What is SBIR funding?
SBIR stands for Small Business Innovation Research. US Federal government has set aside 2.5% of it's research budget for small businesses.
Small businesses are defined as follows:
* less than 500 employees
* 51% owned by American citizen or Permanent Resident Alien
* It is a for profit business
* business must be in United States
* Principal Investigator for research must be an employee of the business during project.
Why use SBIR funding?
Venture capital financing is hard, if not impossible, to get at initial stage. SBIR funding, gives businesses access to funding at the stage of feasibility study.
Who provides SBIR funding?
SBIR funding is provided by various federal agencies like Department of Defence (DoD), NASA, National Institute of Health (NIH), National Science Foundation (NSF), Department of Transportation (DoT) and many others. For our purpose, I will refer to them as "agency"
How does it work?
SBIR funds are of two types: Grants and Contracts.
Grants: Agency defines a wide scope and invites proposals from small businesses. If a small business has an innovative idea that falls within that scope, it can propose the idea within the guidelines provided by the agency.
Contracts: Here agency defines a specific problem in the form of solicitation and small business has to come up with an innovative idea that resolves the problem.
SBIR funding is divided into three phases:
Phase I: A proposal needs to be submitted to the agency detailing the solution to the problem or an innovative idea, with a business plan and commercialization potential. If the agency likes the proposal, small business is awarded a grant or a contract worth upto $100,000, depending on the type of agency. Small business is expected to conduct feasibility study for the solicitation provided by agency and provide this study within 6 months from the date of award.
Phase II:In this phase, small business conducts research. Goal is to come up with a prototype. This grant or contract is awarded only if the small business has provided an excellent feasibility study in Phase 1. This phase has a life span of two years and can be worth upto 1 million dollars depending on the agency.
Phase III: This is the phase where small business is ready to go to a Venture capitalist. With a prototype ready, business plan made and commercial potential documented, small business is well equipped to approach a Venture capitalist. Many agencies do NOT fund the phase III. However, recently some of the agencies have started to match 50 cents for every dollar provided by VC funding upto $500,000.