The Ultimate Guide to SBIR/STTR Funds for Your ATO

SBIR and STTR Program Budgeting

The world advances based on innovation, and innovation can come from anywhere. The trouble is that the current capitalist economic system encourages large corporations to play conservatively with their products and their budgets while working to secure their own positions in their industries. It becomes quite difficult for a new small business to enter the field, especially if they’re trying to enter a field that requires substantial facilities, research, or resources to get established.

Even just performing research and development on a new product or trying to develop new technologies can present serious roadblocks. Many of those roadblocks are financial. This is why so much of the small and mid-sized business world relies on angel investors, venture capital firms, private equity, and other groups to back them while they work. It’s also why some companies present one simple, easy-to-operate service while working on something more complex behind the scenes. A great example is Uber, which developed the rideshare concept to support its overall initiative to develop self-driving vehicles (something that hasn’t come to fruition, much to their dismay).

Since innovation and ideation can bring an unknown small entity into the national or international stage, it’s clearly important to support these ideas, which is why the federal government has its own programs for investing in and encouraging small business innovation. These are the SBIR and STTR programs, collectively known as the Small Business Innovations Program. So, if you’re considering working with the federal government rather than your average venture capital firm, what do you need to know? Let’s go through it.

What is the SBIR Program?

The federal government’s SBIR program is the Small Business Innovation Research Program. It’s designed to help link small businesses and entrepreneurs with technology-focused ideas to the federal government agencies and entities that are looking to invest in those kinds of ideas specifically. The government often has programs where funding is granted for research, development, or augmentation of various technological innovations, but rather than trying to create programs to use that money from square one, they seek out existing small businesses already doing the work to grant funding.

The goal of the SBIR program is to boost technological innovation, use government funds for R&D, bolster participation from women and minority groups as well as entrepreneurs from disadvantaged communities or backgrounds, and generally increase private-sector commercialization of these developments and innovations.

Small Business Innovation Research Program

The program is very beneficial primarily because it’s simply a government grant. The business doing the research and development retains all of their IP and rights, and unlike venture capital and other investment firms, the government doesn’t take a share of the company’s equity. After all, since they only invest in US-based companies or citizen entrepreneurs, they get their cut in the form of taxes regardless.

The SBIR program is very competitive, with around a dozen government agencies participating, sizable amounts of money granted as funding, and thousands of applications to fight past every year.

What is the STTR Program?

The STTR program is the Small Business Technology Transfer program, and it’s very similar in concept and goals to the SBIR program. However, rather than working with the federal government and its agencies directly, applicants and recipients of the STTR program must instead work with nonprofit research institutions. This includes nonprofit colleges and universities, general nonprofit organizations, or federally-funded R&D centers, all of which must be domestic.

Small Business Technology Transfer Program

Collectively, the SBIR and STTR programs are known as America’s Seed Fund. The programs combined have over $1.3 billion in available funding, though obviously this is divided amongst all of the recipients, not given to just a few.

The Three Phases of SBIR/STTR

Broadly, the SBIR and STTR Programs can be divided into three phases.

Phase I is the introductory phase. This phase takes a business that is proposing a concept, and performs various analyses and research. The goal is to seek technical merit, analyze the feasibility of the project, and determine the commercial potential of the product when developed. This phase often lasts six to twelve months and grants are often in the range of $50,000 to $250,000 for that period.

Phase II proceeds based on the results of Phase I. If research indicates that the project warrants further investment, funding will be determined based on that prior research. Projects with greater potential – both technical, scientific, and commercial – can be granted greater funding. Funding amounts vary here but are often in the $750,000 range for a two-year period.

Determining Funding Based on Research

Phase III proceeds from Phase II with the goal of proceeding to full commercialization. Generally, though, the Seed Fund does not fund Phase III. Certain agencies may have their own independent additional funding or the ability to offer contracts or other resources, but generally only if the government will receive use of the product or service when it is developed.

Phases proceed one after another. You have to receive Phase I awards in order to be eligible to proceed to Phase II. In many ways, Phase III can be considered “graduating” from the program; if you’ve made it that far, you’re likely successful.

Who is Eligible for the Programs?

Eligibility is strict. If you have additional questions we haven’t answered here, you can ask us directly or check the official .gov page FAQ for SBIR.

SBIR and STTR Eligibility

First, you must be a small business with under 500 employees, and you must be located in the United States. The US government wants to fund domestic innovation, not foreign entities, after all. The business must have an EIN or TIN to be eligible.

50% or more of your company must be owned by either US Citizens or permanent residents. A US citizen can co-found a business with a non-citizen and still be eligible, but half or more of the company must be owned by US citizens or residents.

Additionally, these programs will not fund businesses that are majority-owned by multiple venture capital firms, private equity firms, hedge funds, or other entities of a similar categorization.

There are also requirements about how the money is used and how the company performs its research. All work funded by the programs needs to take place in the United States.

Entities applying to these programs must be for-profit businesses. SBIR and STTR do not fund nonprofit organizations. However, a nonprofit can be a minority investor in a relevant business or act as a subcontractor for that business without jeopardizing the business’s eligibility.

There are more specific definitions and examples of eligible and ineligible businesses in the SBIR documentation here.

On top of all of this, the SBIR program typically wants to invest in specific kinds of businesses. They provide a list of research topics to overview what they are more likely to invest in. It’s a massive document with many possibilities, so you can read an example here.

The long and the short of it is that there is room for a huge array of possible businesses and ideas, which means the hardest part is finding a way to develop a pitch that appeals to the relevant government agencies that would fund it. Grant pitch writing is a serious skill, and hiring someone to handle it is common.

What is a Principal Investigator?

Another requirement to participate in the SBIR/STTR programs is the assignment of a principal investigator. Who are they and what is their role?

A principal investigator, or PI, must be an employee of the small business (or, in the case of STTR, of the research institution). Their role is to be a knowledgeable, technical individual who directs the overall project being funded by the programs. There are no specific requirements for this because they can vary depending on the project; a company developing an app wouldn’t need an organic chemist, while a company working on a new medication wouldn’t need a software developer.

A Principal Investigator

If your company does not currently have someone who can fill the role of the PI, you are allowed to make a “contingent hire”; that is, to find someone who can serve in the role and commit to hiring them if you win the award. If you aren’t granted the award, you don’t need to hire them, of course.

Your PI must commit to working on your project. The actual commitment may vary based on organization, but it’s not uncommon for a project to require that the PI works at least 20 hours per week and at least one month on the project per six months of funding granted. In other words, you can’t “hire” someone to be PI but let them sit aside and be nothing but a figurehead.

Which Government Agencies Participate in SBIR/STTR?

The list of participating federal agencies, as of this writing, can be found here.

SBIR and STTR Participating Federal Agencies

This list includes:

  • The Small Business Administration
  • The United States Department of Agriculture
  • The Department of Commerce
  • The Department of Defense
  • The Department of Education
  • The Department of Energy
  • The Department of Health and Human Services
  • The Department of Homeland Security
  • The Department of Transportation
  • The Environmental Protection Agency
  • The National Aeronautics and Space Administration
  • The National Science Foundation

Each of these agencies administrates how much they offer and what kinds of projects they will fund. For example, the National Science Foundation’s page on their SBIR participation can be found here.

Additionally, some agencies have sub-agencies that participate in their own administration. For example, the Department of Energy also has the Advanced Research Projects Agency, and the Department of Commerce also has NIST and NOAA participating. The Department of Defense has a whole laundry list participating, including the Army, the Navy, the Air Force, the Missile Defense Agency, and more.

How do you leverage the SBIR funds to achieve the ATO?

Part of the role of the Principal Investigator is to ensure that those security rules are followed.

For example, there are general requirements for how much of the work is performed domestically by the business. You are allowed to outsource some of your labor, but the government does not want to fund a “company” that outsources 100% of its labor to foreign agents. To use the NIH as an example, they require no more than 33% of the work in Phase I and no more than 50% of the work in Phase II to be outsourced.

You also want to allocate some funding to develop and comply with FedRAMP and similar information security rules. The goal is to leverage the funding and support from RSO, AFWERX or any sponsoring organization to work towards your ATO (Authority to Operate). If you are a smart, you should also implement things such as CMMC framework and certification help protect controlled unclassified information handled by the federal government. This can help your organization potentially receive CUI during the R&D project. Since you’re receiving funds from the federal government – and in later phases, potentially working with the government on a larger scale leading towards becoming a Program of Record – you may find it beneficial or even required to adhere to CMMC earlier rather than later.

SBIR Funding Requirements

Unfortunately, going through the complete list of security controls, auditing and outlining all of your business processes, implementing robust cybersecurity, training your employees, and generally obtaining the authority to operate that NIST RMF Process can grant you is a tall order. It can be both time-consuming and expensive. Fortunately, you’re not required to get this in most cases, though if you’re working on a project with funding from the Department of Defense or as another part of the Defense Industrial Base, you may need to implement it sooner rather than later.

At Ignyte, we aren’t a provider of SBIR applications or assistance, but if you have to comply with any of the many different security frameworks, whether it’s CMMC, CNNSI1253, FedRAMP, HIPAA, or any of the dozen others we cover, we can help you leverage your SBIRs to accomplish this. It is important to know that not all SBIRs will cover the cost of a complete ATO but making deliberate and intentional progress towards this is a the key. It’s an understandably complex and confusing situation, and you’re already under a lot of pressure to make sure your SBIR application is properly formed – or that the money you receive is spent in the most effective ways possible.

This goes for any business, large or small, that intends to work with or as a contractor for the federal government or any of its agencies. We’re here to help, so feel free to reach out with any questions you may have.

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