The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs are aimed to support critical R&D work performed by small businesses to accelerate technology towards commercialization. Small businesses must be less than 500 employees and owned and controlled by US citizens or permanent resident aliens of the US. All proposed SBIR/STTR grant project work must be performed domestically. While SBIR allows for partnering with a non-profit research institution, STTR requires a partnering research institution that will perform at least 30% of the proposed work.
The SBIR program is a federally funded program across eleven different agencies: SBA, US Dep. of Agriculture (USDA), Dep. of Commerce (NOA and NIST), Dep. of Defense (DoD), Dep. of Education, Dep. Of Transportation, Dep. of Homeland Security, Dep. of Health and Human Services (HHS, of which NIH, CDC and FDA are under), EPA, NASA and the National Science Foundation (NSF). (The STTR program is across a smaller subset of agencies: DoD, USDA, HHS, NSF, DOE, and NASA.)
Broadly, most agencies support the sequential funding of Phase I ($50-400,000 budget, varies across agencies, for 6-12 months of work) to Phase II ($750,000-several million budget, for 1-several years. For NIH and NSF, NIH offers two other SBIR/STTR funding mechanisms: the Fast-Track (applying for Phase I and II work once) and Direct-to-Phase II (establishing technology feasibility at a level that supports by-passing Phase I to Phase II). NSF has announced it is piloting a new Fast-Track program.
The five biggest challenges that start-ups encounter when preparing for SBIR/STTR grants:
1. Completing Federal Registrations to Apply for Grants
As an academic entity, your university is already registered and established to do business with the federal government. When you start a new company, it must be registered in specific federal databases in order to be eligible to submit an application for a funding opportunity. In order to start the process of registrations in these databases (like sam.gov, grants.gov, sbir.gov, Research.gov and eRA commons/ASSIST), you will need to submit official documents on company ownership/contact info, formation/registration of the legal entity (small business) with the state and IRS, and establishment of a business checking account. Sam.gov is the federal database in which companies must register to do business with the federal government. This database specifically is the most challenging for registration. It can go as quickly as a few weeks or be stretched out over 3-4 months. The process can be lengthened when administrators accepting your information on behalf of sam.gov observe issues with the provided company information, when it does not align with registration requirements. Registrations can pose unique challenges for companies operating virtually. You can complete these on your own or pay a company to assist you. To reduce the risk of missing deadlines, give yourself at least 2-3 months to complete all of your registrations, which will be clearly stated in the solicitation.
2. Identifying a new Principal Investigator
While this may seem fairly obvious to academics, SBIR/STTR grants pose a challenging requirement for some around serving as a PI. For NSF SBIR and STTR grants, the PI must be 51% employed by the small business concern (SBC) at the time of grant award and for the duration of the project.
For HHS/NIH SBIR, the PI requirements are the same as NSF. However, for HHS/NIH STTR, companies can select from one of two PI options: 1) the PI is 51% employed by the SBC, OR 2) the PI maintains his/her/their faculty position at the partnering, non-profit research institute AND is affiliated with the SBC by holding an office.
For some academic founders, they may not want to serve as the PI of an SBIR because they prefer not to leave their faculty position. (Some faculty alternatively could take a sabbatical and meet the SBIR PI requirements.) Additionally, some academic founders will have maxed their time on other academic grants (percent effort/year across all grants) so they cannot give the PI minimum required effort for an STTR project.
Another consideration of selecting a PI for both NSF and NIH is to find someone with past funded grant experience and with technical expertise in the area of the grant project. When start-ups are composed of teams with experience only in business and not research, then time must be committed to finding a new PI if they seek to apply for SBIR/STTR grants.
3. Building a Budget that meets SBIR/STTR Requirements
The SBIR/STTR program poses another requirement around which it can be challenging to plan: set percentages of the budget control how much of the proposed work can done by the company versus contracted out. For both NSF and HHS/NIH SBIR Phase I projects, a maximum of 33% of the budget can be contracted out (to subawards like a university and consultants collectively); during an SBIR Phase II this increases to a maximum of 50% contracted out. (In terms of personnel, the difference between “in house” and “contracted out” is defined through IRS guidelines. Employees are issued W-4s and contracted workers are issued 1099s.)
For both NSF and HHS/NIH STTRs, Phase I and II projects have the same minimum requirements: a minimum of 40% of the budget must be performed by the small business and a minimum of 30% of the budget performed by the single partnering research institute.
Additionally, as mentioned previously, the SBIR/STTR program requires that all work is performed domestically. So regardless of whether a company has existing business relationships with collaborators, CROs, or consultants globally, for the purposes of an application, domestic vendors and personnel must be selected. Both of these aspects of the SBIR and STTR programs can require companies to be flexible in planning their R&D scope of work and personnel compensation to meet budget requirements.
4. Performing Primary or Secondary Market Research
SBIR/STTR programs provide funds to perform R&D but the ultimate goal of this funding is to support the technology’s commercialization. For this reason, your application will require a basic understanding of business topics relevant to your technology’s commercialization process, such as market opportunity, customer segments, fund-raising, marketing, product pricing and reimbursement, manufacturing, and regulatory aspects. In order to be competitive for even Phase I-level applications, you may need to perform market research to develop a preliminary business plan. If you don’t have a business background, resources that can help you learn how to perform market research and to receive business advising and feedback on your business plan are likely available at your local, regional, or state level (i.e., entrepreneurial centers and/or office of technology management and technology transfer at universities, organizations that support economic development like the Small Business Development Center, business accelerators and incubators) and can be located with a google search.
5. Recruiting New Team Members to Fill Professional Gaps Needed to Complete the Project and Commercialize the Technology.
Executing an SBIR/STTR project requires team members who have experience both in: 1) completing the project (i.e., R&D vs. engineering vs. clinical work vs. manufacturing), and 2) commercializing this type of technology. Reviewers will be evaluating SBIR/STTR applications for both of these types of skill sets: technical expertise and start-up/business experience. For this reason, founders or start-up teams may be lacking in one of these areas and will need to find and recruit new team members to put on the grant application.
As an example, a founder may have research experience in the area in which they are developing a drug. For their Direct-to-Phase II application, they are proposing to perform a clinical trial and fail to include a clinician who regularly treats the patients they intend to recruit for the proposed clinical trial. Additionally, a founder lacking the ability to write software code may propose in their project to develop an app without the inclusion of a team member who can perform that task.
New team members or collaborators can be recruited for a grant project through networking, looking online at the research area/expertise of faculty and individuals on websites for federal laboratories, universities and LinkedIn, attending conferences, trade shows, local entrepreneurial events or competitions, and asking a local SBDC Tech Counselor for advice on local resources in this area.
