commissions from as early as the 1960s had recommended the direction of R&D funds toward small businesses.6 These recommendations, however, were opposed by competing recipients of R&D funding. Although small businesses were beginning to be recognized by the late-1970s as a potentially fruitful source of innovation, some in government remained wary of funding small firms focused on high-risk technologies with commercial promise. The concept of early-stage financial support for high-risk technologies with commercial promise was first advanced by Roland Tibbetts at the National Science Foundation (NSF). As early as 1976, Mr. Tibbetts advocated that the NSF should increase the share of its funds going to small business. When NSF adopted this initiative, small firms were enthused and proceeded to lobby other agencies to follow NSF’s lead. When there was no immediate response to these efforts, small businesses took their case to Congress and higher levels of the Executive branch.7 In response, a White House Conference on Small Business was held in January 1980 under the Carter Administration. The conference’s recommendation to proceed with a program for small business innovation research was grounded in:

  • Evidence that a declining share of federal R&D was going to small businesses;

  • Broader difficulties among small businesses in raising capital in a period of historically high interest rates; and

  • Research suggesting that small businesses were fertile sources of job creation. Congress responded under the Reagan Administration with the passage of the Small Business Innovation Research Development Act of 1982, which established the SBIR program.8

The SBIR Development Act of 1982

The new SBIR program initially required agencies with R&D budgets in excess of $100 million to set aside 0.2 percent of their funds for SBIR. This amount totaled $45 million in 1983, the program’s first year of operation. Over the next 6 years, the set-aside grew to 1.25 percent.9

The legislation authorizing SBIR had two broad goals:

  • “to more effectively meet R&D needs brought on by the utilization of small innovative firms (which have been consistently shown to be the most prolific sources of new technologies) and

  • to attract private capital to commercialize the results of federal research.”

SBIR’s Structure and Role

As conceived in the 1982 Act, SBIR’s grant-making process is structured in three phases:

  • Phase I is essentially a feasibility study in which award winners undertake a limited amount of research aimed at establishing an idea’s scientific and commercial promise. Today, the legislation anticipates Phase I grants as high as $100,000.10

  • Phase II grants are larger – normally $750,000 – and fund more extensive R&D to further develop the scientific and technical merit and the feasibility of research ideas.

  • Phase III. This phase normally does not involve SBIR funds, but is the stage at which grant recipients should be obtaining additional funds either from a procurement program at the agency that made the award, from private investors, or from the capital markets. The objective of this phase is to move the technology to the prototype stage and into the marketplace.

Phase III of the program is often fraught with difficulty for new firms. In practice, agencies have developed different approaches to facilitating this transition to commercial viability; not least among them are additional SBIR awards.11

6  

For an overview of the origins and history of the SBIR program, see James Turner and George Brown, “The Federal Role in Small Business Research,” Issues in Science and Technology, Summer 1999, pp. 51-58.

7  

Ibid.

8  

Additional information regarding SBIR’s legislative history can be accessed from the Library of Congress. See http://thomas.loc.gov/cgi-bin/bdquery/z?d097:SN00881:@@@L

9  

Today, the set aside is fixed at 2.5 percent.

10  

With the accord of the Small Business Administration, which plays an oversight role for the program, this amount can be higher in certain circumstances; e.g., drug development at NIH, and is often lower with smaller SBIR programs, e.g., EPA or the Department of Agriculture.



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