![Jerry Hunter](http://innovate.indiana.edu/blog/wp-content/uploads/2016/04/Jerry-Hunter-142x150.jpg)
Imagine this scenario: you’re a faculty member at a university and you think you have developed a brilliant technology. You want to start a company around that technology. You’ve filed the paperwork to incorporate the company, you’ve visited your local bank to open a business checking account, and you’re ready to start raising money.
However, venture capitalists that you spoke with feel your idea is still in its early stages and it’s risky to invest at this time. You’ve asked family and friends for support, but the $10,000 they gave won’t even cover the down payment on the new instrument you need for experiments or the rent on the space that you found. As a startup founder, what are you to do?
Uncle Sam is here to help!
Under the control of the Small Business Administration, the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs allow companies to receive funding to explore, develop, and demonstrate feasibility of their inventions without having to give up equity or take on business debt. This type of funding allows a company to bring its products to market or further de-risk the technology to the point where it becomes more attractive to outside investors.
SBIR grants promote technical innovation and commercialization by small businesses. STTR grants promote cooperative research and development resulting in commercialization between small businesses and research institutions. To be eligible to receive SBIR/STTR grants, a company must have fewer than 500 employees, be located and operate primarily within the United States, and be at least 51 percent owned and controlled by U.S. citizens or permanent resident aliens. SBIR/STTR grants can be awarded to any small business or non-profit, and are not limited to faculty members at a university.
Federal departments and agencies that award SBIR grants are Department of Agriculture, Department of Commerce, Department of Defense, Department of Education, Department of Energy, Department of Health and Human Services, Department of Homeland Security, Department of Transportation, Environmental Protection Agency, National Aeronautics and Space Administration, and National Science Foundation.
Federal departments and agencies that award STTR grants are Department of Defense, Department of Energy, Department of Health and Human Services, National Aeronautics and Space Administration, and National Science Foundation.
Both programs primarily provide funding in two phases. Phase I tests the feasibility of the invention with awards usually around $150,000. Most states, including Indiana, offer Phase I matching funds to entrepreneurs. SBIR grants have a 6-month project period, while STTR grants have a 1-year project period.
Phase I awardees become eligible to apply for Phase II funding based on the results achieved from the Phase I grant. Phase II continues the feasibility studies in Phase I and determines the commercialization potential of the technology. Phase II for both programs are usually $1 million. The project period for SBIR and STTR Phase II grants is about two years.
It’s important to note that choosing the right agency and topic to apply to is often the most overlooked aspect to a successful SBIR/STTR grant. Making the wrong choices almost guarantees the project will not receive funding. Here are three other key details to get right in your SBIR/STTR application:
- Don’t include unrelated information. Preliminary data is important, but the majority of the proposal needs to focus on how the grant money will be used.
- Follow the agency’s guidelines. The rules apply to everyone.
- Don’t use funding for academic research. These grants are about commercialization, not research.
You may wonder, “What’s the catch?” In reality, very few strings are attached. SBIR/STTR grants are a form of non-dilutive funding, which means you don’t have to give up equity in your company. However, it’s important to realize that SBIR/STTR grants are very competitive and require many hours to complete. The up-front time investment is high with the odds of success not usually in your favor, but as an entrepreneur isn’t that what you signed up for?
It may seem a daunting process, but experts at Indiana University Research and Technology Corp. and the SpinUp program can guide you through it.
Jerry Hunter is an associate of Indiana University Research and Technology Corp.’s SpinUp program, which helps researchers across all campuses in the Indiana University system bring promising technologies to market by starting their own company. Its focuses include biotechnology, engineering, health care information technology, life sciences and medical devices. You can contact Jerry at jerrhunt@iu.edu, 317-278-8479.
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