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rate required by outside financiers to whom the small businesses would have had to turn for financial support. Yet the social rates of returns to the projects are large and exceed the hurdle rates. The funding from the SBIR program changes the ordering of rates of return anticipated at the outset of Phase I. With the SBIR program providing funds, the expected private return relative to just the private portion of the total project costs is sufficient to move the private rate of return above the hurdle rate, and then the socially valuable research investment is undertaken.

  • Taken as a group, the Fast Track projects show higher prospective lower-bound social rates of return—a measure that is based upon expected profits to the innovator and other producers benefiting from the innovation.

  • The average duration of additional development beyond Phase II and before commercialization is somewhat less for the Fast Track projects, suggesting that at least on average they are somewhat closer to commercialization at the end of Phase II than the non-Fast Track projects.

  • The respondents were unanimous in their appreciation of the SBIR program and in their belief that the program generally works well. They did have several recommendations to improve the working of the program, and those recommendations are listed in this paper. Among other things, the respondents cautioned that the Fast Track program is often simply not useful for companies pursuing socially valuable high-risk research, because at the end of Phase I, such projects often do not yet have the characteristics of projects that allow outside private investors to be attracted.

  • In summary, the SBIR program has funded innovative projects with high social rates of return that would not have been undertaken in the absence of the program. Further, the non-Fast Track as well as the Fast Track projects appear to be quite valuable, although the non-Fast Track projects typically do not exhibit private commercial potential as quickly as the Fast Track ones.

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