The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants are critical programs meant to foster innovation within the American economy. Enabling both young start-ups and mature companies to run R&D projects of national interest, these grants do not require stake dilution which means that the financial resources are provided to create value instead of being claimed to own it. While conventionally targeted at small businesses, their relevance to research-focused startup ventures and multinational organizations with operations in the United States indicates that these grants are critical levers of development and innovation.
Understanding SBIR/STTR Grants
What makes the SBIR program effective is that it offers funding to encourage firms to undertake risky projects that could offer very high returns. The program operates in three phases:
Phase I: A feasibility study that can be awarded up to $275,000 to demonstrate the viability of an idea in six to twelve months.
Phase II: Developmental targeted at prototypes or advanced R&D, providing $900 000/year up to $1 800 000 during two fiscal years from the date of Phase I milestone accomplishment.
Phase III: Commercialization, in which no direct funding is sought, but firms are expected to look for capital from other sources or from the federal government to expand their products.
Eligibility and Strategic Considerations
To be eligible for SBIR/STTR grants the business; has to be based in the United States; and has to be at least 51% owned by individuals who are U.S citizens. For STTR, to be eligible there must be a formal collaboration with a nonprofit research institution. However, obtaining such grants is highly competitive as the government agencies arts for the grant proposals that reflect their priorities.
Rather than being economic development silver bullets, startups and firms with significant global operations should view SBIR/STTR grants as enablers. For instance, companies in industries venturing into the American market can use these programs to develop their domestic R&D capacity and at the same time foster collaborations with federal agencies including NASA, the DoD, or NSF.
How SBIR/STTR Grants Benefit Startups and Global Companies
Although the financial advantages of the SBIR/STTR grants are apparent, the strategy of usage is wider than only the financial support. These programs offer startups and global firms a chance to prove their technology, get recognized by the marketplace, and build lasting partnerships with federal agencies. However, as the funding provided is non-dilutive, equity is retained and firms and their competitive advantage can grow without dilution as they move up the growth curve.
As mentioned above, establishing an international presence is also important to firms seeking an SBIR or STTR award because it can also strengthen that firm’s competitive position in the United States. The operating rules and procedures are intended to serve as a prerequisite to the application, making its strict adherence serve the same purpose of an endorsement on the part of the company as to its technological capabilities and readiness to bring innovations and reliability to the market.
At ERB, we focus on helping startups and multinational businesses to comply with the grants bookkeeping and accounting requirements.