How A Small Business Innovation Research Grant Can Help You

What do Qualcomm, Symantec, ViaSat and iRobot each have in common?

Each were recipients of the U.S. government’s Small Business Innovation Research (SBIR) grants.  iRobot received the most – six rounds of funding totaling $4.4 million.  Qualcomm received $1.5million. Symantec was the first recipient of the newly funded federal program established back in 1982.

The $275,000 of phase I and II grants awarded Symantec by the SBIR stands as the poster-child success story for government and private collaboration. ViaSat leveraged its SBIR grant success into more than $175 million in Department of Defense contracts that propelled the company to its current position in the communication technology field.

The SBIR program provides grants to small businesses to conduct research of innovative concepts that meet specific government priorities principally in the defense and health fields.  Because of the high risk of failure associated with this type of research, the private sector is typically unwilling to invest in it.

Congress must periodically fund the SBIR program and President Obama signed the National Defense Authorization Act for Fiscal Year 2012 on December 31, providing a six year extension of funding.  In addition, Congress enhanced the mandatory amount a participating agency must allocate to small research firms, to 3.2 percent of its research and development budget from 2.5 percent.

The increase is phased in over 10 years, beginning in the fiscal 2013 budget.

Small business, as defined by the SBIR program, is a U.S. domiciled enterprise of less than 500 employees whose majority owners (51 percent) are U.S. citizens.  The relatively low qualifying threshold allows most businesses access to the program.  The increase in mandatory allocation of research funds translates to about $180 million more in the kitty over the next 10 years based upon prior year SBIR spending of $2.3 billion.  More money available should incentivize small businesses that have not sought government grants in the past to consider this option.

Other provisions of the program extension increases phase I grants by 50 percent to $150,000 from $100,000.  Phase II awards increased about 33 percent to $1 million from $750,000.  The amount of the award can increase up to 50 percent, if warranted by the agency, without any type of additional effort by the awardee.  Thus, if the respective agency deems a business to have promising technology it can  “fast-track” additional funding for phase II research while phase I is underway. The increase in the dollar value of each grant sweetens a successful application allowing promising research to take place.

Arguably the most significant change in the SBIR program affecting small businesses is the amendment allowing venture capital (VC) firms to own a majority interest in the organization receiving the funding. This amendment was a sticking point since it was backed by the National Venture Capital Association (NVCA) and some feared that non-VC backed business could be short-changed.

Nonetheless, the amendment passed and VC majority owned entities can receive up to 25 percent of the total SBIR funding for the Department of Defense, National Science Foundation and the National Institutes of Health.  Other participating agencies will allow up to 15 percent of SBIR funding to go to VC majority owned businesses.  Small businesses will now likely turn this into a sweetener for potential VC investment without fear of tainting their SBIR eligibility.

How does a qualified small business take advantage of these grants?

The best place to start is the SBIR Web site, www.sbir.gov.  The Web site provides hyperlinks to the various participating agencies to view current open solicitations and register with the program.

The competition is tough but the rewards of winning a SBIR grant are significant.  Not only is this free money, but the technology validation and credibility obtained by winning a grant help establish a company for future investment.

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Sean Haggard is a tax manager with the accounting firm Kaufman Rossin in Boca Raton, Fla.