SBIR and STTR 101

February 26, 2020
Rich Longo

Forward-thinking small businesses are likely trying to implement innovative technology into their marketplace constantly. For their efforts, funding is often necessary, but how should a small business owner proceed? The answer is simple: SBIR and STTR. Small Business Innovations Research (SBIR) and Small Business Technology Transfer (STTR) are congressionally-mandated research and development (R&D) programs. These programs are designed specifically to help small businesses that show signs of potential commercialization in the future (https://www.sbir.gov/about/about-sbir). Businesses that apply to the STTR program are required to partner with non-profit research institutions during the phases (more on this down below!). SBIR does not require this.

The funding these programs permit is only for research and development (R&D). There are direct costs associated with the R&D that are almost always permissible. For example, companies must pay employees and buy materials and supplies that help conduct research and further their technology’s development. Generally, these are costs that funding covers. However, if you are looking to promote your technology through marketing or advertising, you must allocate for this.

Applying for any type of funding can be time-consuming. However, we believe there are significant benefits beyond the equity-free R&D funding, such as:
 
  • Valuable Feedback 
    • This comes from technical experts and commercial reviewers. Every proposal received through NSF’s merit review process will receive feedback, even if the proposer does not receive approval to begin Phase I.
  • A Stamp of Approval
    • This is received when a Phase I or Phase II project is reviewed. It can be a confidence booster to investors and partners, as to the novelty and innovation of the underlying technology and technical approach.
  • Follow-On Funding
    • Only Phase I awardees may apply for a Phase II award, which is up to $750,000. Once a small business has obtained a Phase II award, it is eligible to apply for additional awards that could approach $1.5 million in total funding, including some of the supplemental opportunities available to Phase II awardees.​
  • Mentoring and Training
    • Program directors and workshops are available and add value.
  • Greater Range of Access and Networks
While funding is great and all, it can be difficult to pre-determine your chances of receiving. SBIR and STTR look to fund an idea that has yet to be attempted or successfully carried out. Additionally, if a small business makes advances that look to overcome challenges or obstacles that have thus far prevented success. These advancements should be significant and non-incremental. SBIR and STTR want an idea that can be implemented quickly. 
 
Let’s say an idea has been proven feasible once before and only analytical testing is necessary or the business plan needs to be executed, this project is not a good candidate for this type of funding.  

Eligibility

You’re probably wondering by now, “My small business is brand new… can I still apply?” The answer is yes! The NSF encourages small business owners with any amount of experience to apply. Interestingly, many SBIR/STTR Phase I awardees are newly formed and very small companies. The only catch is you must be willing to quickly prove there is room for research and development. It may be difficult if you are short-staffed or your target market is just beginning to grow. Entrepreneurs are also encouraged to apply for this award if they are willing to show a path to successful commercial outcomes. In short, as long as there is commitment to bringing the innovation to the market, anyone should apply! If awarded, it’s a great opportunity to take advantage of.

The majority (50% or more) of an applicant’s small business equity must be directly owned and controlled by U.S. citizens or permanent residents of the United States. After admission to the program, all work must be done inside the United States. At the time of application, your business needs to be a legal entity. This is a requirement for the necessary registrations associated with each program. 

If your small business is owned by more than one person, you might struggle to identify a Principal Investigator (PI). Ultimately, this decision should be agreed on in your company, but there are a few restrictions. The PI must be more than 50% legally employed and have no other conflicting agreements. A conflicting agreement is anything that consumes more than 19.6 hours per week on top of a fulltime work week (40 hours). This person must also have legal rights to work for the company applying (ex. citizenship, full-time resident of U.S., or a visa). At the time of submission, the PI can be employed by another company, but upon the award, the individual must be working with the applying business. Choose a person that is committed to this program and willing to put in the effort to be successful and advance your company’s ideas! 

For those that are currently in school at a University, graduate students and post-doctoral research are eligible; however, graduate training is not a requirement. In fact, a degree is not even required. There may be some challenges with choosing a university faculty member. Often times, SBIR or STTR agree that employment as a faculty member conflicts with the primary employment requirement. 

Preparation

Although SBIR and STTR seek new ideas, an executive summary may be worth submitting or reviewing with a program director. Program directors are able to be contacted at any time during the process. Reach out as early as possible! It’s not necessary to communicate with directors, but it can be helpful, nonetheless. There’s a lot that goes into a strong executive summary. Some key pieces of information you may wish to include are:
 
  • A description of the company and team
  • Market opportunity, value proposition and customers
  • The technology or innovation
  • Competition
  • Key technology risks 
Guidance and aiding is out there, you just have to look in the right places. 
 
The NSF Proposal & Award Policies & Procedures Guide (PAPPG) contains NSF's general proposal preparation and submission guidelines. The SBIR/STTR programs have solicitations that modify the general provisions of the PAPPG, and, in such cases, the guidelines provided in the solicitation must be followed.
 
The SBIR/STTR Phase I solicitations include MANY instructions that deviate from the PAPPG. As such, the solicitations strive to include, as much as possible, the rules and guidelines that proposers should know in order to submit a proposal, referencing the PAPPG when necessary. 
 

Phases

Fortunately, SBIR and STTR is organized into 3 phases that easily outline the process required to receive funding (https://sbir.nih.gov/about/three-phase-program). 
 

Phase I: Proof

SBIR and STTR need proof that you have thought about the potential for the proposal. If accepted, your efforts here will determine your funding for the continuation of the program. In this phase, you should be asking yourself, “How am I advancing my technology/innovation and am I moving it closer to commercialization?” You do not need to be ready to launch this to the market upon approval. You must only be able to demonstrate technical accomplishments. Only 1 proposal may be submitted to the same deadline. There are multiple deadlines throughout the year, which leaves plenty of time for preparation. After a proposal is submitted, it can be altered until the deadline. Proposals are never reviewed for early submission. It is always after the deadline. 

Phase II: Research and Development

This phase is dedicated to continuing efforts from Phase I. If you were not awarded Phase I, you are ineligible to apply for this phase. 

 

Phase III: Commercialization

When you have made it this far, your small business will begin to commercialize and implement the takeaways from your research. It’s important to note that the programs do not fund this phase. If the service/product is intended for the U.S. Government’s use, a Federal agency may choose to become involved. 

 

Some small businesses like to submit an identical or overlapping proposal to NSF (National Science Foundation) SBIR/STTR and other Federal agencies. This is acceptable IF the proposer includes that another agency has received this proposal. If the proposer fails to disclose this, he/she could be liable for administrative, civil, or criminal sanctions. In other words, disclose ALL information necessary. Better safe than sorry!

 

The SBIR and STTR programs can be excellent growth opportunities for small businesses or entrepreneurs looking to expand their ideas and launch something new through research and development. The process is lengthy, but reach out and connect with someone that can guide you or walk with you alongside the journey. SBIR and STTR funding has impacted hundreds of thousands of small businesses and growing companies! 


The Duquesne University SBDC provides free business consulting for entrepreneurs in the Greater Pittsburgh area. Click here to request free consulting, or contact the SBDC for additional help and information.

Rich Longo is a Business Consultant and the Interim Director of the Duquesne University Small Business Development Center where he assists new and existing businesses with developing and implementing business plans. He is also certified in Technology Commercialization. Rich has extensive experience with Federally Qualified Health Centers and has been a Senior Vice President of Network Management for Devon Health Services, Inc., one of the largest regional PPOs in the northeast. He has been an adjunct faculty member at Robert Morris University and the University of Pittsburgh.