The Complete Guide to the SBIR Program

What Is the SBIR Program?

The Small Business Innovation Research program is a large and competitive initiative run by the federal government with the one basic motivation of encouraging small businesses to invent. According to Matthew Weinberg, former senior advisor in the Small Business Administration’s Office of Investment and Innovation, the SBIR program represents the “crossroads of all paths of innovation,” showing the public sector represented and reflected in innovation and science. It’s a program that accomplishes the federal government’s global goals with the drive, intelligence, and imagination of American small business owners.

The SBA has four fundamental goals that it aims to accomplish with the SBIR program.

Goal #1: Meet the federal government’s needs for science and technology.

This goal ties into how the SBIR program works:

Different government agencies submit RFPs, or requests for proposal, to the SBA’s Office of Investment and Innovation. These requests detail the scientific or technological developments each agency needs—and small businesses on the right track for those developments can submit proposals in order to get SBIR funding.

For example, in 1996, the National Science Foundation needed a way to search through the fast-growing World Wide Web, so they submitted a request for proposal to the public that encouraged entrepreneurs working on this problem to apply for funding. The NSF gave funding to the Stanford Digital Library Project to “develop the enabling technologies for a single, integrated and universal digital library.” Two Stanford Ph.D. students joined the Project for their dissertation and invented something that you probably use every day, that product was Google. 

The government agency knew that it needed a smart way to search the internet, so it sent out a request—and when Stanford’s Digital Library Project submitted a proposal to solve the problem, they got funding to keep working. While Google owes its origin to the National Science Foundation, not the SBIR, the process is the same: a government agency submits a request for technology it needs, and small businesses rise to the challenge.

Whether it’s the next Google, a life-saving vaccine, or a new energy-saving kind of windmill, the needs of government agencies get met through the SBIR program—and by innovative small businesses across the country.

Goal #2: Improve commercialization of private-sector, federally funded research.

Make no mistake: The government doesn’t want innovation just to keep all these inventions to itself.

That’s why commercialization is important to the SBIR program. The Office of Investment and Innovation has to look closely at each proposal and ask: Will this be useful to other people? Will it turn this business into a success, improve the economy, and serve an actual purpose for the general public?

If the answers to those questions are yes, then the SBIR program is satisfied. Its goal isn’t scientific progress for progress’s sake: the government wants these breakthroughs to make a real difference. And, of course, to make some money. After all, the SBIR program is funded by taxes—so it’s important that your tax dollars are going toward inventions that will end up benefitting you, even if indirectly.

Goal #3: Foster scientific and technological innovation.

Sure, it’s abstract—but it’s still one of the SBIR program’s major goals. The fact of the matter is that the government cares a lot about our country’s innovation and encouraging small businesses to develop new technologies is a way to innovate.

There are plenty of ways that people measure innovation across countries, and the U.S. leads the pack in many metrics. According to a 2011 study, the United States ranks third in the “Global Technology Index” (behind Finland and Japan).^[1]

So while the United States isn’t exactly behind, it’s still important for us to remain competitive by striving to be the best. The SBA’s SBIR program is one way to do just that. With the SBIR program alone, our federal government has dedicated more than $41 billion over the past 35 years or so to scientific research and development, leading to the creation of around 70,000 patents and 700 public companies. Plus, nearly 450,000 scientists and engineers are involved with the program: one of the largest STEM concentrations in the entire world.

With those success statistics, the SBIR program is clearly one of the most important ways to make sure the U.S. stays at the head of the global science and technology pack, always innovating and growing.

Goal #4: Encourage innovation and entrepreneurship among socially and economically disadvantaged communities.

Finally, the SBIR program has dedicated itself to promoting these values of scientific development equally. This means including traditionally underserved communities—because areas with less power and privilege can absolutely contribute in huge ways to our country’s innovation, according to Weinberg. 

“The government’s ultimate goal isn’t to make a profit,” he says. “It’s to make sure these resources are invested equitably. It’s not our belief that innovation should only occur in a few geographical areas and be relegated to white males.”

Silicon Valley, while important, simply isn’t enough.

Plenty of studies show that increased gender, socioeconomic, and racial diversity, for example, improve how businesses are run, the quality of scientific research, and the way legal cases are heard. It’s been shown that diversity is good for our country’s bottom line—and the SBIR program recognizes how important it is to incorporate diversity into our scientific and technological developments.

And it’s had a fair amount of success: 23% of the SBIR program’s funding has gone to exclusively women-owned or minority-owned businesses, including EpiBone (founded by Nina Tandon) and Zyrobotics (by Ayana Howard). It’s not enough—around 30% of privately held firms are owned by women, for example—but it’s a good start.^[2]

The SBIR program has a number of initiatives to help increase the diversity of its small business applicants, like working with universities and traveling on a tour bus around the country but we’ll take a closer look at these later on.^[3]

How the SBIR Program Works

We’ll break down the application process for you, from RFP to Phase III and beyond. Then, we’ll take a look at how the SBIR program measures its own success from year to year.

SBIR Eligibility

The first question you should ask yourself is whether you have the type of business that can apply for the SBIR program.

According to their guidelines, you have to “qualify as a Small Business Concern (SBC) as defined by SBA regulations at 13 C.F.R. §§ 701-705.”

Here’s what that actually means:

1. Your business is for-profit.

Plus, you must be located in the U.S., operate primarily in the U.S., or give back to the U.S. economy a good amount through taxes and purchases. Pretty simple.

2. You fit a certain kind of legal entity type.

Those business entity types are: sole proprietorship, partnership, limited liability company, corporation, joint venture, association, trust, or cooperative. 

3. Your business is at least 51% directly owned and controlled by…

Citizens or permanent resident aliens of the U.S., other small businesses that are themselves at least 51% owned by the same, or some combination of the two.

In other words, you’ve got to be mostly owned by citizens or permanent residents—either directly or indirectly.

(Here’s some information on your business’s ownership percentages and why they’re important.)

4. You’ve got 500 or fewer employees.

Including affiliates.

And…

Finally, the SBIR program does allow businesses owned by venture capital firms, hedge funds, and private equity funds—as long as the majority of those owners themselves qualify as small business concerns.

Finding an SBIR Program to Apply to

When one of those 11 federal agencies realizes that it needs a scientific development or new piece of technology, it writes up an RFP—or a request for proposal.

These RFPs only last for a certain amount of months before expiring. They’ll include information on:

• The department that would be funding you
• The participating organizations
• The relevant dates and deadlines
• What sorts of scientific innovations are being looked for
• What sorts of businesses are eligible
• What you’ll need to apply

In short, an RFP will have all the information you need to understand who you’re applying to, when you’ll need to apply by, and what developments you’ll apply for.

Step 1: Find the Right SBIR Program RFP

The first step for you is finding the right request for proposal.

After all, your small business might be close to making a technological breakthrough or scientific discovery, but chances are high that it’s a pretty specific innovation. If the Department of Defense might give you funding, then the Department of Education probably wouldn’t.

Check the SBIR program’s RFP portal (make sure “SBIR” is selected in the filters on the left!) and narrow your search with relevant keywords or agencies. Check out the RFPs that seem plausible for your business and click the “official link for this solicitation” to see the full request.

Alternatively, you can go directly to each agency’s SBIR program page and peruse their specific requests. (Here’s NASA’s SBIR page, for example.)

Once you’ve found the RFP (or RFPs!) you want to apply for…

Step 2: Submit Your Proposal

This step is pretty straightforward: gather all the materials indicated on the RFP and submit!

When writing your proposal, make sure to follow the guidelines outlined by the RFP you’re submitting to, whether that means page limits and margin sizes, cover sheets, possible budgets, or anything else. In general, your proposal should describe your innovation, its relevance, and importance, show that it’s plausible, and propose a strategy for development and commercialization. (On average, SBIR program proposals take six to eight weeks to complete.)

Here are some additional documents or reference IDs you might need to attach:

• Letter of intent
• Business plan
• Cost proposal
• Technical proposal
• SBA company registry
• SBIR Application Certification for certain kinds of businesses
• Dun and Bradstreet Data Universal Numbering System (DUNS)
• System for Award Management (SAM)

And pay attention to the format of your proposal and attachments—some agencies have strict requirements regarding the file type and name of your application. 

Step 3: Evaluation

Your proposal will get evaluated by the relevant peer reviewers working for the agency you’ve applied to. These reviewers might be external, internal, or a mix of both.  Depending on your timing in the application cycle and the agency you’ve applied to, hearing back about your proposal could take anywhere from three to six months.

The SBIR program agency will evaluate your proposal based on three main criteria:

1. How well your proposal tackles the issue of the RFP.
2. The skills of you and your team.
3. Whether your innovation has the potential to commercialize.

What Happens If You’re Funded?

Phase I

If you’ve qualified for Phase I funding, which represents the concept development stage you’re eligible for over $150,000 of non-dilutive capital—the average is $158,000—over the course of six months.

According to the SBIR program, the goal of Phase I is “to establish the technical merit, feasibility, and commercial potential of the proposed R/R&D efforts and to determine the quality of performance of the small business awardee organization prior to providing further Federal support in Phase II.” In plain English, though, this is the period where your business works on the proposal concept, using that federal funding to figure out whether your proposal is actually workable in practice.

Phase II

So you’ve proven that your proposal is a workable concept that can benefit the government—and everyone else!—if it gets developed.

Here comes Phase II: the biggest round of funding offered by the SBIR program.

You’ll have to apply again, but this time around will be much simpler: your Phase I award should come with a timeline for your Phase II application, usually between eight and 20 months later. Phase II awards are given based on the results of your Phase I tests and research and are intended to fund the creation of an actual, workable prototype. In other words, Phase II is when you move from idea to product.

This stage of the program last for around two years and you can get over $1 million in federal funding. The average financing is roughly $920,000 overall, but it depends on your proposal as well as your federal agency.

The Navy, for example, gives Phase II SBIR program awardees anywhere between $500,000 and $1,500,000, as well as the chance to secure a second Phase II round of funding if you still need more money and funds.^[4] On the other hand, the National Science Foundation grants Phase II winners up to $750,000.

The SBIR program’s Phase II also comes with a few special opportunities you should be aware of:

1. Phase IIB

This is the official name for when you renew your Phase II application for another round of funding—like what the Navy offers. Other federal agencies offer this opportunity, too—like the Department of Health & Human Services—for research and development proposals that need a particularly long amount of time and large amount of money to get from theory to prototype.

One common cause for a Phase IIB renewal is the need for approval from a different government agency, like the FDA, to continue with research. If you think your product might need that extra time and financing, make sure to speak with your agency’s SBIR program representatives well in advance.

2. Fast Track

Some agencies have a “Fast Track” option, though the specifics of these programs might change from department to department.

The Department of Health & Human Services, for example, calls “Fast Track” its system of applicants submitting proposals for Phase I and Phase II together. On the one hand, you’ll get a lot of financing, guaranteed—without having to wait between phases for your application to get re-processed. But on the other, this option involves much more work and lower odds, which might deter you.

The Department of Energy notes that, if after Phase I efforts the results are not encouraging, then Phase II funding won’t be offered—even if you’ve been accepted with the Fast Track program. Its Fast Track awards of up to $1,725,000 go to “scientifically meritorious applications that have an especially high potential for commercialization.” 

What the Department of Defense calls its “Fast Track” program, however, is slightly different though. Instead of applying for the SBIR program’s Phase I and Phase II at the same time, you apply to Phase II when you’re nearing the end of your Phase I project: “within 150 days after the effective date of the SBIR Phase I contract,” although this timespan changes depending on which sub-branch you’re working with.

Be sure to check with your agency’s Fast Track rules before you apply, since you might save yourself time and energy in the long run.

3. Direct Phase II

Finally, some agencies—like the Department of Health & Human Services—offer a direct-to-Phase II program.

It’s just what it sounds like: you skip the Phase I application, and funding, to head straight to the bigger Phase II financing package.

Well, this pilot program is directed at small businesses that have “performed the Phase I stage-type of research through other funding sources” already. Phase I doesn’t make sense for these businesses—because they’ve already done the work.

Phase III

The SBIR program’s Phase III actually comes with zero dollars in funding because the point of Phase III isn’t to keep giving you government money as you research and develop your original proposal it’s the SBA’s goal to commercialize you.

Instead of getting a government grant through the SBIR program, you’ll either procure non-SBIR program federal funds through a contract with your agency or find private capital to keep financing your business. Basically, with a Phase III award, you’re very much in line to snag a substantial investment from beyond the SBIR program.

Those funds might come from a traditional source of capital, like an investment bank or private equity firm, or you might get a contract to work with the government. For example, the Department of Defense might want to extend a contract so you can keep working together, refining your technology. (But don’t worry—the small business owners will keep their intellectual property rights over their developments. That’s an important part of the SBIR program.)

Essentially, the SBIR program will try to match you with the best market for your technology or scientific innovation.

And though Phase III is a bit more complicated and difficult, the SBIR program has still managed to help around 700 companies go public—including Google—and led to the creation of over 70,000 patents. (That’s roughly a quarter of all utility patents granted by the U.S.)^[5]

The Bottom Line

“The government is committed to advancing innovation,” says Weinberg. And the SBIR program is “a special piece of the government that’s really, deeply responsible for thinking about how to make the future better, brighter, and safer for future generations.”

Whether you’re a small business owner looking to apply for funding, a potential entrepreneur on the search for inspiration, or an everyday citizen benefitting from the SBIR program’s many life-changing breakthroughs, you have the Small Business Administration—and the small businesses of the United States—to thank.

Article Sources:

1. Bloomberg.com. “The World’s Leading Nation for Innovation and Technology“
2. NAWBO.com. “Women Business Owner Statistics“
3. SBIRRoadTour.com. “SBIR Road Tour“
4. NavySBIR.com. “SBIR/STTR Program Phase II“
5. USPTO.gov. “U.S. Patent Activity Calendar Year 1790 to the Present“