What Is SBIR Funding? Learn How the Program Works for Startups
The Federal Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs provide over $4 billion annually in non-dilutive federal funding to help small businesses develop and commercialize innovative technologies. The programs can provide crucial support for small businesses seeking to commercialize technological innovations. Yet, many small businesses are unaware of these programs or can feel discouraged by their perceived complexity, competitive nature, and the time and effort required to navigate the application process.
What is SBIR and STTR, and why is it important?
The SBIR and STTR programs award over $4 billion dollars annually to small businesses doing research and development on innovations that have commercial potential and also meet specific U.S. government R&D needs. This Congressionally-mandated program was created in 1982 to keep the US competitive both technically and economically on the global stage. By providing this funding, the government expects the small business to reduce technical risk on these innovations so that private funding, such as venture capital, can then be applied to scale up and commercialize these new technologies to create domestic jobs and revenue.
SBIR and STTR are often presented as a bridge between a research grant for basic science and more traditional dilutive investment. This gap in funding is often called the “Valley of Death” for startups, and there are very few other sources of funding of this type. One of the key advantages of SBIR/STTR is that the funding is “non-dilutive”; that is, unlike a traditional investment, the government does not take any kind of equity or stake in the company.
Another advantage of SBIR and STTR is that intellectual property and data generated with the project’s funding is still retained by the small business. Receiving an SBIR or STTR award provides a credibility boost and increased access to partners and resources. And unlike other federal grants and contracts, the SBIR/STTR programs are reserved exclusively for small businesses, so the company is not competing against large corporations, universities, non-profit organizations or state and local governments.
Who Runs These Programs?
SBIR and STTR programs are run by 11 federal agencies, including:
Department of Defense (DoD)
National Institutes of Health (NIH)
Department of Energy (DOE)
National Science Foundation (NSF)
US Department of Agriculture (USDA)
National Aeronautics and Space Administration (NASA)
Department of Homeland Security (DHS)
Department of Commerce (DOC) — through NIST (National Institute of Standards and Technology)
Department of Education (ED)
Department of Transportation (DOT)
Environmental Protection Agency (EPA)
Each agency has an independent budget and administrative requirements that differ from agency to agency, and will fund innovations closely related to the agency mission and existing programs, such as Rural Development at USDA or cancer treatments at NIH. Each agency’s budget for the program is mandated by Congress as a set percentage of their extramural research budget.
A Phased Approach
Despite inter-agency differences, all SBIR and STTR programs have several common features. Most agencies require a company to start with a Phase I grant, which is around two hundred thousand dollars. Phase I is for “applied research”, which is the demonstration of technical feasibility. A Phase I project is typically 6 to12 months. Winners of Phase I awards can then apply for a Phase II, which is around a million dollars. Phase II grants or contracts can be used on projects lasting up to two years and are intended to significantly advance product development, so that nearly all risk is gone and the remainder of the work to commercialization is straightforward and well-defined.
Why is STTR different?
The Small Business Technology Transfer (STTR) program is intended specifically to develop innovations that originated at research institutions like universities or federal laboratories. While the SBIR program allows a small business to partner with a university, it is not required for SBIR. However, an STTR project must include a subaward to a university or other research institution which must be at least 30% and up to 60% of the project budget, whereas in an SBIR project the small business must receive 67% of the funds. Many companies that pursue STTRs are “spinouts” and plan to or have already licensed a university-owned IP. Even in the case of an STTR, the small business is still the prime recipient of the award.
Who is eligible?
In order to apply for an SBIR or STTR, you must be:
A small business (500 or less employees),
Majority owned by US citizens or permanent residents,
Located in the US, and
A for-profit business.
Businesses that apply successfully must also:
Have a new or significantly improved technology innovation (not just routine engineering or consulting),
Solve a real government need,
Align with an agency’s published topic, and
Have sufficient employees and resources to do the project.
It is not necessary to have:
Revenue,
Customers, or
Venture capital.
Many awardees are brand new companies!
Why SBIR and STTR Matters
SBIR and STTR exist because innovation doesn’t need to happen at large corporations or in academia. These awards allow small, nimble teams to compete, risky ideas to be investigated, while at the same time having public needs (agency missions) drive innovation. For many innovators and startups, SBIR and STTR awards are the quiet first step behind world-changing technologies.
Read more about how SBIR funding helped move these companies further:
Resources
Many resources are available to support innovation and help small businesses apply for an SBIR or STTR grant, including USRIA’s FREE, On-demand SBIR Training Program. Start the program now!
