- What are the Small Business Innovation Research (SBIR)/Small Business Technology Transfer (STTR) Programs?
- What is the background of the SBIR/STTR Program?
- Which federal agencies participate in SBIR/STTR?
- What are the benefits of the program to entrepreneurs and small companies?
- How does SBIR/STTR compare to venture capital funding?
- What are the three phases of the SBIR Program?
- Can a firm go directly to a Phase II award without having to compete for Phase I?
- What is the difference between a SBIR and a STTR?
- How do I know if I’m eligible for SBIR/STTR funding?
- Who determines eligibility?
- Are there differences in how each agency manages their SBIR/STTR program?
- What are the specifics on internal vs. external proposal review?
- What is the difference between grants and contracts?
- Can I ask for money for commercialization assistance?
- How long will I have to wait after I submit my proposal to find out if I will receive funding?
- Can I apply for an SBIR if I am working full-time at a University or a large corporation?
- May a portion of an SBIR award be subcontracted?
- Can I win SBIR/STTR funding if mine is a virtual company?
- When can I submit an application?
- There is now more emphasis on Fraud, Waste and Abuse. Can you explain?
What are the Small Business Innovation Research (SBIR)/Small Business Technology Transfer (STTR) Programs?
Through the SBIR Program, 11 federal agencies make high-risk capital available to fund R&D at the nation’s most innovative small companies. Each year, federal agencies with extramural research and development budgets that exceed $100 million are required to set aside a specific percentage of that budget to be competitively awarded to small U.S. firms under the SBIR program.The SBIR allocation is 2.9% in fiscal year 2015; 3.0% in fiscal year 2016; and 3.2% in fiscal year 2017 and each fiscal year thereafter. The STTR allocation is 0.4% 2015, and 0.45% for 2016 and thereafter.
Combined, the agencies award $2.5 billion in SBIR and STTR grants and contracts annually with these goals:
- Stimulating technological innovation
- Meeting federal R&D needs
- Fostering participation in innovation and entrepreneurship by socially and economically disadvantaged persons, and
- Increasing private-sector commercialization of innovations derived from federal R&D funding
The SBIR program was established under the Small Business Innovation Development Act of 1982 (P.L. 97-219) with the purpose of strengthening the role of innovative small business concerns in federally-funded research and development (R&D). Through FY2009, over 112,500 awards have been made totaling more than $26.9 billion.
In December 2000, Congress passed the Small Business Research and Development Enhancement Act (P.L. 102-564), reauthorizing the SBIR program until September 30, 2000. The program was reauthorized until September 30, 2008 by the Small Business Reauthorization Act of 2000 (P.L. 106-554). Subsequently, Congress passed numerous extensions, the most recent of which extends the SBIR program through 2017.
Modeled after the SBIR program, STTR was established as a pilot program by the Small Business Technology Transfer Act of 1992 (Public Law 102-564, Title II). Government agencies with R&D budgets of $1 billion or more are required to set aside a portion of these funds to finance the STTR activity. In 2001, Congress passed the Small Business Reauthorization Act of 1997 (P.L. 105-135). The program was reauthorized again until September 30, 2009, by the Small Business Technology Transfer Program Reauthorization Act of 2001 (P.L.107-50). Subsequently, Congress has passed numerous extensions, the most recent of which extends the STTR program through 2017. The goal of the STTR program is to facilitate the transfer of technology developed by a research institution through the entrepreneurship of a small business concern.
The agencies that participate in SBIR and STTR programs are shown in the following table, along with their approximate funding amounts for FY2012:
|Participating Agency||FY2013 SBIR Funding
|Dept. of Defense||$1,000|
|Health & Human Services (NIH, CDC, FDA)||$697|
|National Science Foundation||$153|
|Dept. of Energy||$184|
|Dept. of Homeland Security||$16|
|US Dept. of Agriculture||$18|
|Dept. of Commerce (NOAA, NIST)||$12|
|Dept. of Education||$13|
|Environmental Protection Agency||$4|
|Dept. of Transportation||$8|
- First and foremost, funding from the SBIR/STTR program is non-dilutive capital (i.e. – its free!).
- Since many proposals are peer reviewed, a positive review provides excellent validation of your technology, which can be highly valuable when seeking follow-on funding.
- Because the programs are all about funding technology risk, the process is rigorous and focused on developing commercialization and business plans that are essential in bringing innovative technologies to market.
- Established small businesses can also apply to the programs to fund high risk/high impact projects that cannot be developed with internal resources.
- It enables early transfer of technology and establishment of start-up companies
In general, SBIR/STTR Phase I proposals have about a 9-18% probability of success (although the odds improve for well-planned and written proposals that adhere to agency-specific requirements), and it takes about nine months for receipt of actual funding. Phase II proposals are funded at a much higher rate – ~35% depending on the agency. You typically don’t need to know anyone, give up equity or provide a board seat. And, the program will fund early-stage technologies. With $2+ billion available each year, it’s worth the time and effort to apply if your project has commercial value and is appropriate to a topic.
Alternatively, venture capital funding requires about six-to-12 months and has a less-than 1% probability of success. You need to know someone in order to connect with a VC firm, and you can expect to give up equity (sometimes lots) and a board seat (and sometimes control). In addition, most VC firms do not fund early-stage companies. A clever company uses the SBIR/STTR program to “de-risk” its technology and align itself to attract concomitant and/or follow-on VC funding.
The SBIR Program is structured in three phases. For all phases, it is important to carefully read the specific agency, component or institute’s instructions in the current solicitation since there are agency-to-agency differences (and even component-to-component differences in some agencies like Dept. of Defense). Even if you have previously applied for SBIR/STTR funding, 2012 reauthorization legislation has resulted in program changes affecting key provisions such as funding levels, duration of the projects and follow-on funding options (among others), so heed the CURRENT instructions for each individual agency.
Phase I. During Phase I, the technical merit, feasibility, and commercial potential of the proposed R&D efforts is established and the quality of performance of the small business is determined prior to providing further federal support in Phase II. SBIR Phase I award guidelines are $150,000 total costs for 6 – 12 months. The 2012 reauthorization added a maximum funding limit of $225,000 total costs.
Phase II. Phase II funding is for continued R&D and based on the results achieved in Phase I and the scientific as well as technical merit and commercial potential of the project proposed in Phase II. With very limited exceptions (refer to agency specific solicitations) only Phase I awardees are eligible for a Phase II award. SBIR Phase II award guidelines are $1,000,000 total costs for 2 years. The 2012 reauthorization added a maximum funding limit of $1,500,000 total costs.
Phase III. The objective of Phase III is for the small business to pursue commercialization objectives resulting from the Phase I/II activities. The SBIR program does not fund Phase III. Rather, the small business is expected to identify the resources that will be necessary for them to achieve commercialization. In some instances, agencies may offer special follow-on funding (such as NIH’s Competing Renewal) that can extend the time and amount of SBIR/STTR funding. Agencies that are interested in procuring the technology, product or service for their own use (such as Dept. of Defense or NASA) may be a source of “Phase III funding”, but these funds come from agency sources outside the SBIR/STTR program. Awardees should check with their Program Manager for details.
A pilot provision in the recent SBIR/STTR reauthorization allows NIH, DoD and DoEd to make Phase II awards to firms that have not received a previous Phase I award for the same project. These three agencies are allowed, but not required, to offer this provision. Projects eligible for direct to Phase II funding will be designated in the agency solicitations, when available. The other eight agencies will continue to require a company to be a Phase I awardee in order to submit a Phase II proposal on a given topic.
The primary difference is that SBIR allows, but does not require, the involvement of a non-profit research institution, while STTR requires collaboration (in the form of a sub-contract) with a non-profit research institution. In either case, the applicant organization is always the small business.
The 2012 reauthorization legislation has resulted in changes with regard to ownership, control, and size. Either for-profit companies or joint ventures can be eligible if they meet the new requirements. Potential applicants with questions regarding eligibility should refer to the “Small Business Size Regulations”, Final Rule, Federal Register citation, Dec 27, 2012 for complete details.
Ownership and Control
Under the OLD rules, a small business concern (SBC) was eligible if it was majority-owned and -controlled by U.S. individuals OR was majority-owned and -controlled by one other SBC that itself met this requirement. The NEW rule states that eligible SBCs can be owned by:
- U.S. individuals,
- One or more other SBCs (as long as each is majority-owned and -controlled by U.S. individuals), or
- Any combination of (1) and (2).
In addition, eligible SBCs can now be owned by venture capital (VC) companies, hedge funds (HF), and/or private equity funds (PEF) as long as no one firm owns more than 50% of the SBC.
Under both the old and the new rules, an eligible SBC must have fewer than 500 employees (both full-time and part-time employees are counted; not full-time equivalents). However, employees of any organizations “affiliated” with the SBC must also be counted. Affiliation is a complex issue that might be based, for example, on ownership, stock options/agreements, common management, etc. The new rules cite several new examples:
- Although ownership of more than 50% of the SBC is always affiliation by definition, even greater than 40% ownership might constitute affiliation in certain cases where it allows control of the SBC,
- An SBC is affiliated if it depends on another organization for more than 70% of its receipts (i.e., revenue),
- An exception is carved out for SBCs owned by VC/HF/PEF; no affiliation exists between portfolio companies simply because they share common investors.
Applicants self-certify in their applications that their company meets eligibility requirements. You should be certain of your compliance with the eligibility requirements before formally certifying as an SBC. Information on SBA size determination and protest procedures can be found at www.sba.gov/size.
Absolutely, and you should always check the individual agency websites (see Helpful Links) for exact information and instructions. Differences include the amount of available funding and award amounts, R&D topic areas, number and timing of solicitations, payment types & schedules, review process (internal or external), type of award (grant or contract). You can refer to the SBIR and STTR Policy Directive, Federal Register, Aug 6, 2012, which was reissued as part of the 2012 Reauthorization to see all of the legislative policies and get more background on agency requirements.
Internal review is done by panels composed of agency personnel. Agencies that review internally include the Dept. of Defense and the Dept. of Homeland Security. The National Institutes of Health and the National Science Foundation use external panels of experts from appropriate fields to do proposal reviews. Agency personnel do not score applications, but they manage the process.
A grant is an agreement to accomplish something for the public good in exchange for money, property or services. Specific topics for grants are typically investigator initiated. Agencies awarding grants are: HHS (NIH, CDC, FDA, ACF), NSF, USDA, DOE, and DED.
A contract is an agreement to provide a product or service that is of direct benefit to the awarding agency. Contracting agencies offer topics for response, typically with an 8-12 wk. window. Contracting agencies include DOD, DHS, EPA, DOT, NASA, DOC, DED and NIH (~5% of their overall SBIR budget).
Several agencies (e.g., DOD, HHS, DOE, NSF) have started Commercialization Assistance Programs (CAPs) over the past several years [for Army, Navy, and Air Force the term is Commercialization Readiness Program (CRP)]. Depending on the agency, CAPs are available to both Phase I and Phase II awardees and provide services by independent consultants in defined subject areas. Typically, slots are limited, so be certain to consult your SBIR/STTR program manager about the agency’s application procedures and deadlines to insure your participation.
The latest reauthorization of the SBIR/STTR programs has added a new option. Applicants can now request an additional $5,000 per year to pay for commercialization assistance by the consultant of their choice. (Note that if you choose this option you cannot also participate in the agency provided commercialization assistance programs). This budget item is above and beyond the maximum budget limits. For example, a Phase II proposal that requests the maximum budget to execute its technical plan, can add an extra $10,000 ($5,000 per year) for commercialization assistance over the two-year project. This expense must be described in the Budget Justification and supported by a letter of commitment from the consultant that will provide the assistance. Carefully review your specific Funding Opportunity Announcement to be certain this option is available in your situation and be sure to talk with the appropriate agency personnel to further determine what the best option is for your company. In addition to proposal development assistance, BBCetc is available to help with your commercialization needs.
Nine of the agencies (Dept. of Defense, Dept. of Energy, NASA, US Dept. of Agriculture, Dept. of Education, Dept. of Commerce, Dept. of Homeland Security, Dept. of Transportation, and Environmental Protection Agency) are required to issue notice of awards to applicants within 90 days of the submission date. The National Institutes of Health and National Science Foundation may take up to one year to issue award announcements.
Yes. However, the for-profit small business must be established prior to submitting the application, and it must be the primary place of employment for the proposed project’s PI at time of award. There are nuances within the various agencies so be sure to read the solicitation thoroughly. Note that these rules are different for STTR projects so, again, it is important to thoroughly read the solicitation.
Yes. For Phase I, the proposing firm must perform a minimum of two-thirds of the research and/or analytical effort. One third may be subcontracted other firms and/or research organizations/facilities. For Phase II, the proposing firm must perform a minimum of one-half of the research and/or analytical effort. Note that these requirements are different for STTR projects.
Under current SBIR rules, your small company can submit a proposal while you are still a virtual company, but you must meet all of the eligibility requirements described above before you can receive funding. That includes having employees of the company who do a certain percentage of the SBIR work in company controlled facilities. Depending on whether you are pursing SBIR or STTR, there will be additional PI eligibility requirements that must be met. Companies that intend to continue operating as virtual companies (e.g., without company controlled research facilities and employees) typically will not be qualified for an award.
Receipt dates and related policies vary by agency and are posted on our website, sbir.gov and the agency websites. SBIR Impact’s advice: Always submit early to give yourself time to correct errors by the deadline, since grace time is hard to come by.
As part of the 2012 reauthorization of the SBIR/STTR programs, Congress mandated additional measures to prevent Fraud, Waste and Abuse in the SBIR/STTR program. As a result, the Small Business Administration will maintain a Company Registry on their website at www.sbir.gov where companies will self-certify their eligibility during the life cycle of any SBIR/STTR awards. This site is scheduled to be active in early 2013.
In addition to “life cycle” certification, where and how companies perform on SBIR/STTR projects are also subject to additional scrutiny by SBA and the agencies, including:
- Accurate representation of company controlled facilities;
- Employment status of the Principal Investigator;
- Adherence to subcontracting guidelines;
- Submission of same deliverables for multiple awards;
- Duplicate awards for the same or similar work.