SBIR — the largest source of non-dilutive capital for early-stage companies
Sometimes it takes more than a great idea.
As someone who has worked with startups for a number of years, I know firsthand just how difficult it can be to secure funding for a new venture. While Angel Investors and Venture Capital firms continue to be a prime choice for tech companies, one that many startups overlook is federal funding opportunities. In this article, I will delve into the process of applying for Small Business Innovation Research (SBIR) programs and offer insights into this program which is the largest source of non-dilutive capital for early-stage companies based in the United States.
Before we dive into the specifics of applying for SBIR programs, let’s first discuss what they are for and why they can be beneficial for you as an early-stage company.
SBIR Federal Funding Program was launched in 1977 to support the financing of cutting-edge technologies developed by small businesses. every year, close to 4 billion goes to US-based companies through various federal agencies and hundreds of programs.
Today, with the help of the SBIR grants, companies can secure close to 2 million in non-dilutive funding to commercialize their product/services with 0 equity at stake.
One of the biggest advantages of SBIR is that they do not have to be repaid and the government does not take any equity from the companies. This makes them an attractive funding option for startups that may not have the financial resources to take on debt or the risk of equity financing. Additionally, receiving an SBIR can help legitimize your business in the market and make it more attractive to other investors.
Where to find a right SBIR program
One of the challenging things I have been noticing is the company’s ability to find the right SBIR funding opportunity that can be a good fit or can offer a sufficient amount of capital that the company needs.
In today’s overcrowded information landscape, you do not have to be all over to look for SBIR funding. Here are the top 3 resources to consider for your search strategy:
- Grants.gov is the official government website and the largest source for finding and applying for federal grants. It has a robust search engine and offers a variety of options to search for funding. You can do the search by keywords, by industry, or simply by the type of organization. At Grants.gov you can also find the full application package and instructions for submitting your application. Compared to other websites, Grants.gov is the platform that many agencies use to manage application submission processes.
- SBIR.gov is the official website that offers all the SBIR-related funding opportunities. You can search active funding opportunities using the “Topics” area or “Solicitations” There you can find all the solicitations that currently are open.
- Agency SBIR program websites are another path to take for the SBIR funding opportunities. While the previous two sources look for funding for every technology industry, Agency SBIR Program websites provide information on specific agency SBIR programs.
Types of SBIR Federal Funding Programs — SBIR, STTR, and More
There are several types of federal grants available for startups. The most popular types of federal grants for startups are Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants. SBIR grants are designed to support small businesses that are engaged in research and development activities. Similar to SBIR grants, Small Business Technology Transfer (STTR) grants are designed to support research and development for small businesses but require a research partnership with a university or research institution. Through SBIR|STTR
Other types of federal grants for startups include America’s Seed Fund powered by the National Science Foundation (NSF) which funds startups to create the next game-changing technologies often based on fundamental science or engineering in need of research and development to create new products, services, and other scalable solutions; Economic Development Administration (EDA) grants which are designed to support economic development in areas that have been impacted by economic distress.
Department of Agriculture (USDA) grants designed to support rural businesses and agricultural industries; Commerce Department National Institute of Standards and Technology (NIST) that aims to advance measurement science, standards, and technology in order to enhance economic security and improve our quality of life.
Each Agency program has its eligibility criteria, funding limits, and application requirements. It is essential to research and understands the different types of federal grants available to determine which one is right for your startup.
Eligibility Criteria for SBIR
To be eligible for SBIR federal funding program, startups must meet certain criteria. These criteria can vary depending on the grant program, but typically includes factors such as:
- Organized for profit, with a place of business located in the United States
- More than 50% owned and controlled by one or more individuals who are citizens or permanent resident aliens of the United States, or by other small business concerns that are each more than 50% owned and controlled by one or more individuals who are citizens or permanent resident aliens of the United States; and
- Being a small business with no more than 500 employees.
It is important to thoroughly review the eligibility criteria to ensure that your business meets the requirements.
The Three Phases of SBIR/STTR
The SBIR Program is structured in three phases offering various funding limits to startups. This funding limit can be varied based on the Agency and Program type.
Phase I. The objective of Phase I is to establish the technical feasibility, and commercial potential of the proposed R&D efforts and to determine the quality of performance of the small business awardee organization prior to providing further federal support. Generally, SBIR Phase I offers $50,000 — $275,000 for 6 months 12 months projects. One of the advantages of Phase I is that only Phase I awardees are eligible for a Phase II award.
Phase II. The objective of Phase II is to continue the R&D efforts initiated in Phase I. Funding is based on the results achieved in Phase I and the scientific and technical merit and commercial potential of the project proposed in Phase II. SBIR/STTR Phase II awards are generally $500,000–1 million for 2-year projects. Recently, some agencies have started to offer also investment incentives to Phase II awardees offering ~$500,000 matching funding if the companies bring additional investments from third parties.
If you’re a growth-stage company looking for SBIR funding, schedule a call with an iFund Lab advisor today to learn more about available grants and eligibility criteria. Send a call request at funding@ifundlab.com
