$2.2 Billion for Early-Stage Technology Research and Business Creation

A common problem for small, technology-based businesses—even when the economy is good—is finding early-stage funding for the up-front, high-risk R&D needed to prove their new concepts. The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs are an excellent source of exactly this type of early-stage funding.  Under these programs, the federal government currently awards some $2.2 billion exclusively to small businesses each year, making it the richest source of high-tech seed funding in the nation.  More than 40% of the funding goes to firms with 10 or fewer employees, and much of the money goes to companies with just 1 to 3 employees!  Typically, some 40% are first-time winners each year.

SBIR’s and STTR’s Are Three-Phase Programs

The programs are organized into three phases. In Phase I, the small business conducts a feasibility study. Typically, the Phase I award is for up to $100,000 over 6 months (SBIR) and 12 months (STTR). [There are some exceptions on award amounts and contract periods.]  In Phase II the small business concentrates on prototype development and validation/demonstration. The Phase II award is typically up to $750,000 over 24 months. Phase III is the commercialization activity. No SBIR funds are available for Phase III—rather, the small business is expected to identify external funding, which may at times include funding from federal agency programs other than the SBIR program.  (Most agencies do not fund Phase III follow-on development.)
Under the SBIR law, the small business not only receives funding to carry out the needed R&D, but the firm also retains the intellectual property rights to the idea. The government receives a limited license to use the technology within the federal government, but the small business may patent, trademark, or copyright any results of the effort. Unlike conventional venture or angel funding, the small firm does not give up any equity in exchange for this critical “seed money.”

Qualifications

To be eligible for the SBIR program, the applicant must be:

• A for-profit entity with 500 or fewer employees (including affiliates). 
• The business must be 51% owned by individual US citizens or legally admitted permanent resident aliens.
• The Principal Investigator (PI) must be primarily employed (at least 51% of his/her time) by the firm during the period of performance.  Note that this is a measurement of employment status—NOT time committed to the SBIR project. 
• For a STTR at DOD, NIH, or NASA, the Principal Investigator may be from the collaborating non-profit research entity.

For a Phase I SBIR project:

• Up to 1/3 of the work may be done by outside consultants or collaborators
•  Up to half of the work may be done outside in Phase II.  (The agencies often encourage such collaboration and teaming).

For a Phase I STTR project: 

• A minimum of 40% of the work must be done by the small business
• A minimum of 30% must be done under a formal subcontract with a non-profit research institution.