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How to find seed money for R&D projects

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With a price tag of more than $200 billion annually, research and development efforts by manufacturing companies contribute greatly to the economy – not to mention to the country’s future competitive advantage.

man at microscope

In addition to investments by the companies themselves, the federal government is a leading provider of contracts and grants for technology development.

Top industries include chemicals, pharmaceuticals, transportation equipment, machinery, computers and electronics. The Departments of Defense, Transportation, Health and Human Services, and Energy are leading purchasers of R&D services.

To boost small business entrepreneurial activity, a portion of government research funding – as much as $2 billion – is set aside annually for two targeted initiatives. The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs provide grants to companies through a competitive process. The Small Business Administration is the coordinating agency.

Since these awards do not have to be repaid, they are an important source of R&D funds often not available through company profits or outside financing.

Many small companies have used SBIR or STTR grants for seed money to develop a product and then attracted venture capital or equity investors for the next stage of growth funding.

A notable success story is Qualcomm, a telecommunications company that now has revenues of $11 billion and 17,500 employees worldwide. In 1985, Qualcomm received its first SBIR grant to develop a satellite communications system used by the trucking industry. In all, the company received $1.5 million in funding that enabled them to concentrate on developing innovative technology. They presently hold more than 13,000 patents.

Recent awards are for projects as diverse as unmanned underwater vehicles, pipeline corrosion monitoring sensors, vehicle arresting systems for use by law enforcement, and a machine tool coating that improves precision and lengthens tool life.

To qualify for grants, a company must meet the following three conditions:

  • Have fewer than 500 employees
  • Be at least 51 percent owned by U.S. citizens or U.S. firms
  • Be a for-profit entity

The principal investigator must be employed by the company. For the STTR program, the business partners with a nonprofit research institution – a college, university or lab – to commercialize technology developed by the nonprofit.

This is also called technology transfer. Universities and national labs often host databases of available technologies. Two examples are Lawrence Berkeley National Laboratory, at www.lbl.gov/Tech-Transfer/techs/index and Michigan State University, at msut.technologypublisher.com.

To receive a grant, companies prepare proposals in response to solicitations from participating federal agencies. In general, proposals include a business plan and cost and technical proposals.
Both programs have three phases:

  • SBIR Phase 1 provides up to $150,000 over six months to determine feasibility and merit of the technology.
  • Phase II, used for further development, can be as high as $1 million over two years.
  • Phase III is commercialization of the product and must be funded by other sources.

In addition to selling to the government, the company may also pursue other markets. The government encourages this by requiring a plan for private sector sales – whether business to business or to consumers – as part of Phase II.

  • STTR Phase 1 provides grants of up to $100,000 for one year.
  • Phase II is $750,000 for two years.
  • Phase III is for commercialization, again not funded.

Expected outcomes are similar in scope to SBIR, as detailed above.

A key site for SBIR and STTR program and solicitation information is www.sbir.gov. The site includes a searchable database of past awards, program data, and agency and state contacts.

Each participating agency has a contact person who handles the SBIR and/or STTR program as well as dedicated areas of their websites to help companies prepare proposals.

For in-person assistance and training, states have designated staff from programs such as the Small Business Development Center or Procurement Technical Assistance Center. The sbir.gov site also archives webinars on a variety of topics that can be accessed at any time.