the SBIR award had a “halo effect,” helping venture capital firms to identify especially promising firms and technologies for investment.

This sequencing analysis does not support a simple view of SBIR and venture funding—that SBIR is seed funding and is subsequently replaced by venture funding later in the development cycle. Only six of the 51 firms exhibit sequencing that matches the seed-development distinction.

A different, more nuanced analysis of the SBIR-venture funding relationship is therefore necessary. This analysis must include the important distinction between firms and projects. A firm may have multiple projects in its portfolio with multiple sources of financing and may grow and develop in a non-linear fashion. By contrast, individual projects may indeed develop in a somewhat linear direction from idea to prototype, testing, and eventually development. However, there is now growing evidence—including from recent NRC research—to indicate that even for individual projects the road to the market is far more winding and circuitous than suggested by simple linear models.4 Simple linear models do not tell the full story.5

These complexities at the project level are multiplied many times at the firm level, where different projects at different stages of development compete for scarce resources. Several interviewees indicated that funding from venture partners was in many cases tied very tightly to the costs of development for a particular lead product; more speculative or alternative research projects were often excluded from venture funding, and had therefore to turn to SBIR and other resources.6 In some cases, such as Illumina, these alternative paths became over time highly successful.

Thus it is simplistic to conclude that the receipt of venture funding is itself sufficient to insulate firms from the need to find more resources for other projects outside the critical path being funded by the venture capital investment. This is an important conclusion.


This evidence comes from case studies of firms that have won SBIR awards conducted as a part of the National Research Council’s comprehensive assessment of the SBIR program. See, for example, National Research Council, An Assessment of the SBIR Program at the National Institutes of Health, op. cit.


For a discussion of the limitations of the linear model of innovation, see the Introduction chapter of National Research Council, An Assessment of the SBIR Program, Charles W. Wessner, ed., Washington, DC: The National Academies Press, 2008.


See, for example, the case studies of Illumina and Neurocrine in National Research Council, An Assessment of the SBIR Program at the National Institutes of Health, op. cit.

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