What Is Small Business? (And Can It Afford Health Insurance?)

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A report on National Public Radio last Saturday laid out a debate that may soon reach Congress: how big can a business be to still qualify for the government's small business programs? Most of the time, the argument for increasing the Small Business Administration's size standards revolves around qualifying for federal contracts. That's a distressing proposition, since large businesses already find their way to competing for contracts intended for small firms, as organizations like the American Small Business League have demonstrated time and time again.

This story focused on the Small Business Innovation Research, or SIBR, program, which requires government agencies funding a lot of research to direct some of that money to small firms with fewer than 500 people. However, the SBA excludes firms where venture capitalists hold a majority stake. As NPR's Jeff Brady reports, this poses a dilemma for companies like Inviragen, which plans on venture financing to test a vaccine. At that point, it will lose SBIR grants on other vaccine projects—no doubt worthy projects all—which it may then have to drop. Says Inviragen CEO Dan Stinchcomb: "This means that promising vaccines that could improve public health in the U.S. and around the world essentially will not be developed." Damn! No wonder venture capitalists are lobbying change the law! They want to protect public health!

I've criticized the ASBL, and its founder, Lloyd Chapman, for their hyperbolic and shrill efforts at publicity, but they're usually on the right side of the issue, and that's true here, too. Venture-funded companies have access to resources that truly small companies simply don't have, and letting them compete for the same grants with that advantage will crowd out the businesses the SIBR program was meant to fund. And frankly, venture funding, which substitutes the financier's demand for a seven-fold return in five years for the entrepreneur's desire to patiently build a company over the long term, is a needlessly corrosive influence on small firms. We should be trying to find ways to encourage firms to remain independent; excluding the VC-backed from federal largesse is a good way to start.

As it stands, the rules are already pretty generous for VCs: the SBA recently allowed them to take a majority stake in an SBIR company if the fund is majority owned by U.S. individuals, and if the fund and its portfolio have in total less than 500 employees. Finally, if Stinchcomb is really worried about the loss of those vaccines to the general good, there's an easy enough fix: he could simply sell the vaccine to a separate company established by his would-be financiers. He and the other principals of Inviragen could even own a stake in the newer company, as long as they didn't control it.

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It must be Small Business Week on NPR, because this morning health care reporter Joanne Silberner charts the dizzying increase in small group health insurance premiums over the years, and how small firms have responded—mainly by whittling away at policies before eliminating it altogether. Silberner interviews a Baltimore employer who lost a valued employee when he decided to cancel his insurance. Small firms, she points out, have to compete for employees with big firms that can afford coverage, but in the current insurance market, it's a losing battle.

Last updated: Feb 25, 2009




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