What if I told you there is a funding opportunity in the US that is restricted to small companies, focuses on technology, and takes no equity (non-dilutive), debt stake (grant or contract, not a loan), or claim on Intellectual Property (IP) for what may be a seven-figure investment? The SBIR – Small Business Innovation Research – program has been operating since 1982, providing funding totaling over $2 billion per year, and giving early starting capital to companies that grow from there, including the likes of Symantec, Qualcomm, Intuitive Surgical, and Illumina.

History

The SBIR program came into law in 1982, founded by Roland Tibbetts, whose goal was to fund innovation that supports American companies and give them the support to take ideas to a stage where other private investors can take over. It was last renewed as part of the 2017 National Defense Authorization Act and is currently authorized to September 2022.All federal agencies with a large R&D budget are required to set aside part of that budget (3.2%) exclusively for small businesses with 500 or fewer employees, that are majority-owned by Americans and permanent residents. Eleven agencies administer SBIRs – the Department of Defense (DoD) and National Institutes of Health (NIH) are by far the largest and account for nearly 70% of the approximate $2.5 billion of funding.  The Department of Energy (DoE), National Science Foundation (NSF), and NASA provide under 10% each and the remainder is split between the other 6 agencies. Application processes vary between agencies, but there are common factors between them.The Small Business Technology Transfer (STTR) is a sister program to SBIR. It is similar, but requires the participation of an academic partner and is restricted to a smaller number of agencies, with a smaller set-aside. Aside from these differences, the broad strokes of SBIR also apply to STTR.

SBIR Phases

Most SBIRs start with an application for a Phase I – often a proof of concept – that is expected to take between 6 and 12 months, with funding for $100,000 to $400,000 (depending upon agency and project area.) Applications usually take the form of a 6 to 12-page technical proposal, a project plan, a commercialization plan, a single page budget, personnel biographies, letters of support, and other relevant information. The proposal is reviewed by a committee and typically awardees are notified and funded within 4 to 6 months. By the end of Phase I, the company has ideally demonstrated a proof of concept and its competency to take the project further.

Phase II is a more substantial effort with greater budgets – up to around 3 years and $2,000,000 (again, depending on agency and topic). Usually, an agency invites a company to apply for Phase II after a successful Phase I. There are some Fast-track and “Direct to Phase II” options, but they are unusual. The application is usually much more detailed; budget and timelines come under more intense scrutiny. Therefore, it is recommended for more seasoned applicants. By the end of Phase II, a successful project is usually expected to have something between a working prototype and a commercial product.

Phase III is the commercialization phase and receives no specific SBIR funds, though some agencies do have matching and follow-up funding. Agencies with very specific needs often try to ensure valuable technologies make it to market, such as the DoD connecting small businesses with primes like Boeing.

With a few months between Phase I and II, it can take as much as 5 years to get from application to the end of a successful Phase II – these are not small projects or commitments!

Application Process

Companies applying for SBIRs need to follow a few administrative basics – the first is setting up a for-profit company (e.g. an LLC, C-corp, etc) in the US, with >50% ownership by US citizens or permanent residents, and obtaining an Employer Identification Number (EIN) from the IRS. The company should then apply to Dun and Bradstreet for a DUNS – a unique identifying number. (They may try to sell you other services. Just keep telling them you need it for a federal grant application and you get it for free.) The next step is registering with the System for Award Management (SAM), in order to apply for government contracts. As you can see, all this takes some time and effort and can take a couple of weeks to complete. The SBIR.gov site has a walkthrough to help here.

Each agency has a specific application site. NSF uses Fastlane, the NIH uses eRA Commons, the DoD uses DSIP, etc. Each site has its registration requirements for the company and potentially the key investigation staff, that also may take a few days to set up. I usually tell applying companies to allow a month before submission to get this process completely done the first time. Subsequent applications are then much faster. Each agency, like the DoD, NIH, NSF, DoE, and NASA, maintains their own SBIR websites, while there is also an overall SBIR site, where more details on submission can be found.

Every proposal has key staff and a Principal Investigator (PI) who must work at least 50% of their time at the company. Proposed budgets may cover items such as salary for key staff, consultants, equipment, materials, justifiable travel, and reasonable overhead costs. The majority of the budget must be spent within the company (not outsourced), and any outsourced work should be done within the USA. 

Agency Specifics

As mentioned, each agency administers the SBIR in its own way. The DoD has very targeted needs and this is reflected in its methodology. Twice a year the DoD SBIR topics are opened up and each branch has several targeted topics. (For example, the Navy may call for the development of a more compact and higher performing SONAR buoy.) The application deadline is about 2 months after the topic release, after which the topic is gone.

The NSF has a different approach, with 4 deadlines a year and where a submission on any topic within its remit is encouraged. Companies can pre-submit a short description to the NSF and receive feedback on whether an application is warranted or not.

The NIH has a mix, with 3 submission dates per year for most applications, and similar to the NSF, the submissions can be anything within its broad remit. Applicants are usually encouraged to speak to the SBIR manager in that area to gauge general response, and as a courtesy, to let the NIH staff review. The NIH also has called on specific topics that run for a limited period (for example, one to two years), on areas of particular need. Dates on some topics may vary slightly.