A Startup Guide to SBIR

Everything you need to know about the Small Business Innovation Research (SBIR) Program

Why it's worth reading

Small Business Innovation Research (SBIR) is an extraordinary funding source that:

  • Can provide millions of dollars for product development
  • Doesn’t take any equity
  • Creates an express sales lane to the U.S. Federal Government

But, most companies outside of Washington DC have never heard of SBIR so we wrote this guide to help start-ups understand the program and decide whether its worth exploring more.

Download A Startup Guide to SBIR
  • SBIR is kind of like Kickstarter in reverse:
    When the government needs something and existing suppliers don’t have a solution they can publish an SBIR describing what they want. Companies then propose solutions, and the government funds the development of the ones they like.  You keep your equity, they get the solution
  • SBIR funding is to corporate funding as lottery tickets are to your personal finances:
    If you’re serious about your company plan your funding as if SBIR doesn’t exist.  Then, if you win an SBIR you get a life changing infusion of non-dilutive cash, and if you don’t get the SBIR you haven’t lost anything
  • Don’t let SBIR distract you from your commercial goals:
    If you’re fundamentally focussed on commercial (non-federal sales) only pursue an SBIR if the solution the government needs is practically identical to a need your commercial customers have.  Don’t get distracted chasing “free money” from the government

Is SBIR a Good Fit for your company

Your company’s characteristics Typical type of companies in this group: Is SBIR likely a good fit
How fast you need $ # of products being developed Team’s technical credibility
We can be patient We have/ are building multiple product We have deep/ broad tech. credibility

Existing R&D co.

Existing product design co.

Companies with multiple varied products

YES! Start applying, this is a gold mine for you!

Your diversity of tech interests will allow you to apply frequently

Your previous R&D efforts gives you broad credibility increasing your chances of winning
We have limited/ shallow credibility

Existing technology services companies

Research labs

YES! Its a great way to de-risk a new product

Your years of diverse R&D (labs) or customer work (service co) allows you to apply for many SBIRs and confers credibility increasing odds of winning

Gaps can be filled from your deep “rolodex”
We have/ are building one product We have deep/ broad tech. credibility

Serial entrepreneurs who have an idea but who are either “not in a hurry” or have other sources of funding

Single product companies

Yes, if you’re patient/ have low expectations

You tend to be highly credible in your space

You may have to wait a long time for an SBIR that aligns with your focus
We have limited/ shallow credibility

Current government employees who want to leave and start their first co

First year grad students (typically STEM) who want to start their first co when they graduate

Yes, if you are VERY patient and/or your idea has too much technical risk for investors

The government is willing to take on more technical risk than commercial investors

You’re willing to submit lots of applications and are in no hurry to leave your current “hustle”
We’re almost out of money Either Either

Companies that are near the end of their runway and are struggling to get private funding

Grad students in their last year who want to start their first co when they graduate People who want to start a company “tomorrow”

NO! You can’t get money fast enough

If you need money to save your business SBIR isn’t going to deliver it fast enough to help

If you’re serious about starting a company then get started by boot-strapping or with a friends and family round and use SBIR as your Seed/Angel funding
G. Nagesh Rao
FormerChief Technologist and Senior Policy Advisor of the SBA’s Office of Investment & Innovation (2013-2018)

The government needs lots of things, most of which are provided by commercial vendors, but when there is no “commercial off the shelf” solution the government can use SBIRs to fund the creation of a solution opportunity to develop a federal revenue line and to join an ecosystem of innovative firms solving moonshot problems for the American public.

Why SBIRs Exist and Why You Might Care

Why SBIR exists

The government needs lots of things (for more on what they need HERE), most of which are provided by commercial vendors, but when there is no “commercial off the shelf” solution the government can use SBIRs to fund the creation of a solution.

  There’s an existing solution (buy it) There’s a solution that is “almost right” (Modify a near solution -AFWERX SBIR candidate) There is no existing solution (Make a solution -Traditional SBIR candidate)
Gov and industry have the same need

E.g. Trucks, computers, and IT services

(Buy from any vendor)

E.g.: Data analytics tools that need modifications to accommodate Gov data sets; or hardware that needs to be ruggedized to meet the DOD’s durability needs

(Fund modifications to a commercial solution)

E.g.: increasing energy density/stability in chemical batteries; an alternative to li-ion batteries for storage and transfer of power

(Fund the creation of a solution)
Gov has a unique need

E.g.: Weapons and intelligence services

(Buy from a defense contractor)

E.g. Communications & positioning technology that doesn’t require satellites; disabling drone swarms using electro-magnetic energy

(Fund the creation of a solution)

For A Government Perspective on SBIR

Government Officerss guide to SBIR (Master).001-1

 

Our Government Guide to SBIR:

  • Explains the SBIR program from the government's perspective
  • Provides tips to government officials about how to get the most from their SBIR program
  • Explores how SBIR can be fit into a larger R&D and acquisitions program

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How much money you can get

If you are building a product that addresses all or part of the need in an SBIR, you can get millions in non-dilutive financing to build it.

 

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More reasons to care

Some SBIR programs will provide even more money if you receive private investor funding:

Some agencies are experimenting with programs that provide additional SBIR money to winners that get subsequent investor funding. The process and amounts are constantly changing but generally have been very generous. For more details, check the SBIR topic and:

Many states have supplemental funding and support for SBIR winners

For perspectives on SBIR and investing see HERE

 

State SBIR fund matching (max): Site
Arkansas Phase I: $50K
Phase II $100K		 HERE
Connecticut Up to $30K HERE
Florida Fund matching HERE
Hawaii 50% fund matching HERE
Indiana 50% match up to $100K HERE
Iowa Up to $50K HERE
Kentucky Fund matching HERE
Massachusetts Phase I: $100K
Phase II $200K		 HERE
Michigan Phase I: $25K
Phase II $125K		 HERE
State SBIR fund matching (max): Site
Montana Up to $60K HERE
Nebraska Up to $100K HERE
New Jersey Up to $125K HERE
North Carolina Fund matching HERE
Rhode Island Phase I: $45K
Phase II $100K		 HERE
South Carolina Up to $50K HERE
Virginia Up to $75K HERE
Wisconsin Phase I: $75K
Phase II $100K		 HERE

 

Vijay.jpeg?width=500&height=500&name=Vijay
Vijay Ravindran, CEO
FLOREO. https://floreotech.com/

We've been able to offset meaningful product development costs and not have to use our capital that was raised through venture financing for those efforts

 

For our video interview with Floreo see HERE

If SBIR Was a VC, They'd Be One of the Biggest Investors in the World

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For More on an Investor's Perspective on SBIR

Investors guide to SBIR.001-2

Our Investor's Guide to SBIR provides practical perspective on:

  • Whether portfolio companies are a good fit for SBIR
  • SBIR impacts on returns
  • Investment risks associated with SBIR and how to overcome them

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The SBIR Lifecycle and How it Layers Onto Your Search for Product Market Fit

The SBIR Lifecycle

  1. SOMEONE AT A FEDERAL AGENCY HAS A NEED
  2. ACQUISITIONS OFFICERS LOOK FOR AN EXISTING SOLUTION AND CAN’T FIND ONE
  3. THE NEED IS SUBMITTED TO THE AGENCY’S R&D TEAM
  4. THE R&D TEAM DECIDES THAT IT IS A GOOD CANDIDATE FOR SBIR
  5. THE NEED IS RELEASED TO THE PUBLIC
  6. INTERESTED COMPANIES PROPOSE SOLUTIONS
  7. PROMISING SOLUTIONS ARE FUNDED FOR A PROOF OF CONCEPT (PHASE I)
  8. THE PROOFS OF CONCEPT ARE EVALUATED
  9. PROMISING PROOFS OF CONCEPT ARE FUNDED FOR A PROTOTYPE (PHASE II)
  10. PROTOTYPES ARE EVALUATED
  11. THE GOVERNMENT CAN BEGIN BUYING THE SOLUTIONS THEY LIKE (PHASE III)

 

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The Typical SBIR Timeline

  • It takes 4-10 months between publishing a need and Phase I starting
  • It takes 4-15 months between completing Phase I and starting Phase II

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For more on what the government is doing during this process see HERE

The Difference Between Traditional and Dual-Use (AFX) SBIR

Traditional SBIR


Key Characteristics

  • The government defines and publishes a need
  • Applicants propose a solution
  • The funding decision is largely based on whether the reviewers think you can deliver the tech


Benefits to a start-up

  • The government is more open to new and unproven solutions
  • A government office submitted the need so there is a known customer if you successfully deliver the solution


Challenges for start-ups

  • If the SBIR topics aren’t aligned to your tech then you can’t apply
  • Technical review is VERY long making it slow to fund
Dual-Use (AFX) SBIR


Key Characteristics

  • You find a government need that aligns with the commercial problem you focus on
  • You have a functioning commercial solution
  • You can prove that your solution works (generally by showing commercial sales)
  • The funding decision is largely based on the merit of the government need and your chances of connecting to a government customer
  • NOTE: You are not expected to have a fully functioning solution to the government need before applying. The SBIR funds are there to evolve your product to meet the government’s use case


Benefits to a start-up

  • You are assured of an aligned topic since you propose it
  • These SBIRs tend to fund MUCH faster


Challenges for start-ups

  • You need to have a functioning product and commercial traction

Layering SBIR Into Your Search for Product Market Fit

There is more detail in the Tracking and Evaluation chapter but this is how we think about integrating SBIR into the search for PMF

Treat SBIR like a lottery ticket

  • We say this a lot but we’ve seen too many companies hold off on starting development because they are sure that an aligned SBIR topic will come out.
  • If you are serious about your company then SBIR funding is not dependable enough and too slow moving to be part of your business plan

Keep track of your product road map, especially elements that will require significant development

  • Develop a sense for what kinds of features and functions you want to add, especially features and functions you don’t plan to build for a year or two.  These are excellent SBIR funding candidates

Keep track of relevant SBIRs that come out

  • Create alerts and spend 10-30 min a month seeing if aligned topics come out

Consider outsourcing your SBIR

  • There are some great groups that will track, build your proposal, and help you with the government admin and compliance so you can stay focussed on building your product while getting that sweet sweet non-dilutive federal funding

What Are Your Chances of Winning (Getting Funded)

“What are Our Chances of Getting SBIR Funding” Is the Wrong Question

Do not make business plans around SBIR funding.

After applying for, winning, and losing many SBIRs ourselves and helping dozens of companies evaluate, plan and write their SBIRs here’s what we recommend:

  1. Make your business plans as if SBIR doesn’t exist
  2. Follow our recommended approach to SBIR tracking
  3. If you happen to get SBIR funding then:
    1. Celebrate
    2. Evolve your product development road map to incorporate the additional work under the SBIR
    3. Evolve you funding plan to account for the extra cash
  4. THATS IT!

Despite the Previous Section Here’s a Formula for Your Chances of Getting Funded

Traditional SBIR

The chances of an aligned topic coming out

Dual-Use (AFX) SBIR

The chances that your product addresses a significant government need

X
Your chance of winning

X
The number of times you apply

Grant Rogers, CEO
Precision Procurement Solutions https://www.precisionprocurementsolutions.com/
The warfighters Know what they need, and the startups know how to build it, bridge the gap.

The chances of an aligned topic coming out

  1. Go to https://www.sbir.gov/sbirsearch/award/all
  2. Do a keyword search related to your product
  3. See how many products like yours have been funded and whether they were funded recently
  4. If there has been a lot of previous funding there’s a good chance more will come out

For more on predicting topic prediction see HERE and a review of hot topic areas HERE

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Jordan Levine, CEO
Dynamic Ideashttps://www.dynamic-ideas.com/
Developing a product is tough, SBIR helps identify forward thinking leaders inside the DOD who can help you fund and bring your technology to life

The chances that your product addresses a significant government need

Full government customer discovery requires significant research but for now we recommend:

  1. Limit yourself to one hour
  2. Search for white papers, speeches and other docs where Air Force or Navy officers talk about the problem you address
  3. If it's easy to find documents that’s a good indicator that the problem is probably big enough to get funded
  4. If its hard to find stuff the problem may be more of a nuisance and its less likely that the government will fund a solution

Your Chances of Winning

Across agencies:

  • Phase I win rate is about 15%
  • Phase II win rate is about 50%

For a deeper dive into:

  • Programs that are good for first applicants see HERE
  • Program win rates for woman and minority founders see HERE
  • Program win rates by the size of your company see HERE 

 

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Who qualifies and what you can do if you don’t

Who Qualifies

  • Companies (you apply as a company not as an individual)
  • It has to be a for-profit company
  • It has to be incorporated in the US (any state will do)
  • It has to be owned by one or more Americans (people)
    • If your company is owned, in whole or in part, by another company you still qualify as long as those companies are owned by Americans (people not companies)
    • If investors own a significant portion of your company, then talk to a lawyer. You’re probably ok but this can be an issue
  • The person leading product development has to be eligible to work in the US and has to be primarily employed (>50% of their time) on this project
  • The company has 500 employees or fewer
  • The company has to be registered in:
    • DUNS
    • SAM
    • SBIR.gov
    • The appropriate agency SBIR site

For help registering your company see HERE

What you can do if you don’t qualify

You don’t have a company: Incorporate one.  Most states have web-portals that will help you incorporate a new LLC in an hour

You’re a foreign company: Incorporate a US corporation that is majority owned by some Americans you trust (we can recommend lawyers to help)

The PI you want isn’t eligible to work in the US: Find a good project manager to be the PI or make you desired PI the lead technologist or another senior position on the team

You have more than 500 people: Theoretically you could split the company but this is really tricky for many reasons.  Talk to a lawyer and have a long think about whether it’s worth it…

Luke DeVore, SVP Design
Interactive https://designinteractive.net/
All three of our SBIR’s leverage our core architecture and code base and while they’re all very different they all feed intimately into the product vision

How are IP and licenses handled by the government

IP risks that are introduced by SBIR are generally mitigated

Activity Dangers to my IP How SBIR protects your IP
I have an idea for a solution to an SBIR topic I publicly share my idea (including publication as part of a patent)
  • NO SBIR protection
  • You aren’t in the SBIR program yet
  • Once you publicly share your idea SBIR IP protections go away
I submitted a proposal where I explain my idea Your proposal/idea gets shared
  • The SBIR review committees are very careful with proposals
  • Only government officers read it
  • In rare cases contractors will review your economic analysis but not your technical section
  • Be sure to mark confidential sections!
I’m building a proof of concept/ prototype using SBIR funds

SBIR funded IP shared through collaboration with the gov.

  • R&D progress reports
  • Samples shared
  • The government can not share technical data that is in writing or another physical form for 20 years
  • Be sure to mark proprietary sections!
  • What is protected can get a bit murky but if you’re careful the important parts should be protected
I’m building features and function using funds other than SBIR

NON-SBIR funded IP shared through collaboration with the gov.

  • R&D progress reports
  • Samples shared
  • Those technologies, features and functions are NOT protected
  • UNLESS the technology, features and function are so integrated with the SBIR funded ones that they can’t easily be distinguished. Then none of it can be shared

 

 

If in doubt talk to a lawyer

Who can use (license) your SBIR funded technology?

In theory everyone (in government)

In practice no one

The government reserves an unlimited license to use technologies built with SBIR dollars. So theoretically you build a solution for the Navy and then the Navy (along with every other government agency) can exercise that license to start building it for themselves.

THIS SOUNDS SCARY BUT IT ISN’T

Why do they want this license: Lots of SBIR companies want to do the R&D but don’t want to actually bring the resulting product to market. So to protect their investment the government wants to be able to use the tech if you don’t commercialize it.

BUT in practice this license is meaningless because:

  1. The government HAS NO MANUFACTURING: Name some physical product the government actually makes… You can’t. This is because the government makes NOTHING, so if you are building a physical product you’re safe
  2. The government can’t share your IP for 20 years: As described in the IP page the government can’t share the details of the technology you built for 20 years so they can’t just give your IP to another manufacturer to build
  3. You can add “keys” to your code: The government does have coders so theoretically if you build software then government coders could replicate and implement it without you. To avoid that make sure some critical elements of your solution were built using non-SBIR funds. That way they get the SBIR developed code, but not the privately funded code and voila, they have to come to you if they want anything to work

A common sense approach to tracking and pursuing SBIR

A low effort approach to SBIR tracking

  1. Assess which SBIR programs you are a good fit for you (NSF, Traditional, Dual-Use (AFX))
  2. Download the FedScout app
  3. Create searches/ alerts for SBIRs that are relevant to you
  4. If you are pursuing Dual-Use (AFX) SBIR: Begin customer discovery
  5. When alerts arrive
    1. If it is a traditional SBIR: Assess alignment between the topic and your commercial goals
    2. If it is a Dual-Use (AFX) SBIR: You define the need so there should be alignment
  6. Assess whether it is worth investing the time into a proposal
  7. Write a proposal

 

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Start Exploring SBIRs

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Download our free SBIR App

  • Create searches and alerts so you never miss promising funding
  • Evaluate you chances of winning
  • Get insight into each funding opportunity
  • Free on IOS and Android

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Or use our browser interface

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Paul Nemirovsky, CEO
dMetrics https://dmetrics.com/

SBIR has been instrumental in our development. Frankly it gave us our first grant when we had not much more than an idea. We knew there was value in what we had but the risk of investing in us was very large. The SBIR phase I was a big vote of confidence for investors to come on board

 

For our video interview with Paul see HERE

Which programs are a good fit

  The SBIRs available to you
How developed is your solution NSF Everyone else Dual-Use (AFX)
We have a truly cutting edge idea but there are major technical risks before it is ready for market YES    
We have an idea and there are some technical challenges   YES  
We at least have a prototype but little/no customer traction   YES  
We have a working solution, commercial customer traction, and there is a known Air Force/Navy need for it     YES

Assess Alignment

The closer the alignment between the solution the government ask for in the SBIR and the product you are building the better

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There doesn’t have to be alignment between your full product and the SBIR. If you full product is composed of three major components and there is good alignment between the SBIR and component 2 then you can use SBIR dollars for component 2 and focus your other capital on components 1 and 3

Is it worth investing 100 hours* into a proposal

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More SBIR and Government Market Resources

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Our resources section has everything you need to:

  • Understand the SBIR program
  • Explore the Government Contracting market
  • Get help registering your company
  • Master key GovCon topics

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Appendix

Glossary

SBIR: Small Business Innovation Research (SBIR) A program that funds corporate R&D and product development that the government is interested in

STTR: Sister program to SBIR that allows companies to partner with universities and other public R&D orgs for their product development.  For simplicity if we say SBIR assume we are including STTR unless specifically noted

Agency: There are 11 government agencies (e.g. Dept of Defense, the Environmental Protection Agency, etc) that participate in SBIR

R&D team: The teams within each agency responsible for buying, funding, or developing new solutions to their agency’s needs

Phase I: During Phase I SBIR funded companies have to develop and deliver a proof of concept solution to the need in the SBIR

Phase II: During Phase II SBIR funded companies have to develop and deliver a prototype solution to the need in the SBIR

Phase III: During Phase III SBIR funded companies sell their solution to the government.  For more on Phase III see HERE

Traditional SBIR: An SBIR where the government defines a need and may define how acceptable solution will meet that need

Dual-Use Technology: Technologies that have a commercial and government (typically Defense) applications

Dual-use (AFX) SBIR: An SBIR where the applicant identifies a need that can be addressed through their dual Use technology. Also referred to as the AFWERX or Open Topic SBIR

NSF SBIR: The NSF SBIR funds technologies that are much more technically risky than other agencies (bleeding edge ideas that may not work)

Topic: SBIRs are generally released in clusters, a topic is a single need statement within that cluster of SBIRs

Aligned Topic: When the need/work to be done under an SBIR topic is highly aligned to your existing or planned commercial product

Principal Investigator: The person responsible for delivering the solution under an SBIR contract

Methodology

Sources of data for charts: All data used to produce the charts was downloaded from:

https://www.sbir.gov/sbirsearch/award/all

The Timeline chart: The timeline data required significant cleaning reducing the n value

The discounted value of a proposal chart: We used the formula: (% of winning Phase I X (Value of Phase I + (% of winning Phase II X (Value of Phase II))))

Non-data driven analysis and recommendations: These are entirely the product of our experience directly participating in and helping companies thinking through, plan and execute in the SBIR program

An Overview of STTR

What it is:

  • Sister program to SBIR
  • Same intent: Fund small business development of solutions to government needs
  • A small business is still the applicant
  • Key difference is that that small business has to be partnered with a non-profit Research Institute (RI), which is general a university of Federal lab
  • The RI can do up to 60% of the work (under SBIR subcontractors and partners are limited to 30-50%

Unless STTR is mandated, or an RI has incredible leverage, choose SBIR:

STTR mandated: Sometimes the topics mandates using an STTR.  So, if you want to go after the topic you better find an RI

RI leverage: Talent and resources: If an RI has truly unique talent and infrastructure that you couldn’t afford AND That talent and infrastructure makes if much more likely that you will win and deliver the solution

RI leverage: They have the IP: Sometimes a university has incredible IP that is critical to a solution AND That IP would be extremely time consuming/expensive to create on your won

Why we don’t like STTR

Expensive: RIs tend to have massive overhead costs that they pass on to you

Future investors: Investors are VERY skittish about investing if they think someone else has claims on your IP (e.g. you developed it in partnership with an RI)

You can do it under an SBIR: Having an RI on your proposal lends lots of credibility and can absolutely help you win, but you can get that credibility by doing an SBIR and contracting out 40% of the work to them