Small Business Innovation Research (SBIR) program

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A U.S. federal government program providing non-dilutive funding to small businesses for research and development projects that have commercial potential, aiming to stimulate innovation and economic growth.
What are the main aims and objectives?

The mission of the SBIR program is to support scientific excellence and technological innovation through the investment of federal research funds in critical priorities to build a strong national economy.

The SBIR Program aims to stimulate technological innovation among small businesses by providing early-stage funding to support federal research and development needs that might not otherwise be met. It seeks to bridge the innovation funding gap by enabling technology commercialization, fostering participation from minority and women-owned enterprises, and driving economic growth through job creation and increased competitiveness in the U.S. economy. The program functions as a mechanism to integrate small businesses into federal R&D efforts while promoting private-sector commercialization and broadening the entrepreneurial ecosystem.

How does the program work?

SBIR offers eligible participants grants to develop and commercialize a new technology or intellectual property, when it isn’t yet at the stage where they can attract traditional investment, and the risk or cost is too high for an ordinary loan.

The SBIR program is structured into three phases:

  • Phase I is for applicants demonstrating proof of concept — anywhere on the line from whiteboard to prototype. Awards range $50,000 - $250,000 for six months (SBIR), depending on what is warranted for the specific development costs. SBIR/STTR Phase I awards are generally $50,000 - $250,000 for 6 months (SBIR)
  • Phase II is for those doing deeper R&D on a proven concept and $750,000 over a two-year period. 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. Typically, only Phase I awardees are eligible for a Phase II award.
  • Phase III is where a project may transition to actual paid contracts and purchases. While the SBIR program does not fund Phase III, an eligible company may skip some government procurement processes that would otherwise require competitive offers. 
What is the overall cost?

SBIR mandates participating agencies dedicate a minimum of 3.2% of their extramural research budgets to SBIR awards, culminating in approximately $2.5 billion in annual funding across all agencies. Major contributors include the Department of Defense (~$1 billion) and National Institutes of Health (~$700 million). Since inception in 1982, the program has disbursed over $100 billion to small businesses. Award sizes vary by phase and agency but typically range up to $314,000 for Phase I and up to $2.1 million for Phase II, with totals reported in US dollars.

How was it implemented?

The SBIR Program was established in 1982 through the Small Business Innovation Development Act, motivated by Congressional recognition of small businesses' role in innovation. It was mandated that relevant federal agencies allocate a portion of their R&D funds to support small business innovation. Over time, the program expanded to include 11 agencies and included the complementary Small Business Technology Transfer (STTR) program starting in 1992. The SBA coordinates administration, technical assistance, and reporting. Agencies issue specific solicitations aligned with mission-driven priorities. Legislative reauthorizations periodically update program eligibility, funding levels, and reporting requirements, facilitating program continuity and enhancement. The SBIR Program developed a robust infrastructure including application portals, outreach networks, and evaluation frameworks to support innovation ecosystems across the U.S.

What impact has been measured?

SBIR has generated substantial economic and innovation impact over its four-decade history. It has awarded over 42,000 contracts to 4,000+ companies, creating tens of thousands of jobs annually and generating billions in economic output. Approximately 45–60% of Phase II projects reach commercialization, with more than 1,800 firms acquired and a median acquisition price of $42 million. Select SBIR technologies have led to notable medical innovations and significant federal procurement contracts. Economic analyses of NIH and Department of Defense SBIR programs have demonstrated return on investment ratios exceeding 12:1 and as high as 33:1, delivering large tax revenues, wages, and company growth. Additionally, the program has broadened participation among minority and women entrepreneurs, stimulating inclusive innovation ecosystem growth.

Annual reports provide detailed coverage of several important metrics including: total aggregate funding across all agencies and by individual States; as well as additional metrics for outreach activities, award selection rates, and how long it takes for companies to receive funding. Over time this report has expanded and now includes additional information such as funding by key demographics including Women-Owned Businesses, Socially and Economically Disadvantaged Businesses, and small businesses located in HUBZones.

In addition, economic impact reports are available, here.

What lessons can be learned?

- Guidance was necessary for clarity across states: Since each agency administers its own individual SBIR program (within guidelines established by Congress), the SBA funds organizations to help applicants navigate the complexities of this and other government grant programs (e.g. Procurement Technical Assistance Centers and  Small Business Development Center, which exist in every state, as well as D.C., Guam and Puerto Rico).

- Abuse control: SBA efforts to reign in abuse of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs continue, yet companies that seem to use SBIR awards as a primary revenue stream rather than a means to creating future revenue paths through new product and process innovations persist. Known as “SBIR mills” many of these companies appear to be clustered geographically in specific metropolitan areas, many of which house major federal labs or research centers, the analysis of SBIR data revealed in September 2020.  This suggests, from a policy perspective, that the federal agencies could be doing much more to curtail the mills and redirect awards into companies more consistently focused on turning innovation into products, profits and jobs. The data reveals the extent of abuse by the small number of SBIR mills among all awardees is not insignificant: awards made to potential mills account for more than 21 percent of all awards made during the period from 2009 to 2019.

- Lessons:

  • SBIR’s success is concentrated among a minority of funded projects, with a significant portion not achieving market success, highlighting selection and support challenges.
  • Commercialization cycles, especially in biotech, can exceed a decade, complicating real-time program assessment and requiring long-term tracking commitments.
  • The program varies in effectiveness across agencies, and agency-specific implementation can create inconsistent applicant experiences.
  • Application complexity and competitive success rates favor experienced applicants, potentially restricting access for first-time entrepreneurs or disadvantaged groups despite inclusion efforts.
  • Geographic and sector concentration risks uneven distribution of benefits and innovation focus.
  • Increasing percentage set-asides for SBIR funding risk diverting funds from agencies' core research missions if not carefully balanced.
  • Continued modernization efforts are necessary to enhance accessibility, evaluation, and integration with broader innovation ecosystems.

CURATED BY

Cristina Fernandez

Director for Knowledge + Programming
Global Entrepreneurship Network
United States