The Small Business Innovation Research Program (SBIR) is the federal government's most important research and development funding program for small businesses. It was established by the passage of the Small Business Innovation Development Act of 1982. SBIR, at the time of its passage, required by law that any federal government agency with an extramural research and development budget of more than $100 million set aside 1.25 percent of those funds for the development of high tech small businesses. When the original law expired after ten years, Congress reauthorized SBIR and increased the agencies' contributions to 2.5 percent in 1992. By the latter part of the 1990s, total SBIR funding had reached some $1.2 billion. In December 2000 the program was reauthorized—with $1.5 billion in annual funding—for another seven years.
The Small Business Administration (SBA) serves as the coordinating agency for the SBIR program. It directs implementation of the program among participating agencies, reviews their progress, and reports annually to Congress on the status of the program. The SBA is also the information link to the program, collecting solicitation information from participating agencies and publishing it in quarterly Pre-Solicitation Announcements (PSA). These announcements are the single source for the topics and anticipated release and closing dates for each federal agency's solicitations.
By 2000, ten federal agencies were participating in SBIR, bestowing research and development funds to small businesses in an array of industries. Participating agencies include the Departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, and Transportation, as well as the Environmental Protection Agency, the National Aeronautics and Space Administration, and the National Science Foundation. According to Science magazine, 96 percent of the total SBIR budget from all agencies comes from the Departments of Defense and Energy, the National Institutes of Health, National Aeronautics and Space Administration, and the National Science Foundation.
These agencies set aside seed funds to help small businesses develop innovative high-tech ideas whose commercial appeal may by some time in coming. Each year the agencies release for consideration more than 3,000 technology topics under which businesses may apply. The topics speak to specific program problems or needs and may be found in the quarterly Pre-Solicitation Announcement (PSA), which is only provided online.
To be eligible for SBIR funding, a small business concern must be American-owned, independently operated, for-profit, and employ fewer than 500 people. Nonprofit organizations are not eligible for SBIR awards.
The SBIR program comprises three phases. This approach allows the government agency to invest a small amount in the beginning and then increase their financial support later should the idea show promise. Once the project nears completion, funding drops off and the business must solicit capital from other sources.
Phase One - The Concept Stage . In this stage, individual awards of up to $100,000 are distributed to enable businesses to conduct approximately six months of preliminary investigations into the feasibility of their proposed project. At this point, business owners must have a well-formed idea for an innovative product and a specific plan for how to transform it into a commercially viable form.
Phase Two - The Prototype Development Phase . This phase, for which only Phase One entrepreneurs are eligible, provides additional monies (up to $750,000 over 24 months) to be used toward developing a prototype. From here, determinations are made about whether the product is a success or a failure and whether or not it is commercially viable. About 40 percent of Phase One ideas reach this second stage.
Phase Three - The Commercialization Stage . In this stage, states the SBA, "Phase Two innovation moves from the laboratory into the marketplace." No SBIR funds are used in this stage. Instead, funding must be secured from the private sector or other non-SBIR federal agency funding.
For more information on the SBIR program, contact the Small Business Administration's Office of Technology in Washington, DC. The SBA's web site is www.sba.gov .
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"What Do You Call a Federal Program that Requires No Additional Federal Spending, Costs Virtually Nothing to Administer, and Yields Venture Capital-Like Returns?" Inc. , January 1993.