In 1982 Congress passed the Small Business Innovation Development Act (P.L. 97-219), and reauthorized it in 1992. The act required federal agencies completing annual extramural research over $100 million to allocate a percentage of those funds for small businesses. The allocation began in 1982 at 0.2% and is currently 2.5%, making over $2 billion dollars available annually to small businesses.

The SBIR/STTR programs are 3 phase programs that provide small businesses with grants or contracts that do not require repayment, but do have specific required deliverables. Businesses compete for funding by submitting a proposal describing an innovative concept that addresses a particular agency’s need or interest. The proposal must include a detailed work plan for accomplishing the proposed research. Phase I normally focuses on examining the technical and commercial feasibility of a proposed concept. Phase II is used to develop and test the concept in preparation for Phase III, commercialization of the innovation.

What are the Differences Between SBIR and STTR?

SBIR: The Small Business Innovation Research (SBIR) program was established by Congress to provide increased opportunities for small businesses to participate in R&D, to increase employment, and to improve U.S. competitiveness. The program provides funding for research which is intended to stimulate U.S. technological innovation, use small businesses to meet federal research and development needs, increase private-sector commercialization of innovations derived from federal R&D, and foster and encourage participation by socially disadvantaged businesses. Legislation enacted in 2000 extended and strengthened the SBIR program and increased its emphasis on pursuing commercial applications of SBIR project results.

STTR: The STTR program awards contracts to small business concerns for cooperative research and development with a non-profit research institute (RI), such as a university. The goal of the congress in establishing the STTR program is to facilitate the transfer of technology developed by an RI through the entrepreneurship of a small business. The small business and its partnering institution are required to sign an agreement on how intellectual property will be shared between them. Modeled after the SBIR program with the same basic requirements and phased funding structure, STTR is nevertheless a separate activity.

Three Phases of SBIR/STTR
SBIR/STTR programs consist of three phases.

Phase I- Feasibility

All businesses must start with Phase I, which is used to explore the technical merit or feasibility of an idea or technology. Awards can be as great as $100,000 and businesses are normally given 6 months to complete the study. Only Phase I winners will be considered for Phase II awards.

Phase II-Prototype

Phase II awards are used to expand on Phase I results. During this phase, businesses normally develop prototypes and further evaluates the commercial potential of the project. Phase II awards can be up to $750,000 with businesses allowed up to two years to complete the Phase II study.

Phase III-Commercialization

Phase III involves the commercialization of the product developed during Phase I and Phase II. SBIR/STTR funds are not available for Phase III. Normally, Phase III funds come from investors, business loans, and state or government contracts.