The Small Business Innovation Research program (SBIR) was created in 1982 to serve the research and development and technology needs of the federal government by leveraging the energies, ingenuity and entrepreneurship of American small businesses. For over 40 years SBIR has awarded highly competitive R&D contracts and grants to companies working on promising research, products and solutions of interest to our national well-being and defense.
Over that time, SBIR has had tremendous impact on America’s innovative economy and produced an outsized stream of innovations, job creation, tax revenue generation and high commercialization. Studies by the National Academies of Science, Engineering and Medicine, the Government Accountability Office, TechLink and others have found SBIR to be sound in concept and effective in execution. SBIR has helped developed numerous groundbreaking technologies including complementary metal oxide semiconductor cameras now used in every cell phone, global positioning satellites on a chip, mRNA technology underpinning vaccines and numerous others. Successful alumni of the SBIR program include: Qualcomm (cell phone communications), Symantec (computer security), Amgen (biopharmaceuticals), Jarvick Heart (artificial heart), Chiron (pediatric vaccines), ABIOMED (world’s smallest heart pump), Aerovironment (unmanned aircraft) and iRobot (unmanned robotic vehicles, Roomba).
Some of SBIR’s many other successes include:
Over 800 SBIR-winning firms have gone public, and over 2,000 have been acquired
Between 1996 and 2020, 99 new drug approvals (12% of all new drugs approved) were developed by firms that received SBIR/STTR funding
Over the same period, 16% of priority review drugs, representing significant health advances over existing treatment, were developed by firms that received SBIR/STTR funding.
SBIR firms overall generated a return on investment of 22:1 of economic impact per dollar invested.
The key to SBIR’s success is in its focus on competition based on technical and scientific merit, with agencies issuing awards based on the best proposals, rather than on preference to a certain kind of company over another. This ensures the agencies choose the best possible research and technology to serve their missions. Requiring agencies to shift their focus from the technical merits of a proposal to the preferred attributes and qualities of the company submitting that would reduce SBIR’s competitiveness and hamper American innovation.
The INNOVATE Act will make SBIR less innovative
In spite of its enormous success, legislation has been put forward in Congress that would radically change SBIR into a program that focuses less on best technical merit and more on business development. The INNOVATE Act would replace SBIR’s competitive focus on creating the best new innovations with a venture capital style model, benefitting primarily the kind of companies that VC prefers to invest in. This bill runs counter to the core mission of SBIR and would serve the for-profit interests of private investment companies over the well-being and national defense of our country. It would also deprive the agencies and the warfighter of the best innovations and technology produced by some of the most effective R&D-focused small businesses in America.
The INNOVATE Act would effectively put a cap on small business success, introducing limits on total awards funds received, annual revenue and number of Phase II awards. These limits punish successful, multiple-award winning small businesses who have fully complied with the law and produce important research and innovative solutions for the agencies. And despite allegations that they don’t commercialize, these firms do in fact commercialize their research at a very high rate, collectively winning billions of dollars in follow-on Phase III contracts.
The INNOVATE Act has been championed by interests that currently struggle to win awards because of the tough competition in SBIR, allied with venture capitalists who want to tap into federal funding to reduce the cost of their investments. To win, they want to change the rules and block existing winners from competing. They misleadingly portray SBIR as a welfare entitlement rather than a highly competitive strength that brings together the best of small business technology and federal support. Rather than improving the quality of their research and proposals, they make false claims that the multiple-award winners don’t commercialize and that the agencies would be better off if they weren’t able to select the best proposals based on their needs.
A major SBIR strength is the wide variety of small businesses that participate and are successful. Some firms naturally grow out of the SBIR program, others sell out to larger businesses, others have developed strategies to remain focused on innovation itself by licensing or selling their technologies to larger businesses, or directly spinning out startups to make and sell their newly created product or services. Such innovation-focused firms often find a sweet spot of size where they retain small business ingenuity and agility but have built scientific depth and unique and tested skillsets for technologies and innovations that they use to continually serially innovate. This was the original vision of the Edison and Bell labs that the SBIR program has since spread across the country by competitively awarding government R&D to facilitate multiple innovations to be developed by such high productivity applied research companies. It is this latter group that the INNOVATE Act particularly targets to block from the competition, because these firms are especially capable of innovation and win awards and produce technology advances at a high rate.
The INNOVATE Act also would cut funding to STTR in half, eliminating over 500 awards yearly that would go to small business and university partnerships. These awards often go to smaller firms in underserved areas, where universities are sometimes the only source of scientific research. It would also create a much more onerous and opaque foreign risk management that would ban firms for artificial intelligence-flagged affiliations without any feedback or opportunity to mitigate or correct the record. Technology leakage to our adversaries is a concern, but one that applies to all of American business, including VCs and large businesses. Foreign risk management requirements should be written fairly, and with the assumption that sometimes the federal government does get things wrong.
SBIR has been a vital and essential part of the federal government’s innovative ecosystem for over 40 years, but its success shouldn’t be taken for granted. The INNOVATE Act’s radical proposed changes to SBIR would shift its focus away from choosing the best technology opportunities. It would do grievous harm to the most successful innovation program in government, and make it harder for federal agencies to get access to the best innovative solutions that small business can provide.
SBIR needs the best small businesses in the program to compete in a world that is rapidly catching up. To continue to leverage the best technology small business provides to maintain America’s technological superiority and high-quality jobs, Congress should reject the INNOVATE Act, and instead reauthorize the SBIR program in its current form, and make it permanent.
Jere Glover is the executive director of the Small Business Technology Council (SBTC), a non-partisan, non-profit, industry association dedicated to promoting the creation and growth of research-intensive, technology-based U.S. small businesses. As counsel to the House Small Business Committee, he led a series of hearing on innovation in 1978 that laid the groundwork for the passage of the SBIR Act in 1982, and has been actively involved in SBIR policy and legislation ever since.
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