Small Business Innovation Research (SBIR)

The Small Business Innovation Research (SBIR) program is the largest source of early-stage R&D funding for small businesses in the United States, requiring 11 federal agencies with large R&D budgets to reserve a portion of their extramural research funds for competitive awards to small, for-profit companies.

What is the Small Business Innovation Research Program?

Established by the Small Business Innovation Development Act of 1982 and reauthorized most recently in 2022, SBIR requires federal agencies with extramural R&D budgets exceeding $100 million to set aside a mandatory percentage, currently 3.2%, rising to 3.65% by 2025, for SBIR awards. The 11 participating agencies include the Department of Defense (the largest SBIR funder), NIH, NSF, NASA, the Department of Energy, and others.

SBIR operates through three phases. Phase I awards explore the technical merit and feasibility of an innovation (typically $50,000-$300,000 for 6-12 months). Phase II awards are for full R&D, prototype development, and commercialization planning (up to $1.0-$2.0 million for up to 24 months). Phase III is commercialization, which does not use SBIR funds but may involve government procurement of the developed technology.

To be eligible, a business must: be organized for profit under the laws of the United States; have its principal place of business in the United States; be more than 50% owned and controlled by U.S. citizens or permanent resident aliens; and have 500 or fewer employees (including affiliates). SBIR requires the principal investigator to be primarily employed by the small business for Phase I and Phase II. Read more about navigating SBIR funding in our guide to SBIR and STTR programs.

Why SBIR matters for government contractors

SBIR provides non-dilutive R&D funding that allows small businesses to develop technologies without giving up equity. Successful SBIR awardees build a track record with federal agencies, develop IP with Bayh-Dole protections, and create a pipeline for Phase III government procurement contracts. DoD SBIR winners often transition their technology into major acquisition programs.

Example

A 12-person sensor technology startup applies to a DoD SBIR solicitation seeking advanced detection capabilities. The company wins a $300,000 Phase I award to demonstrate technical feasibility over 9 months. Following a successful Phase I report, the company receives an invitation to apply for Phase II and wins a $1.75 million Phase II award to develop a working prototype. The DoD program office is so impressed with Phase II results that it funds Phase III procurement of 50 units as a government contract.

Frequently Asked Questions

How is SBIR different from a regular government contract?

SBIR Phase I and Phase II awards are grants (at most agencies) or contracts (at DoD and some others) specifically set aside for small businesses under the SBIR program. Unlike regular competitive contracts, SBIR awards are restricted to eligible small businesses and are intended to fund R&D, not procure finished goods or services for immediate government use.

Who owns the intellectual property developed under SBIR?

Under the Bayh-Dole Act and SBIR policy, the small business retains ownership of intellectual property developed with SBIR funds. The government receives a license to use the technology for its own purposes but the company can commercialize the IP in the private sector, a major advantage of SBIR over traditional government contracting.

What is the SBIR set-aside percentage?

The mandatory SBIR set-aside is currently 3.2% of each qualifying agency's extramural R&D budget, increasing in steps to 3.65% by FY2026. For DoD, which has an R&D budget exceeding $100 billion, this translates to several billion dollars in annual SBIR funding.

Can a startup with no government contracting history win an SBIR?

Yes. SBIR is specifically designed for early-stage companies, and technical merit of the proposed research is the primary evaluation criterion. Many first-time SBIR awardees have no prior government contract experience. Commercialization potential and the principal investigator's qualifications are also important evaluation factors.