Understanding Small Business Innovation Research Grants

A Guide to Understanding Small Business Innovation Research Grants

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1 What is SBIR/STTR? .

The Small Business Innovation Research program, SBIR, and the Small Business Technology Transfer program, STTR, are administered by the United States federal government and participating organizations. Simply, the programs provide small businesses grants, not loans, in three phases to investigate if their products meet the needs of the federal government. If the government likes the product and thinks it’s useful, the business has a high probability in the future of getting on-going purchase orders from the federal government. Since the inception of the SBIR pilot program and the beginning of the federal program, the number of grants and contracts awarded has grown from under 1,000 in 1983 to nearly 6,000 funded grants in recent years [1]. In the two funding phases to be discussed later, the odds of a Phase I applicant receiving an award is around 1 in 8, and the odds of a Phase II applicant receiving an award rises to 1 in 2 in recent years [2]. As of 2019, $3.28 billion was dispersed through the SBIR program and $453 million was given through the STTR program with more specific budgetary information featured in Figure 1 and Table 1.

Figure 1: The respective FY2019 budgets of SBIR/STTR programs broken down by government agencies and method of funds disbursement.

Congress mandated the support of small business innovation in the 1980s though the Bayh-Dole Act. The SBIR and STTR programs aim for the following goals [3]:

  • Meet small business and federal research and development, or R&D, needs

  • Increase private-sector commercialization of technology or services born from federal research and development funding

  • Stimulate domestic technological innovation

  • Foster and encourage participation in innovation and entrepreneurship by women and socioeconomically disadvantaged individuals

  • Foster technology transfer through cooperative R&D between small businesses and research institutions

These programs are competitive and merit-based. Small businesses are incentivized to research the technological and economic potential of their efforts. Small businesses have been proven to further power innovation when supported, which in turn provides benefits of innovation to not only small businesses and their research partners but the United States as a whole. Anytime funding is awarded, the respective agency has deemed the project worthy of enough merit that can help that respective agency and the economy as a whole advance into the future. While merit and passion is important to any research project, there are certain eligibility requirements that small businesses and their partners must meet.

Figure 2: Sample pages of an SBIR Phase I solicitation

Essentially when the government identifies a need for a type of product, they will accept ideas at various points throughout the year and pay an eligible private sector company around $150,000 to come up with a product proposal that meets the government’s needs. If the proposal is promising, the government will pay an additional $1,000,000 to develop that product and get it tailored to the needs of the government. This process is done by every participating agency from the EPA and Department of Defense to the National Institutes of Health and National Science Foundation.

For example in Figure 2, in 2011 a prospective awardee could find the Request for Patent, or RFP, application for the EPA’s SBIR program online. The respective government agency will provide details and requirements for the RFP through solicitations. Each agency will set their own time table on solicitations, which is discussed later. In 2011, the EPA solicitation window was open between March and May. No government agency will accept unsolicited proposals, any proposal must be submitted during the appropriate time period. A government solicitation will provide guidance and clarity in the following sections:

  • Program description

  • Definitions

  • Proposal Preparation Instructions and Requirements

  • Method of Selection and Evaluation Criteria

  • Considerations

  • Submission of Proposals

  • SBIR Phase I Research Topics

  • Submission Forms and Certifications

The Phase I Research Topics will likely change over time for a given agency, and will not be the same between government agencies.

Complemented with the solicitation deliverables included in the solicitation, an in-depth technical proposal must be submitted that covers the scope of the project, the objectives under the scope, and the work plan with future considerations.

2 Requirements of Eligibility .

A small business seeking to apply to the SBIR program is required to attain the following specifications [4]:

  1. The business must be an organized for-profit located in the United States of America

  2. The business must be greater than 50% owned and controlled by persons who are citizens or permanent resident aliens of the United States,

or greater than 50% owned and controlled by other small businesses that are controlled by one or more citizens and/or permanent resident aliens of the United States

  1. The business must retain no more than 500 employees, including personnel not explicitly employed by the business but associated or contracted with the project

The reader should note that for a SBIR award that is subject to regulations found under 15 U.S.C. 638(dd)(1) the SBA states, “an awardee may be owned and controlled by more than one VC, hedge fund, or private equity firm so long as no one such firm owns a majority of the stock.”

A small business seeking to apply to the STTR program is required to abide by the specifications laid out for the SBIR program. Additionally, the partnering research organization must meet the following requirements [4]:

  1. The research organization is located in the United States of America

  2. The research organization must be a non-profit college or university, a domestic non-profit research organization, or a federally-funded R&D center

While the basic cooperative spirit underlies both the SBIR and STTR programs, there are some explicit differences between the relationships fostered under each program. Central to the STTR program is the partnership between small businesses and nonprofit research institutions. The STTR program requires the small business to formally collaborate with a research institution in Phase I and Phase II. The STTR program’s most important role is to bridge the gap between performance of basic science and commercialization of resulting innovations. Specifically there are three key differences the SBA describes [4]:

  • The STTR program requires the applicant business and its partnering institution to create an intellectual property, or IP, agreement that considers the future use and commercialization rights of the innovation developed.

  • The STTR program requires that the small business perform at least 40% of the R&D and a single partnered research institution perform at least 30% of the R&D.

  • The STTR program allows the Principal Investigator to be primarily employed by the partnered research institution, rather than the small business

Figure 3: The time windows for proposal and application submission for each agency throughout the year provided by the SBA [5].

The final consideration of eligibility a small business must consider when seeking SBIR/STTR funding is the time of year. The agency type and whether they provide grant funding or contract funding will affect the time window’s place in time and length of the application window, as shown in Figure 3. Once a small business has verified it meets the criteria within the time window, they can proceed to propose a solution or innovation in response to the call to research.

3 Phases of SBIR/STTR .

When first starting a business, one of the most common challenges is a lack of capital. Depending on the industry your innovation is in, an SBIR grant can be given from any one of fourteen government agencies to help your company get off the ground. These grants are divided into three different phases of award, shown in Figure 4, and you’ll have to meet certain requirements for each one. Once a business is given a grant or contracted with an agency, an employee of the small business must be made the Principal Investigator, or PI. If a PI can successfully guide the project and company through each phase, the time and energy given to the project will be rewarded in surplus.

*See Section 3.3 for more details.

Figure 4: The three phases of the SBIR/STTR program including average funding and time duration respectively for each phase.

3.1 Phase I .

Phase I SBIR grants are intended to establish the originality, merit , feasibility, and commercial potential of an innovation. A Phase I innovation is typically not fully developed, but rather is a well- planned brainchild with commercial potential. To this end, the money received is to go towards the continued development of the particular innovation. Whichever government agency is sponsoring the SBIR grant will want to see clear progress prior to moving your company to Phase II of the process.

After the small business has verified it meets the requirements and has submitted online or directly to the respective government agency the SBIR/STTR office will review the Phase I application. The application is judged on a dual peer review system that filters out most applications. After this, the application is reviewed again by the advisory council of the government agency the original application was submitted to. The director of that program will then make the final call whether or not to fund the R&D project. Results will vary from year to year, but from 2012-2016 the funding rate ranged between 13 and 30 percent of the applicant pool.

The typical SBIR Phase I grant lasts no longer than 6 months, and the typical STTR Phase I lasts no longer than 12 months. Both grant an average funding of $150,000 over the respective time period. The range of SBIR and STTR grant funding, as of November 2019 is between $50,000 to $250,000 in this phase, with a maximum cap of around $257,000 with modifications to the grant application. Any further increase in funding beyond this level will require an application of exception to the respective government agency. However, this money cannot be spent indiscriminately for general personnel or business needs. The overarching government agency funding the research certain restrictions into place to ensure that the money is spent wisely. Resources are provided by the agency to understand these restrictions and decide where to allocate the grant to put it towards the best use.

After Phase I grant funds have been used, the small business has the option of continuing on to Phase II of the SBIR process, or running your company without government grants. It’s worth nothing here that Phase II grants are somewhat easier to attain than Phase I grants, the funding rate varies from 30 percent to 54 percent, but it can also be a long process to apply, receive funding, and comply with government requirements.

3.2 Phase II .

The purpose of a Phase II grant is to continue the research from Phase I in greater detail. Phase I should have identified if a particular innovation was meritorious and feasible enough to continue R&D. Following successful Phase I development, awarded businesses can apply for Phase II. These contracts allow for a much higher level of research involvement, with both SBIR and STTR grants lasting 24 months and providing an average funding of $750,000. Phase II grants are capped at around $1,700,000 with modifications to the grant. For any further funding, an exception must be given by the respective government agency via a funding waiver. There are fixed submission dates to apply, typically eight, fourteen, or twenty months after the award of your Phase I grant. Due to the brevity of Phase I funding, the best course of action is to have the Phase II application ready to submit in a swift manner to avoid available capital drying up.

3.3 Phase III .

The objective of Phase III is simply commercialization. Unlike Phase II, having received the previous award is not a prerequisite to enter Phase III. There is also no formal application process. A government agency will simply enter into a Phase III agreement with any Phase I or Phase II awardee they deem worthy. The limits on funding, company size, and contract length are also disregarded in a potential Phase III award. No funding is granted towards the R&D performed in Phase I or II. Any additional funding in Phase III is for R&D of products and services specifically for the government agency. To receive additional funding past Phase II, the business must search outside the SBIR/STTR program. The sole mission is to aggressively build the product up to commercial success.

4 Relevant Agencies .

There are 14 different government agencies that one can apply to, and the burden of deciding which ones are appropriate for your innovation falls to the applicant. These agencies, also listed in Figure 5, include the Department of Agriculture, two chambers of the Department of Commerce, the Department of Defense, the Department of Education, the Department of Energy, the Department of Health and Human Services, the Department of Homeland Security, the Department of Transportation, the Environmental Protection Agency, NASA, and the National Science Foundation. Not every agency will provide funding and assistance in the same manner. In fact, not every agency will have equal capacity to disperse funds, as shown in Table 1; total funding for the fiscal year can vary in millions to billions of dollars.

Within the framework of SBIR and STTR, agencies can be categorized into contracting agencies or granting agencies as shown in Table 2. Contracting agencies require more rigorous definitions and plans for the R&D project. The contracting agency itself will set the plan, protocols, and requirements for the innovation as it requires a highly focused topic. Progress is more strictly monitored with more set progress updates, a procurement mechanism, and a binding agreement between the buyer and seller for IP, goods, and services. Granting agencies are conversely more open with easier funding. The Principal Investigator will set the plans and protocols that the contracting agency would have set. The topic of the innovation does not need to be as sharply defined, as long as the funds support a public purpose and the best efforts in the research arena.

Figure 5: List of participating federal agencies in the SBIR/STTR programs from the SBA.

Table 2: Comparison of contracting and granting agencies.

Contracting AgenciesGranting AgenciesDepartment of Defense (DoD)National Science Foundation (NSF)Department of Homeland Security (DHS)Department of Energy (DoE)National Aeronautics and Space Administration (NASA)United States Department of Agriculture (USDA)Environmental Protection Agency (EPA)National Institute of Standards and Technology (NIST)Department of Transportation (DoT)National Oceanic and Atmospheric Administration (NOAA)Department of Education (DoED)Department of Health and Human Services (HHS)*

*HHS provides primarily grants, but also provides contracts as well.

5 About aShoGi .

aShoGi was borne of a vision to help solve a problem that affects many businesses – the need for growth through new product development. But understanding that you need a new product isn’t the same as actually having something to make and sell to customers.

On the other side of the coin, there are hundreds of thousands of individuals out there with an idea for how an existing product could be made a little better, or a new product could solve a problem – scientists, researchers, government lab employees and more. But just because you understand the need for a product, doesn’t mean you have the capacity to start a company making that product.

That’s where aShoGi comes in. We connect businesses looking for products, ideas, and new innovations with innovators that have these products. Those innovators could be individual inventors in a garage, research scientists at a government or university lab, or even another company that just has an innovation or patent they don’t want to pursue.

Whatever the situation, aShoGi is the platform where innovators and businesses can connect and drive growth and success for both parties. Service providers like business coaches, patent attorneys, marketing firms, contract manufacturers and others can also benefit from being connected to our ecosystem of thousands of innovators and companies looking for growth. aShoGi's mission is to connect businesses across industries to enable greater supply chain stability through on-shoring, and improve B2B sales efficiency. We help grow your sales funnel and boost sales conversions.

From pharma and electronics to consumer goods and industrial products, our market covers virtually every industry out there. Join us today and see the difference we can make for you as a business, an inventor, or a service provider!

6 Definitions .

aShoGi - The best online marketplace for innovation in the world

IP - Intellectual property

Principal Investigator - The small business employee and/or research institute partner

that will lead the innovation project, submit proposals, etc.

SBA - Small Business Administration

SBIR - Small Business Innovation Research

Solicitation - A call to research supported by the federal government on specific topics

that could result in funding

STTR - Small Business Technology Transfer

7 References .

[1] Award State Map | SBIR.gov. [Online]. Available: https://www.sbir.gov/reports/state-summary

[2] “Introduction to SBIR/STTR Funding”, Petrovich, Paul J., University of Pittsburgh Innovation Institute. [Online]. Available: https://www.cmu.edu/swartz-center-for-entrepreneurship/assets/sbir-sttr-101-2.03.16.pdf

[3] “Leveraging America’s Seed Fund”, Small Business Administration. Presentation. March 2020. Available: https://www.sbir.gov/sites/default/files/SBA_SBIR_Overview_March2020.pdf

[4] About | SBIR.gov. [Online]. Available: https://www.sbir.gov/about

[5] Solicitation | SBIR.gov. [Online]. Available: https://www.sbir.gov/solicitations

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