The Small Business Innovation Research Program, or SBIR, funnels 2.5 percent of federal research-and-development dollars in the form of grants and contracts from 11 federal agencies to small companies (defined as those with fewer than 500 employees). It's a laudable effort, but critics say it isn't working the way it should. Edward Roberts, founder and chair of MIT's Entrepreneurship Center, for example, calls the SBIR "a place that is supporting a small number of inefficient companies whose primary business is knowing how to write proposals to the federal government to capture SBIR funds."

The numbers seem to back him up. About two-thirds of companies that participate in the program have landed SBIR funding before. In 2009, meanwhile, only 560 out of the approximately 5,800 businesses that won awards were younger than four years old, down from 952 in 2003, according to Ann Eskesen, founding president of the Innovation Development Institute, a Swampscott, Massachusetts, research firm that tracks the program. At the same time, the size of awards has been climbing, resulting in fewer grants and contracts. Sean Greene, the Small Business Administration's associate administrator for investment, says the SBIR is an effective tool for driving innovation but notes that the agency is looking at ways in which the program could be improved. One way to do that, we think, would be to revamp the agency's mission so that it provides seed capital and contracting opportunities to younger companies.

Bottom Line Instead of a Small Business Innovation Research Program, we should make a smarter investment -- in a New Business Innovation Research Program.