SBIR and STTR programs: the private sector, public sector and university trifecta.

Author:Ford, Bryan K.
Position:Small Business Innovation Research - Small Business Technology Transfer Program


The landscape of research funding is changing in the 21st century. As it does, it is critical that university researchers collaborate with experienced entrepreneurs and funding sources to stay on the cutting edge of scientific progress. Within the United States, the entire process of university innovation to commercialization begins deep in university laboratories, where faculty, graduate students, and post-doctoral researchers engage in more than $40 billion of cutting edge research and development annually (National Science Foundation, 2006). However, the culture of the university often does not readily endorse quality research with rapid return on investment (ROI) through the traditional commercial process. The scientific community's endorsement of the quality of the research is provided through peer review of publications in leading journals and through attainment of leadership positions in the faculty member's relevant societies. In fact, most university research is years away from market readiness. It is a culture that is designed to be open, long-term, multidisciplinary, and focused on basic research.

The private sector on the other hand, has different cultural measures and outcomes. Corporate (industry) culture is more secretive and its research is typically shorter-term, lower risk, and focused on applied research for maximizing profits. This creates a cultural challenge for universities and private sector corporations that want to collaborate and transfer technology to the marketplace. General business development strategies are often ineffective in engaging a national audience of technology commercialization partners as the process of fully engaging with universities in research and technology transfer involves a clash of cultures and motivational factors that often stymies successfully transferring technologies to the private sector. Yet, university technology licensing to start-up companies is a growing phenomenon in the US and is funded by multiple sources. Approximately 600 new university spin-off companies are being formed annually. However, many university spin-off companies never recognize their full potential due to the management team's inexperience in fully utilizing university resources such as researchers and infrastructure to create maximum value, manage intellectual property issues and create shareholder wealth (NSF, 2006).

In 1982, the Federal government recognized the need to promote university spin-off companies and passed the Small Business Innovation Development Act. The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs were created to "ensure that the nation's small, high-tech, innovative businesses are a significant part of the federal government's research and development efforts" by teaming private sector expertise and university cutting edge research with public sector funding (, 2008, [paragraph] 1). In effect, the SBIR and STTR programs create a trifecta of resources to bring research to the marketplace. However, relatively few universities or private sector companies fully understand the programs or the process.

This article will enhance the reader's overall understanding of the commercialization process within a university to include a discussion of the advantages of participating in the SBIR/STTR programs, and to underscore the necessity of forming commercialization partnerships to maximize the potential for success of funded SBIRs/STTRs in Phase III.

NIH Small Business Innovation Research Grant, Phase I (R43) and Phase II (R44) and the Small Business Technology Transfer Research Grant Mechanisms Phase I (R41) and Phase II (R44)

The SBIR and STTR programs are distinct funding mechanisms for U.S. small business concerns (SBC) that are solicited within two annual "parent" NIH funding opportunity announcements (FOA), Program Announcements (PA), Requests For Applications (RFA), and Requests for Proposals (RFP), all of which notify the grantee/contract community of continuing, new, or expanded program interests for which grant applications are invited. Investigator-initiated SBIR/STTR projects submitted in response to Parent SBIR/STTR FOAs or to special PAs are reviewed by the NIH Center for Scientific Review, while RFAs and RFPs are generally reviewed by institutes or centers (ICs) within the NIH; those that will award grants under a specific PA or RFA are listed in the specific FOA.

The SBIR program is a Congressionally-mandated set-aside program (2.5% of an agency's extramural research and development [R&D] budget) for domestic small business concerns to engage in research/R&D that has the potential for commercialization. The STTR uses an annual set-aside of 0.30% of extramural agency funds. The Small Business Administration provides administrative oversight of the SBIR and STTR Programs through its Policy Directives.

The SBIR Program includes the following objectives: using small businesses to stimulate technological innovation, strengthening the role of small business in meeting Federal R/R&D needs, increasing private sector commercialization of innovations developed through Federal SBIR R&D, increasing small business participation in Federal R/R&D, and fostering and encouraging participation by socially and economically disadvantaged small business concerns and women-owned business concerns in the SBIR program. The STTR and SBIR programs are similar in that both seek to increase the participation of small businesses in Federal R&D and to increase private sector commercialization of technology developed through Federal R&D. The unique feature of the STTR program is the requirement for the applicant small business concern to collaborate formally with a U.S. research institution in Phase I and Phase II.

The SBIR/STTR Programs are structured in three phases:

Phase I: The objective of Phase I is to establish the technical merit and feasibility and potential for commercialization of the proposed R/R&D efforts and to determine the quality of performance of the small business awardee organization prior to providing further Federal support in Phase II. Support under Phase I normally may not exceed $100,000 total costs (direct costs, F&A costs, and negotiated fee) for a period normally not to exceed six months for SBIR and one year for STTR. Applicants to the NIH are advised to propose budgets and timelines that are appropriate for the scope of the scientific project.

Phase II: The objective of Phase II is to continue the R/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. Only Phase I awardees are eligible for a Phase II award. Support for SBIR and STTR Phase II awards normally may not exceed $750,000 total costs (direct costs, F&A costs, and negotiated fee) for a period normally not to exceed two years.

Phase III: The objective of Phase III, where appropriate, is for the small business concern to pursue with non-SBIR/STTR funds the commercialization objectives resulting from the Phase I/II R/R&D activities. In some Federal agencies, Phase III may involve follow-on non-SBIR/STTR funded R&D or production contracts for products, processes or services intended for use by the U.S. Government.

At NIH, deviations from the Phase I/Phase II statutory award amount and project period guidelines are acceptable but must be well justified and should be discussed with appropriate NIH staff prior to submission of the application.

The Phase I award is smaller in scope and more time limited than the full Phase II award. Twenty-three of the 27 NIH ICs offer these mechanisms; specifics such as project period and amount of award may vary. The Phase I awards are often designed to support the early stages of an innovative research concept by encouraging the applicant to use this mechanism to obtain preliminary data for a subsequent Phase II application. This may be ideal for small start-up companies with an academic researcher who often has teaching or agency obligations and needs some release time, yet is not ready for total immersion in a commercial research career.

Projects typically funded in Phase I include: (a) pilot or feasibility studies; (b) secondary analysis of existing data; (c) development of research methodology; and (d) development of new research technology. Phase I can serve as an important developmental step for a small business researcher partnering with an academic researcher, whether they are approaching the research enterprise as a practitioner-member of a research team or as a scholar-member of an agency team.

Reviews of all NIH research grant applications are based on the following criteria: significance, approach, innovation, investigator(s), and environment. In addition, reviewers assess the involvement of human subjects and protections from research risk relating to their participation in the proposed research, and adequacy of plans for care and use of vertebrate animals in research. The reasonableness of the proposed budget and the appropriateness of the requested period of support in relation to the proposed research may also be assessed.

Since the SBIR/STTR award is always made to the small business, the small business must have all of the necessary regulatory (i.e., OHRP and OLAW) assurances in place, regardless of where the animal or human subject research takes place. One advantage of the Phase I is that minimal preliminary data are not expected to be described in the application as they are for the traditional R01 mechanisms.

Two options are available to apply for a SBIR or STTR award: by an investigator-initiated proposal or in response to a special announcement. In the first, the researcher designs a project and then identifies an NIH institute with matching goals. The second and typically recommended approach is to identify a PA or RFA that...

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