Staying Alive Through Small Business Research Grants—A Primer

12/5/08Follow @bvbigelow

The panel discussion that CommNexus organized yesterday in San Diego was intended for the telecom association’s military special interest group. But since the financial markets tanked and credit dried up, many fledgling technology companies might also be interested to know how to tap federal small business research grants.

Good thing Xconomy was there, eh?

The Small Business Innovation Research program, or SBIR, which some speakers called “sibber,” could be a lifeline for startups trekking through the Valley of Death. The SBIR program and the Small Business Technology Transfer program, or STTR, provide more than $2 billion a year in total grants. Both are managed by the Small Business Administration and they are the largest source of early stage R&D funding for U.S. small businesses, typically providing as much as $850,000 to small companies developing advanced technologies sought by the government in specific areas.

In getting this funding, companies with fewer than 500 employees incur no debt, give up no equity, and can retain their proprietary data for five years. The company also can keep its prototype and any equipment purchased with SBIR funding. Applicants do not have to be incorporated. Startups with venture capital funding and private or public investors are eligible for SBIRs, provided at least 51 percent of the company is privately owned.

The panelists were Robert Fagaly, senior research scientist with Quasar Federal Systems in San Diego; Robert Cogan, a patent attorney and partner in the San Diego office of Nath & Associates, and Steve Stewart, SBIR program manager in San Diego for SPAWAR, the Navy’s Space and Naval Warfare Systems Command.

Cogan provided an overview of the SBIR program and served as panel moderator. Among the key points that he made:

—SBIRs are a great tool for building technology companies, and are generally more practical because STTRs require working in partnership with university researchers.

—”Some people just fool around with the SBIR for a couple of years and then discard it,” Cogan said. “The difference between people who use SBIRs to build a company and someone who just fools around with it is generally your approach or philosophy.” The right approach requires showing how the technology would meet or exceed the government’s requirements and demonstrating the technology’s  value. It is crucial to show how the technology is needed and that there are customers.

—The SBIR and STTR programs were scheduled to expire on Sept. 30. The House of Representatives introduced legislation, called HR5819, to succeed the existing programs, and the House overwhelmingly approved it. But the bill stalled in the Senate over one particularly controversial provision that would open the SBIR program to venture capital firms of any size, including corporate venture. So Congress extended the deadline for the existing program to March 30, 2009, but the new Congress must pass a new bill by March 20 to ensure a seamless transition.

Stewart, from SPAWAR, explained that the Department of Defense accounts for about 40 percent of all SBIR grants. For the Navy, that amounts to about $310 million annually in SBIR grants.

—Stewart says SPAWAR awarded about $36 million in SBIR grants in the last fiscal year and is expected to award $41 million this year. SPAWAR’s SBIR and acquisition programs are coordinated, and the topics for its SBIR solicitations are written by Navy employees who understand existing problems and the need for new technologies. The Pentagon conducts three solicitations a year for SBIR grants and two for STTRs.

Fagaly of Quasar Federal Systems, who has also sat on panels that review SBIR proposals, says, “We’re looking for something that’s going to make a big difference. Other points he made:

—Defense Department solicitations “tend to be very specific and mission-oriented,” Fagaly said. In contrast, solicitations issued by the National Institutes of Health tend to be very broad—and the NIH occasionally accepts unsolicited proposals. The investigators who are participating in a proposal are often key, especially for NIH grant solicitations. “I’ve seen research grants awarded more on the basis of who is doing it, rather than what the topic is.”

—”The most important thing about submitting your proposal is to meet the deadline,” Fagaly said. “And you should always assume the server will go down on the day the electronic application is due.”

 

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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