TABLE 4-1 Sequencing of SBIR Awards and Venture Funding



Number of Firms


First venture funding before first SBIR Phase II



Last venture funding after start of latest SBIR Phase II



First venture funding after last start date for SBIR Phase II



Total venture capital-funded companies identified as NIH SBIR Top 200


SOURCE: VentureSource; other VC databases; NIH.

NOTE: Categories 1-3 are not necessarily exclusive and hence do not total to 51.

that the story is more complex.2 The presence of SBIR funding may enhance the likelihood of venture funding, but the obverse may also be true. With regard to the firms identified here, the actual sequencing of awards and venture funding does not support a simple linear hypothesis, as illustrated in Table 4-1.

Looking closely at the 51 venture-funded firms for which we have detailed data on individual venture investments, we find that:

  • Thirty-four of the firms (67 percent) received their first Phase II funding after their first venture round. For these firms, it appears that SBIR funding is typically auxiliary or complementary to the venture funding they have already received.3 This view is supported by case studies completed for the NRC report on the NIH SBIR program. Representatives of Illumina, Neurocrine, and Martek among other firms indicated that once funded by venture partners, it was not necessary to rely on highly uncertain funding like SBIR to develop the company’s primary commercial product or service, but that such funding could be critical to the development of additional products.

  • Seventeen firms (33 percent) received their most recent venture funding after the start of their most recent Phase II award. This suggests the existence of a “halo effect” where the SBIR award provides a signal of quality to investors. It also suggests that SBIR and venture funding are used in a complementary, parallel fashion by these recipients.

  • Six firms (12 percent) received their first venture funding after the start of their most recent NIH Phase II award. For these firms too, it is possible that


Interviews and surveys in the course of the NRC SBIR analysis identified firms where founders and other interviewees believed that the halo effect had made a difference.


Case study interviews for the NRC’s NIH SBIR Assessment indicated that venture-funded firms may find important uses for SBIR funding (for example, exploring avenues of research) that they could not otherwise accomplish. It is also true that where alternative sources of funding are available, SBIR is not typically used to fund the firm’s primary efforts toward commercialization, given the constraints of timing and award size in the SBIR program. SBIR can be a crucial funding source when there are no other alternatives available. See the case studies of Neurocrine and Illumina in National Research Council, An Assessment of the SBIR Program at the National Institutes of Health, Charles W. Wessner, ed., Washington, DC: The National Academies Press, 2009.

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