SBIR/STTR to Survive September 30^th Deadline!

Here’s the quick summary:

• The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs will expire if Congress doesn’t reauthorize the programs by September 30^th.
• Senator Dr. Rand Paul (R-KY) blocked reauthorization citing security problems with the SBIR and STTR programs.
• New provisions which address Sen. Paul’s concerns were added to the reauthorization bill, and he dropped his opposition.
• The bill quickly passed in the Senate and is expected to easily pass in the House.
• This will extend the programs for three more years.

How Congress Almost Let SBIR/STTR Grants Go Extinct

In our September 14^th post we told you how the future of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs hung in the balance. If Congress didn’t reauthorize the programs by September 30^th, they would expire.

In that post we looked at various criticisms of the SBIR and STTR programs over the years. The most relevant was that of Senator Dr. Rand Paul (R-KY), the top Republican on the Senate Small Business and Entrepreneurship Committee.

Sen. Paul refused to support reauthorization of the SBIR and STTR programs “without reforms to strengthen research security and stop abusive behavior by bad actors [in particular, China] lining their pockets with taxpayer dollars at the expense of new small businesses with emerging technologies being able to access SBIR awards.” And, indeed, the Department of Defense (DOD) published a report in April 2021 confirming that lack of due diligence in the SBIR granting process led to funding companies that are linked to the People’s Liberation Army. Nevertheless, DOD officials urged Congress to reauthorize the SBIR and STTR programs, saying that if the programs lapse, American power in the technological, military, and economic arenas will wane.

As we pointed out, Sen. Paul did not oppose the SBIR and STTR programs per se but did believe that reform was critical.

The Breaking News–Hallelujah!

Sen. Paul’s critique set off months of negotiations about how to reform the SBIR and STTR programs. Those negotiations were successful, and the powerful Kentucky Republican dropped his opposition to reauthorization, saying, “We were happy to get some reforms in it.”

The Senate then quickly passed the reauthorization bill, and the House is set to do the same shortly.

Here at the FreeMind Group, we’ve helped our clients win hundreds of millions of dollars in SBIR/STTR grants. And we’ve seen how these grants help small businesses get through the valley of death and make valuable contributions to patients, to medical science, and to society. We are thrilled that the reauthorization bill is on track to become law before the deadline.

We have also dedicated dozens of hours to educating life science innovators about these grants and how to apply for them at our annual Non-Dilutive Funding Summit and in our webinars.

What Has Changed?

The reforms have significant ramifications for companies applying for SBIR and STTR funding.

Important Changes for Companies

• SBIR/STTR applicants must disclose whether their company has ties to “any foreign country of concern, including the People’s Republic of China.”
• Companies are subject to stronger performance benchmarks differentiating between Phase I and Phase II SBIR/STRR grants.
• Each small businesses that receives more than 50 Phase I grants within five years must meet significantly higher minimum performance standards.
• Each small business that has received more than 50 Phase II awards within the past 12 years must garner “an average of $250,000 of aggregate sales and investments” for each of those awards; and each company with more than 100 Phase II awards within the past 12 years must earn an average of $450,000 in aggregate sales and investments.
• Any company which does not meet those standards is not eligible to receive more than 20 SBIR/STTR awards in a given year.

Important Changes for the US Government

• The DOD and other agencies must deny awards to applicants that have ties to Chinese companies or high-level employees taking part in any “malign foreign talent recruitment program.”
• Every federal agency that awards the SBIR/STTR grants must coordinate with the Small Business Administration (SBA) to create “a due diligence program to assess security risks presented by small business concerns seeking a federally funded award.”
• The SBA and the White House’s Office of Science and Technology must consult with the Committee on Foreign Investment in the United States to establish best practices to guide due diligence.

Hopes for the Future

Because we at FreeMind are such fans of the SBIR and STTR programs, we hope that eventually the US Congress will pass legislation to make the SBIR and STTR programs permanent.

Such legislation was proposed as recently as 2019, when Senator Jeanne Shaheen (D-NH) introduced the SBIR and STTR Permanency and Improvement Act of 2019. In fact, Sen. Shaheen has spearheaded legislation to strengthen these program for over a decade.

The SBIR and STTR Permanency and Improvement Act of 2019 would have made a number of big changes:

• Permanent authorization of the SBIR and STTR programs.
• Major increase in allocations for SBIR and STTR grants. (The programs are funded by “taxing” the research budgets of 11 federal agencies; every federal agency with an extramural R&D budget exceeding $100 million is required to award at least 3.2% of that budget in SBIR grants and 0.4% in STTR grants. Shaheen’s act would have gradually stepped up the minimal allocations to 6.4% for SBIR grants and 1% for STTR grants by fiscal year 2024.)
• Reduction of time between application and award disbursement.
• Authorization of funding agencies to award up to 25% of allocated funding to small businesses backed by venture capital.

The bill currently flowing through Congress does not make these changes, but it is still a cause for celebration.

If you would like to learn more about how you can win SBIR/STTR funding for your company or you would like to hear about other non-dilutive funding opportunities, then we would encourage you to register for our free, educational event, the annual Non-Dilutive Funding Summit, held every year at J.P. Morgan Healthcare Week in San Francisco, or to drop us a quick message.