Does NIH select the right healthcare ventures through the SBIR grant program?

One way governments aim to spur entrepreneurship is through providing startup capital to qualified ventures. In the United States, the government does so through federal grant programs like the SBIR/STTR program. Despite the government's efforts to spur entrepreneurship through capital distribution, we don't know much about the selection capabilities that government agencies like the National Institutes of Health (NIH) have in place to choose qualified ventures for funding. Through exploiting a quasi-natural experiment enabled by the American Reinvestment and Recovery Act (ARRA) of 2009, we seek to determine whether the NIH selects ventures with the most innovation and commercialization potential. Overall, our findings suggest that the NIH effectively identifies and prioritizes ventures with superior observable innovation capabilities. Yet, they could do more to discern the underlying tacit value of the innovation to prioritize selecting high-risk ventures that have the potential to create impactful innovation in the future. Our analyses should help policymakers orient their thinking around selection capabilities when assessing the impact of government programs with the broader objective of supporting novel healthcare innovation.