Small Business Innovation Research and STTR for Small Business Technology Transfer, with 11 federal agencies channeling those funds to entrepreneurs and small businesses for specific projects, according to Michael Kurek of BBC Entrepreneurial Training and Consulting in Ann Arbor. 

Kurek’s company provides training throughout Michigan for individuals or small businesses that are interested in applying for the grants, and he was in Ottawa County in June for a day-long seminar hosted by the county’s Planning and Performance Improvement Department.

In many cases, the funds are provided as grants, while some federal departments, such as the Department of Defense, NASA and the Department of Transportation, provide it as a contract with the recipient. In either program, however, it works basically the same and can be a dream come true for a cash-strapped entrepreneur or small company with a good idea.

“It’s money they don’t have to pay back, even if their idea doesn’t work,” said Kurek, adding that the government is “not going to take a piece of your company. There’s no equity investment in your company. This is grant money, so it’s free money — but it’s not easy money, because you are competing nationally with other high-tech companies that have very good ideas and are very motivated entrepreneurs.”

“So you have to make a serious effort here and invest some serious time if you want to produce a competitive proposal,” he added.

“This is an economic development program, in the bottom line,” said Kurek, explaining that the federal government wants “the small companies to get money to do research, to create the (new) product, to create jobs and hire people.”

Noting that the official government measurement of a “small business” is often one with 500 employees or less, Kurek said in the case of SBIR and STTR grants, more than half of the awards go to companies with fewer than 25 employees, “so it really is small business.” In fact, he added, “a significant portion are less than three employees.” 

Throughout the nation, lone entrepreneurs and small companies just getting started have a history of being successful in the competition for SBIR/STTR grants, he said. 

The SBIR has been in existence since the 1980s.

The funds are awarded in phases, according to Kurek. Phase I is generally a small feasibility study, with the funding usually limited to $150,000 or less. The U.S. Department of Agriculture, for example, will provide a grant of up to $100,000 for Phase I of a project, while the National Institutes of Health may provide as much as $225,000.

“Phase II is where you really do the development work,” said Kurek, with the project designed to take two years to complete and receiving funding ranging from $500,000 to $1.5 million.

The main difference between SBIR and STTR is STTR requires the recipient to collaborate with a nonprofit entity such as a university research department or independent research organization.

At the extremely advanced end of high-tech expertise is DornerWorks Ltd., which has its headquarters on Lake Eastbrook Boulevard in southeast Grand Rapids, plus a facility in New Hudson, near Detroit. 

DornerWorks, which has about 50 employees, provides electronic engineering for the aerospace, medical, automotive and industrial sectors, with its specialty being embedded systems engineering. It describes itself as “software and hardware design experts.”

In May, the company announced it had received an SBIR Phase I contract from the DOD through the Defense Advanced Research Project Agency “to study the feasibility of developing a space-qualified hypervisor that will support the virtualization of satellite payloads.”

DornerWorks’ claim to fame is having developed the hypervisor, which allows use of multiple operating systems on the same processor while maintaining safety and security.

The DARPA contract is on top of an earlier SBIR contract awarded by the U.S. Navy that is now in Phase II. That project is to develop “isolation techniques for untrusted software,” which may be in use with on-board computers critical to safe flight of military aircraft.

Founded in 2000, DornerWorks was honored May 21 with inclusion on the 2013 Inner City 100 list, the fastest-growing inner-city companies in the U.S., according to the Initiative for a Competititve Inner City and Fortune Magazine. In addition, it was on the list in 2010 and 2011, and according to its news release, has a five-year annual growth rate of 20 percent.

The SBIR contracts have resulted in “slightly” increased employment at DornerWorks, according to Steve VanderLeest, vice-president of R&D and a professor of engineering at Calvin College. He said since the Recession, DornerWorks “has done pretty well, just in our services business. I don’t want to attribute all of that to SBIR, but definitely that has helped us in our growth.”

Much more down to earth in product development is Eco-Composites LLC in Holland, which got a Phase I SBIR grant of $85,000 in 2011 from the USDA. Founded in 2002 by Carey J. Boote, the company has always focused on products made from renewable or recycled materials. About six people now work for Eco-Composites since the company began selling its Perfect Cycle Natural Bedding for horses, and the SBIR grant was “instrumental” in helping make that happen.

Boote said Perfect Cycle is the inert fibrous material left behind in anaerobic digesters after the waste material has been fully digested, with the biogas having been captured for use as fuel in gas turbine electric generators and the liquid waste drawn off for use as fertilizer. Perfect Cycle has been further dried and lasts much longer as horse bedding than straw, sawdust or wood chips, according to Eco-Composites. Other advantages are its softness and super-absorbency and that it is relatively pollen and dust-free, unlike straw.

Most anaerobic digesters are large-scale facilities in agricultural areas, with West Michigan having at least four built or in construction just in the last four or five years. One in Fremont at the Gerber baby food plant will use fruit and vegetable processing waste as fuel; another in Montcalm County uses turkey manure, and the others use dairy herd manure. All leave the same inert fibrous residue that makes excellent bedding for farm animals — but there is a lot of it and, up to now, it had relatively low value to the farmers who own the digesters. 

There are now about 2,500 anaerobic digesters around the nation, and it has been estimated that every cow produces an average of 20 pounds of fibrous residue every day.

“Our objective (in applying for the SBIR grant from USDA) was to identify characteristics that could create higher value for this fiber stream,” said Boote.

He said SBIA grant proposals have to be very specific, with very clear objectives worked out in detail.

“That’s why we were successful getting it — because we were as specific as we were,” said Boote.

But it was not easy: It was Boote’s third attempt to be selected for a Phase I SBIR grant. And Eco-Composites tried for a Phase II grant and failed to get it.

Today, sales of Perfect Cycle Natural Bedding are increasing each month, according to Boote. The company got a boost in February last year when U.S Sen. Debbie Stabenow visited the MSU Bioeconomy Institute in Holland, which is where the Eco-Composites office is located, to show her support for Michigan’s bio-based industries.

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