1. Financing Small Firm Innovation in the United States
The Small Business Innovation
Research (SBIR)
and related programs
Ronald S. Cooper, PhD Office of Technology

2. Background: National Policy Shift
1950s-1960s -- Federal role: support basic research in Federal labs, Universities., and large businesses
1970s- 1980s -- Policy shift towards: commercialization of federal R&D government-industry partnerships greater role for small business

3. Key Legislation Stevenson-Wydler Act (1980)
University and Small Business Patent Procedure Act (1980): Bayh-Dole Act
Small Business Innovation Development Act (1982): established SBIR program
National Cooperative Research Act (1984): A/T
Federal Technology Transfer Act (1986): CRADAs

4. Small Business Innovation Research (SBIR) Program, est’d 1982
Stimulate technological innovation
Use small business to meet federal R&D needs
Increase private-sector commercialization of innovations derived from federal R&D
SBIR Program today:
National program, providing over $2 billion each year to small businesses for innovation
Over 5,000 grants to about 3,000 firms each year

5. SBIR’s 3-Phase Structure
PHASE I
Feasibility of idea, proof of concept
$150,000 (1 year)
PHASE II
Full R&D, prototype
$1 million (2 years)
Commercialization plan required
PHASE III
Commercialization stage
Funded by private capital or (non-SBIR) federal funds

6. SBIR Funding & Structure
Set-aside: Federal agencies with external research budgets over $100 million must reserve 2.5% for small business through the SBIR program
Each Federal agency administers its own SBIR program
Solicitations (with technology topic areas)
Proposal review & selection
Criteria: scientific merit + commercial potential
Competitive: ~17% of Ph.1 proposals awarded ~55% of Ph.2 proposals awarded (~42% Ph.1s win Ph.2s)

7. SBIR Funding & Structure
SBA is lead agency with oversight responsibilities Issues Policy Directive National conferences Monitoring, evaluation Outreach programs Reports to Congress State activities
External evaluations by GAO, BRTRC, NRC, others

8. SBIR Participating Agencies
SBA—oversight
Defense (DOD)
Health (HHS, NHH)
Energy (DOE)
Science (NSF)
Space (NASA)
Security
Agriculture
Education
Commerce
Transportation
Environment
$ millions
$1,172
$595
$119
$95
$91
$19
$10 $6 $5 $4
Total~ $2.1 Billion
FY 2008

9. SBIR Eligibility Requirements
Small business located in the U.S.
500 or fewer employers
Organized for-profit U.S. business
At least 51% owned and controlled by U.S. citizens (individuals)
Principal Investigator’s primary employment must be with the small business
Research partners are allowed/encouraged (up to 1/3 of Phase I, up to 1/2 of Phase II)

10. Key Features (SBIR) Not a loan program
Uses grants & contracts, not loans.
No direct payback: payback = jobs, income, taxes
allows program focus on high-risk, early-stage research
no debt burden on firm
Small business owns the IP
government must protect IP for at least 4 years
government retains royalty-free license for government use only of technical data (IP)

11. Outreach & Assistance Initiatives
Outreach to bring in new firms. Is needed:
to maintain quality of proposals, cutting-edge research
to improve geographic dispersion (political support)
Federal support for state-level programs that support small firm innovation
Federal & State Technology Partnership (FAST) program (administered by SBA)
“63% of SBIR projects need assistance with commercialization activities”

12. Federal & State Tech Partnership (FAST) Program
Purpose: support state-level organizations that help small businesses in, or interested in, SBIR program
Mentoring networks, Business advice & counseling, Angel investment groups, VC matchmaking, University research
Matching grants to state-level organizations
incentive for states with lower levels of SBIR participation
administered by SBA
Target: All states eligible, one grant per state
Funding: FY 2001: $3 million, grants FY 2002: $3 million, grants FY 2004: $2 million, grants FY : $ FY 2010: $2 million, grants

13. Small Business Technology Transfer Program (STTR) Promoting Small Business-University Collaboration
Set-aside program to facilitate cooperative R&D between small businesses and U.S. research institutions
Established 1992, currently under re-authorization
Similar structure to SBIR, administered by SBIR offices
Funding:
Set-aside = 0.3 % of extramural R&D → $260 million
Agencies with extramural R&D > $1B must participate
FY2008: Phase I awards $75 million Phase II awards $186 million

14. STTR - SBIR Differences
STTR requires research institution partner
University or College / Non-profit research org. / FFRDC
- Research partner share: min.= 30% max.= 60%
- Award goes to small business (who subcontracts to research institution partner)
Requires written agreement allocating IPRs
Principal Investigator’s primary employment can be with small business or research institution

15. SBIR/STTR Program Impacts
Increases SB participation in Government R&D, procurement
Contributes new methods & technologies to Government missions
Enables startups, spin-offs, is often only source of funding
Induces further entrepreneurial activity “demonstration effect”
Enables small firms to develop innovative capacity
Catalyzes & complements private investment (reduces risk)
“Halo effect” investors recognize SBIR award as seal of quality
39% of SBIR projects have resulted in commercial sales
Addresses early stage innovation finance gap

16. U.S. SBIR & STTR Programs
Dr. Ronald S. Cooper Office of Technology U.S. Small Business Administration
For more information:
Contact individual agency websites
Cross-agency websites: