Federal Grants can Provide Funding for your Small Business Without Diluting Founders
By: Maks EwendtNon-dilutive funding is a way to increase a company’s capital without giving away, or “diluting,” the ownership or equity to do so. Small businesses are likely familiar with two of the most common ways to obtain funding to support their growth: debt financing and selling equity to investors. However, there may be another, non-dilutive option for businesses that are engaged in Research and Development. Federal Government Agencies, with oversight by the U.S. Small Business Administration, offer federal programs that businesses can leverage to increase their available capital.Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs are vehicles that eligible businesses can apply for to increase their Research and Development (R&D) efforts for commercialization.
Who is eligible for SBIR/STTR programs?
To be eligible for SBIR/STTR programs, a business must:
- Be a for-profit organization
- Be U.S. owned and operated
- Have less than 500 employees
The work under the awarded program must be completed within the United States and focus on performing R&D, as opposed to purchasing equipment or commercializing an already existing technology. The complete guide to SBIR/STTR eligibility can be found here.
How much money is available through SBIR/STTR programs?
Each U.S. Government Agency with a budget greater than $100 million must allocate 3.2% of its extramural research budget for SBIR programs. That amounts to about $3.2 billion a year across all of the agencies.Each U.S. Government Agency with a budget greater than $1 billion must allocate 0.45% of its extramural research budget for STTR programs. That amounts to $450 million a year across all of the agencies.Currently, Agencies are able to issue up to $275,766 to a small business for a Phase I award, and up to $1,838,436 to a small business for a Phase II award, without requiring any additional approvals from the SBA. Information about the phases of an SBIR/STTR program can be found here.
How Does My Business Engage in an SBIR/STTR Program?
All open, closed, and future SBIR/STTR topics across the participating Federal Agencies are available to search and filter here. Once you identify a topic that aligns with your business’s objectives, you can access more details about the solicitation via the specific agency’s SBIR/STTR site. There, you’ll be able to find information including timelines for the project and in-depth descriptions, as well as application and submission instructions.
What should my business be aware of while pursuing a SBIR/STTR program?
Federal Contract Terms: SBIR/STTR programs are awarded by Federal Agencies, and as such, are accompanied by terms and conditions from the Federal Government. These terms may include limitations on use, requirements for work environments, and IP rights.Subcontracts: SBIR projects permit, and STTR projects require, the use of subcontracts with third parties. SBIR projects may subcontract up to 50% of the work, while STTR projects must have at least 30% of the work completed by a Research Institution Partner. A Research Institution Partner is required to be a non-profit organization located in the U.S., and be either a non-profit college or university, a domestic non-profit research organization, or a Federally funded R&D center. SBIR/STTR contracts will require that applicable terms and conditions from the Federal Government will “flow down” to any subcontractor, so it is a best practice to review those requirements with any planned subcontractors for compliance before committing to the project.Non-Federal Share: SBIR and STTR projects may be accompanied by a requirement for a non-federal share, which is cost sharing or matching funds for the project provided by the awardee small business. Any such requirement will be identified in the project posting.Grants vs. Contracts: SBIR and STTR projects may be awarded as either a grant or a contract. Both vehicles will provide funding to your business, however, where grants offer more flexibility as an assistance tool to support best efforts in research, contracts will include more strict performance requirements as a binding agreement for goods and/or services.Due to the nuanced nature of Federal Government contract terms, the lawyers at Fourscore Business Law strongly encourage you to engage a legal resource to review SBIR/STTR terms to ensure the project is a good fit, and that your business understands its compliance obligations. For more information about how to engage with SBIR/STTR programs generally, First Flight Venture Center provides grant support to companies in the Triangle area.Headquartered in the Research Triangle region of North Carolina, Fourscore Business Law serves entrepreneurs and businesses in the Triangle, throughout the Southeast and in Silicon Valley / San Francisco. We also represent venture capital funds and other investors who invest in companies throughout the U.S. The idea of delivering maximum impact in a simple and succinct manner is what we’re calling the Fourscore Principle. And that is what Fourscore Business Law is based on. Our clients operate in a broad range of industries including tech, IoT, consumer products, B2B services and more. Questions? Shoot us an email or give us a call at (919) 307-5356. Your first call is on us.