By Shiva Hamidinia

February 4, 2021

GAO recently published a report on Small Business Innovation Research (SBIR) program awards to businesses majority-owned by investment companies and funds.

The SBIR and related Small Business Technology Transfer (STTR) programs act as a seed fund to invigorate technological breakthroughs by directing federal research and development funds to eligible small businesses.  The programs’ goals are to use small businesses to meet federal research and development needs, while fostering participation by socially and economically disadvantaged small business concerns and women-owned small business concerns in technological innovation.  See SBA’s New SBIR/STTR Policy Directive, effective October 2020.

Agencies allow participation in their SBIR programs by small businesses that are more than 50% owned by multiple venture capital operating companies, hedge funds, or private equity firms, so long as no one such firm owns a majority of the stock.

GAO reports that only three out of 11 participating agencies (the National Institutes of Health, the Department of the Navy, and the Department of Education) made awards to qualified small businesses majority-owned by multiple venture capital operating companies during fiscal years 2019 and 2020.  GAO reports a total combined 45 awards worth $31.6 million to qualified small businesses during fiscal years 2019 and 2020, with the NIH making the most awards, as in years past.  Although the Department of Energy’s Advanced Research Projects Agency-Energy opened its SBIR awards to qualified small businesses, it did not issue any awards in fiscal years 2019 and 2020. The GAO reported the reasons for lower participation include the limited funds available for SBIR program awards.

Last month, the Department of Energy SBIR and STTR Programs Office issued its 2021 FY Phase I funding opportunity announcement identifying 9 participating DOE program offices.  The U.S. Department of Transportation officials also recently announced that their 2021 FY SBIR solicitation is slated to total $1.9 million.

One of the major initiatives from President Biden’s platform include $300 billion in R&D spending.  President Biden announced allocating more funding toward a “scaled-up version” of the SBIR program, including “[c]ompetitive capital financing to encourage small businesses to commercialize cutting-edge technology.”

The SBIR program follows a uniform competitive three-phase process.  Generally, Phase I awards may not exceed $150,000 and Phase II awards (including modifications) may not exceed $1,000,000.  There are no dollar thresholds for Phase III awards.  To be eligible for a SBIR award, a small business must:

  • Be in the United States,
  • Operate primarily within the United States,
  • Be more than 50% directly owned and controlled by individuals who are citizens or permanent resident aliens of the United States, and
  • Employ fewer than 500 employees.

The program also sets minimum self-performance thresholds.  For SBIR Phase I awards, a minimum of two-thirds of the research or analytical effort must be self-performed. For SBIR Phase II awards, a minimum of one-half of the research or analytical effort must be self-performed by the small business awardee.

GAO’s January 29, 2021 Report, Small Business Innovation Research: Three Agencies Made Awards to Businesses Majority-Owned by Investment Companies and Funds, GAO-21-223R (Washington, D.C.: Jan. 29, 2021) is available here:  https://www.gao.gov/assets/720/712105.pdf.

GAO’s December 21, 2018 Report, Small Business Innovation Research: Few Agencies Made Awards to Small Businesses Majority-Owned by Multiple Venture Capital Operating Companies, Hedge Funds, or Private Equity Firms, GAO-19-205R (Washington, D.C.: Dec. 21, 2018) is available here: https://www.gao.gov/assets/700/696269.pdf.

SBA’s October 2020 SBIR/STTR Policy Directive is available here: https://www.sbir.gov/sites/default/files/SBA_SBIR_STTR_POLICY_DIRECTIVE_OCT_2020_0.pdf

If you have any questions regarding the SBA’s SBIR or STTR programs, please contact Shiva Hamidinia at [email protected] or 202-846-9829.

About the author:

Shiva helps high-growth startup government contractors navigate the full life-cycle of complex state, local and federal government procurements and projects.  This includes assisting emerging small and mid-sized government contractors with structuring, negotiating, and closing non-disclosure agreements, subcontracts, teaming, channel partner, and joint venture agreements, and assisting small businesses navigate the SBA’s set-aside, SBIR, and STTR programs.

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