Small Business Innovation Research (SBIR) programs dates to 1982 and was created to harness the innovativeness of U.S. small business—both to help meet the high-priority technology needs of the federal government and to benefit the national economy. It is an initiative of civil servant Roland Tibbetts who founded it in National Science Foundation. Tibbetts fought for political support against bitter opposition especially from universities who saw it as their rightful funding.SBIR is a gated Process with Three Phases:
SBIR is a gated Process with Three Phases:
Phase 1: Grants are limited to $150,000 and duration of 6 months and are open to any small business concern that meets the SBIR eligibility requirements for feasibility study.
Allowed to spend one-third of award on supplementing their own knowledge and resources.
Winners of this phase are eligible for Phase2. No proposal may be longer than 25 typewritten pages.
Phase 2: Awards up to $1,000,000 total costs over 2 years to bring projects to prototype stage.
Allowed to spend half of award on supplementing their own knowledge and resources
Firms generally supplement their own knowledge and resources by sub-contracting university research. The firms’ commercial nature focuses the minds of the academic researchers at a level they would not match on their own.
These two stages provide enough money to squeeze the uncertainty out of a new concept. They produce enough information to enable:
Phase 3: Intended that private financing of projects will take over from SBIR financing.
Venture capitalists to make rational decisions about investing in its innovation
All federal agencies with extramural R&D budgets that exceed $100 million, currently eleven agencies, are required to allocate a small portion of their R&D budgets (2.9 percent in FY 2015) to SBIR. Research on 30k SBIR awards showed that the chance of a proposal going through the 2 stages, obtaining venture capital and ending up as a product on the market within 7 years was well over 100/1.
Approximately $2.3 billion is awarded annually through the federal SBIR/STTR programs. The Department of Defense (DoD) is the largest participant, with approximately $1.2 billion in SBIR/ STTR contracts annually. Original formula has remained substantially unchanged.
SEEDING SUCCESS LASIK
With Air Force SBIR/STTR Program funding, California-based IntraLase developed a bladeless system to improved the quality and safety of eye surgeries worldwide. This system is now employed in half of all LASIK procedures in the U.S. and over 5 million surgeries have been performed.In 2007, IntraLase was acquired by Advanced Medical Optics, a company owned by Abbott Medical Optics.
In enabling the legislation (Small Business Innovation Development Act of 1982,3), Congress affirmed that:
- Technological innovation creates jobs and increases productivity, competitiveness, and economic growth.
- Recognized that small businesses are the principal source of innovation in the United States and are generally more cost-effective in conducting R&D than major corporations, universities, and government laboratories.
- Small businesses are more capable of converting R&D results into new products when compared to other entities.
- Recognized that small businesses face greater difficulty securing funding for R&D and commercialization.
Key to SBIR’s success is as follows:
- Awards are ‘given with both hands’ e. the research is completely funded by the State, including the firm’s overheads.
- Compensation for more than 100% of an awardee’s cost as 7% of the award accounts is recognized as the cost of distraction of the firm from its normal activities.
- The awards give the firm the opportunity to investigate the viability of the invention without the risk of losing money.
- Leaves the small firm innovator’s own funds intact with no disincentive to repeated attempts to innovate (in contrast to European model where they can lose the 30% funding which they must contribute – see below)
- SBIR offers multiple decision points: the beginning of all economic innovations is a meeting of imaginations. It can’t be more than this because little factual data exists at the outset which can be relied on. As all our imaginations are limited, the chances of a meeting of imaginations increase with the number of decision points.
- There are 11 agencies in the SBIR scheme, some of whose research interests overlap.