Thursday, December 01, 2005

The Small Business Innovative Research Program

About SBIR and STTR Programs

The SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer) programs, two competitively awarded, three-phase Federal Government programs, are designed to stimulate technological innovation and provide opportunities for small business. These dynamic teamings of the private and public sectors include joint venture opportunities for small businesses and the nation's premier nonprofit research institutions.

Three-Phase Program:

Following submission of proposals, agencies make SBIR awards based on small business qualification, degree of innovation, technical merit, and future market potential. Small businesses that receive awards or grants then begin a three-phase program.

- Phase I is the startup phase. Awards of up to $100,000 for approximately 6 months support exploration of the technical merit or feasibility of an idea or technology.
- Phase II awards of up to $750,000, for as many as 2 years, expand Phase I results. During this time, the R&D work is performed and the developer evaluates commercialization potential. Only Phase I award winners are considered for Phase II.
- Phase III is the period during which Phase II innovation moves from the laboratory into the marketplace. No SBIR funds support this phase. The small business must find funding in the private sector or other non-SBIR federal agency funding.

I met with Mr. Darrell Williams, of the Washington Emerging Technologies Center, to learn more about the SBIR program. While many Presto Vivace clients have been SBIR participants or graduates, I had only a general understanding of the program and wanted to be fully informed. Williams’ company, WETC, has been hired by the government to explain the program.

Williams said that SBIR was a “business development program, no more, no less”. SBIR grants come in three phases: phase I which is the work plan, phase II, where the company builds a prototype, and phase III where the company is expected to raise its own capital and take its idea to production.

Williams said the single most important element of any successful SBIR proposal was the company’s business strategy. This is true in every phase of the program. Essentially, a proposal is a business plan. Evaluators also look at the company’s team; do they have a history of success in their industry? Evalators include well known authorities in their respective fields; it is important that the proposal be credible from a scientific and technical point of view.

Evaluators are not interested in investing our tax money in creating yet another government contractor. They are looking for business plans that propose products with a commercial use. (Some exceptions for the Department of Defense and NASA.)

Sometimes, evaluators will find two roughly equivalent proposals and will fund both for phase I, with the better work plan winning phase II funding.

Willimas said that the SBIR program is a great way for subcontractors to become prime contractors. A prospective grantee’s best strategy is to develop a proposal for a product their field. They should look at the current open solicitations and see if there is anything related to their business.

Williams and I agree that companies should not confine themselves to venture capital to fund phase III. (In some cases the government may offer matching funds, if the SBIR grantee can raise private capital.) A loan or line of credit from a bank may be more practical. It may even be possible to obtain funds from a large company who is interested in buying the product. Some SBIR companies have formed partnerships based on their intellectual property rights on the products that they have developed.

SBIR funding has several advantages over other types of capital. The government is not interested in owning or managing your business. SBIR grants are precisely that, grants. You don’t have to pay the money back. You retain complete control of your company.

Government evaluators are not faddists. They are not looking for the entrepreneur from central casting. They don’t care about your race or gender or if you have gray hair. They are looking at your business plan, your team’s professional experience and the scientific and technical information contained in your proposal. Potomac business culture is far more diverse and more stable than anywhere else in the country. The SBIR program is a contributing factor to this.

Related links
DC Certified Capital Company (CAPCO) Program

Maryland Investment Financing

The Virginia Small Business Financing Authority (VSBFA)

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