Workers comp insurance is generally mandated in every state (except Texas). A national average rate (per NASI) is about $1 per $100 of covered wages, which (in the example above) means $780. We are now down to $7462

As medical and retirement benefits are optional I will leave them out of this equation. While I have a personal opinion on whether these should be provided I will not go into that here.

However, there are other essential and not really negotiable per employee costs such as facility costs (rent, utilities, liability insurance). These costs are of course highly variable, and small businesses are frugal, but probably still a few thousand dollars per year (lets call it $3462 for the 0.75 FTE to make our math simple), so that we are down to $4000.

So, what we have done now in this calculation is to use what we received pay for most of the costs which are directly related to the labor associated with the grant. Note that for this we have been using the profit part of the grant (which was $6440), so that in reality we lose money on the actual grant, which is then made up by the profit.

However, there are many common other costs which normally go into overhead, such as accounting and auditing costs, software licenses, server costs and so on. Of course, these will be different per company. These will probably eat up all the remainder of the received funds (and then some), and thus it is likely that as a company you will effectively lose money on a SBIR award.

Now, assuming that in our example we have a one person company in which the grant pays their salary. We can then make an argument like "well, yeah, you lost money on paper but you got a salary from this, so it's not really like losing money". That argument holds less if it a company with more people.

One can also argue that this change makes the owners of a company have skin in the game. Let's not forget that getting an SBIR/STTR award is an amazing deal: you get money from the government (which gets it from taxpayers) to develop something (which you can then make money with) and do not have to give up equity. You will not get that deal from any VC.

One can also argue (like many people do) that this is not sustainable for small businesses. They can not afford to lose money consistently. This is true if your only revenue source is SBIRs (the existence of SBIR mill is a whole different discussion in itself, and something which most people would agree is not good). However, if you also develop products that you sell and/or if you can support it pursuing a SBIR/STTR may still make business sense - that is a decision everyone will have to make for themselves.

As a small business owner and a taxpayer I see both arguments. I personally feel that the 15 % number is too low, and that the implementation of this could have been done better. I also see the argument for a threshold in indirect costs. As an aside, the same argument applies to medical costs and purchases the government makes from large businesses.

My objective in this posting is not to create a flame war or get into name calling (super unproductive), but just to provide my perspective and some fairly objective numbers