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SBIR 101: Often the best option for funding your business to bring innovative new ideas to market*

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Title: SBIR 101: Often the best option for funding your business to bring innovative new ideas to market*


1
SBIR 101Often the best option for funding your
business to bring innovative new ideas to market
  • SBIR/STTR as alternative financing for new
    business starts and new product/technology
    development

without losing equity or building debt
Ray Friesenhahn SBIR Technology Transition
Manager June 12, 2013
TechLink is an Authorized U.S. Department of
Defense Partnership Intermediary per Authority 15
U.S.C. 3715
2
Small Business Innovation Research (SBIR)
2.4 Billion (FY12) federal set-aside (since
1982) for U.S. Small Businesses
Small Business Technology Transfer (STTR)
300 Million (FY12) federal set-aside (since
1992) for U.S. Small Businesses working with
not-for-profit Research Institutions (e.g.
universities)
3
Todays Key Takeaways
  • SBIR is just one funding option
  • Not always the best option
  • Can mix/synergize with other funding options
  • Know your customer (agency)!
  • Grant vs. contract line vs. peer review
  • Do your homework background research
  • Customer (agency) relationships can be important!
  • Plan for the long term (dont chase short-term )
  • Plan for Phase III and commercialization/transitio
    n
  • Build successful collaborations partnerships
  • Read the instructions!

Then read them again!
4
Perspective on SBIR as a business finance option
5
Convince yourself itll work
Start to build a team!
Conduct some realistic market research
Work on building your team!
Begin IP (Intellectual Property) protection
Continue building your team!
Build a prototype or test a crude demo
Do you have everyone you need?
Develop a business plan
Working with your team!
Now you need to finance this plan!
6
Options for Financing your Innovative Technology
Start-up
  • Venture Capital (VC)
  • Angel or Corporate Investors
  • FFFF
  • Loans Bootstrapping
  • Crowdfunding
  • SBIR/STTR

7
Typical Early-Stage Funding Levels
(Traditional) VC Angels FFFF (Bank)
Loans Bootstrapping Crowdfunding SBIR/STTR
4M 50M (Avg. 7.2M, 27B in 2012) 25K -
2M (Med. 450K, 22B in 2011) 5K - 100K
(50B overall) 0250K (with good collateral)
Varies (see Greg Gianforte, e.g.) To 10M? 70K
- 1M (2.4B overall)
(Sometimes use convertible debt, typically
pre-seed)
Pebble on Kickstarter
(Kickstarter 435M on 37K proj.)
8
Venture Capital Angel Investors
9
VC Funding in the U.S. PricewaterhouseCoopers
MoneyTree Report
of Deals
Billions
10
VC Funding in Texas PricewaterhouseCoopers Money
Tree Report
11
VC Considerations
  • Looking for ROI gt10X 5 years
  • Need Scalability, Exit Strategy
  • Odds of getting VC lt1 (0.11 of new cos get
    VC)
  • VCs looking for team experience
  • Performance-driven (ruthless)
  • 50 of founders forced out in 1st year
  • VC need to bring value to your Board
  • Earlier stage more equity to VC
  • 20-Minute Rule for traditional VC

12
Angel Considerations (From the Ewing Marion
Kauffman Foundation)
  • Of 500K annual new business starts,
    typically 50K receive some angel backing
  • In 2011, 22B angel funding (vs. 29B VC)
  • Up to 90 of companies receiving outside equity
    capital got it from angel investors
  • Median angel investment 450K
  • Investments tend to be local, within industry
    experience of investor (adding value to Board)
  • Should come after self-financing, FFFF
  • Typically take 20 - 40 equity

13
SBIR/STTR Overview
14
SBIR/STTR Overview
  • Federally mandated programs (since 1982/1992) for
    agency funding of small business (lt500 empl.) RD
    to develop new commercial products or services
  • FY13 Budgets
  • SBIR 2.4 Billion
  • 2.7 of extramural R/RD for agencies gt100M
    (3.2 by FY17)
  • STTR 300 Million
  • 0.35 of extramural R/RD for agencies gt1B
    (0.45 by FY16)
  • Goal is commercialization of new innovations from
    U.S. small businesses

15
SBIR/STTR Overview
  • 3-Phase Program
  • Phase I Feasibility Study
  • Typically 6-month, 80K - 150K (225K)
  • Phase II Proof of Principal/Prototype
  • Typically 2-year, up to 1M (1.5M)
  • Phase III Commercialization (or Transition to
    DoD)
  • No SBIR/STTR funding
  • May be government contract/procurement
  • No contract size limit
  • Possible Phase II Enhancement to get there

16
SBIR/STTR Highly Competitive
  • Overall about 1 in 6 win Phase I
  • For Newbies odds 110
  • 40 60 hours to write decent proposal
  • Most companies lose money during Phase I
  • Must prove feasibility and still compete for
    Phase II
  • Overall 40 of Phase I awardees win Phase II

17
SBIR Importance to the Nation
  • Nations most successful program in moving
    cutting-edge technology into the marketplace
  • Many other nations now copying it
  • Largest source of early-stage technology
    financing
  • Results meet important societal and/or government
    and Defense mission needs
  • SBIR companies produce over
  • 20X patents/RD as universities
  • 5X patents/RD as large companies
  • SBIR-backed firms responsible for 25 of the
    nations most crucial innovations over last decade

18
SBIR/STTR Advantages
  • Not a loan no repayment required
  • No loss of equity ownership
  • Can be high-risk (high-payoff) innovation
  • Preferences, including sole source contracts, for
    follow-on government funding or procurement
  • Not required, no guaranteed follow-on
  • Overall chances of winning 1/6

19
SBIR/STTR Disadvantages
  • Government contracts and accounting can be
    onerous
  • Slow process (3-5 years through Phase II)
  • Not appropriate for short windows of opportunity
  • Requires RD capability and writing skills
  • Must propose what agencies ask for
  • Very specific for contracting agencies
    (e.g. NASA, DoD)
  • Much more leeway for granting agencies (e.g.
    NSF, NIH)

20
Companies Started with SBIR/STTR Funding
21
  • Started as GEMTech (1988)
  • 1990 NIH Phase I SBIR (50K) for Sonic Brush
  • 1992 NIH Phase II 500K
  • 1995 changed name to Optiva Corp.
  • 2000 Optiva (Snoqualmie, Washington) had gt600
    employees, 175 million in annual sales
  • Acquired by Phillips (2000)

Sonicare Toothbrush
22
  • iRobot
  • (Bedford, MA)
  • 29 DoD SBIR/STTR awards (2001 2008)
  • Total award value 9.2M
  • 2010
  • 657 employees
  • 400M annual sales
  • 40 military
  • 737M market value
  • 2011 sales 466M
  • 2012 sales 436M
  • 10 military

Packbot (with bomb)
Roomba (vacuum cleaner)
23
With one of the grants, we developed some of
the first chips we did at Qualcomm.. making chips
for cellphones is about two-thirds of our revenue
today. -Irwin Jacobs
  • 1987-1990 12 SBIRs (NSF DoD), 1.4M
  • Today (2011 numbers)
  • 21,000 employees (21 growth)
  • 15B annual sales (36 growth)
  • Holds gt13,000 U.S. patents
  • Pays more in taxes than SBAs annual budget!

24
Basic SBIR/STTR Eligibility Requirements
25
SBIR/STTR Eligibility Requirements
  • Small by SBA definitions lt500 employees
    including all affiliates (see VC ownership
    issues)
  • For-profit
  • At least 51 owned controlled by U.S.
    individuals (see VC issues)
  • Primary employment of the PI must be with the
    small business firm at the time of the award and
    during the conduct of the proposed effort (or
    with Research Institution for some STTR)
  • All work must be done in U.S. (except with
    special approval)

26
Company Size DistributionNASA Phase I SBIR
Awards
NASA SBIR About 1/3 are
1st-time awardees
27
Basic Requirements for SBIR/STTR Success
28
Requirements for SBIR Success
  • Innovation
  • New Product or Technology
  • New Application of Existing Technology
  • Research
  • Research of the Feasibility of the Project
  • Not Market Research
  • Not Strictly Product Development
  • Commercial Applications
  • Societal Need and Commercial Potential and/or
  • Specific Agency Need and Dual Use

29
Additional Needs for Winning SBIR
  • Proposal Writing Skills
  • Blending of business technical/scientific
    proposal
  • Tip Start with the Commercialization Plan
  • Hiring a proposal writer usually not a good
    choice
  • Having a reviewer and/or technical editor is very
    helpful
  • Know Your Customer!
  • Significant agency differences in proposal
    requirements, technical focus, evaluation process
  • Build a Team to Fill in Gaps
  • Use allowed subcontracts, consultants,
    collaborators to build research capabilities,
    path to commercialization

30
Planning Ahead for SBIR Success
  • Phase I is Required Step, Not Objective
  • Most companies actually lose money in Phase I
  • Phase I required before Phase II
  • Phase II Much More - Still Just a Step
  • Strong Commercialization Plan is one key to
    winning
  • Need to show intent and ability to develop the
    product or service and get it to the customer
    (market).
  • Commercialization is Goal
  • Commercial or other sales
  • Follow-on govt contracts for DoD, NASA, others

Phase III
31
SBIR/STTR Summary Info
SBIR STTR
Total Ann. Amt. 2.4 Billion 300 Million
Agencies 11 5 (DoD, DOE, NIH, NASA, NSF)
Phase I (15 win, much higher for STTR) Typically to 150K Usually 6 months Typically 150K Often 12 months
Phase II (40 win) Typically to 1M 24 months Up to 1M 24 months
(University) Phase I Subcontracts Phase II Allows up to 1/3 Allows up to 1/2 Requires 30 60 to RI Requires 30 60 to RI
32
Agency Participation in SBIR/STTR And Key
Differences
33
SBIR/STTR Agency Participation
  • 11 different agencies participate in SBIR
  • 5 of these also have STTR programs
  • Each agency manages its own programs
  • Each (of 12) DoD Components manages its own
    programs, with some coordination by OSD
  • SBA sets general rules (SBIR STTR Program
    Policy Directives)
  • per law set by Congress (SBIR/STTR
    Reauthorization Act of 2011, in NDAA of FY2012,
    Public Law 112-81)
  • Agencies report as required to SBA

34
Participating Agencies
  • Agency Programs Budget Award Type Review
  • DoD SBIR/STTR 1.2 B / 154 M Contracts Line
  • HHS/NIH SBIR/STTR 617 M / 80 M Grants
    Contracts Peer
  • DOE SBIR/STTR 166 M / 22 M Grants L/P
  • NASA SBIR/STTR 145 M / 19 M Contracts L/P
  • NSF SBIR/STTR 133 M / 18 M Grants Peer
  • USDA SBIR 19.3 M Grants Peer
  • ED SBIR 13.7 M IES Contracts Line
  • (IES NIDRR) NIDRR Grants Peer
  • DHS SBIR/ - 12.6 M / - Contracts L/P
  • DOT SBIR 8.6 M Contracts Line
  • EPA SBIR 4.8 M Contracts L/P
  • DOC SBIR 4.7 M Contracts Line
  • (NOAA NIST)

35
Grants vs. Contracts
  • Contracting Agencies
  • Highly focused topics
  • Agency establishes plans, protocols, requirements
  • More fiscal requirements
  • Subject to FARs, DFARs
  • Restricted communications
  • Agency may be buyer procurement mechanism for
    DoD, NASA
  • Usually line-reviewed
  • Granting Agencies
  • Less-specific topics
  • Investigator initiates approach
  • Assistance mechanism
  • More flexibility
  • More open communication
  • Usually peer-reviewed

36
Line vs. Peer Review
  • Line Review
  • Contracting agencies (DoD, NASA, DHS) use SBIR
    to develop new technologies they need, want to
    eventually buy
  • Dual-use is important
  • Program Manager and knowledgeable cohorts review
    proposals
  • Personal knowledge, insider terminology useful
  • Peer Review
  • Markets and approach defined by submitter,
    meeting societal need of interest to agency
  • Technical reviews by outside experts, usually
    university faculty
  • Some use separate business review panel
  • Agency PM makes final decision

37
Critical Need for SBIR
  • Know Your Customer!
  • Significant agency differences in proposal
    requirements, technical focus, evaluation
    processes
  • For peer review agencies (e.g. NSF, NIH),
    reviewers are typically subject matter experts at
    universities consider what they might want to
    see
  • For line review agencies (e.g. DoD, NASA),
    personal knowledge, interaction, relationships
    are much more important
  • Talk to TPOC before solicitation opens, if at all
    possible
  • Do in-depth background research before talking to
    TPOC, to leave a good impression

38
Plan Ahead Registration Reqs
DoD HHS/NIH DOE NASA NSF DHS USDA ED DOC EPA DOT
SBIR.gov ? ? ? ? ? ? ? ? ? ? ?
SAM (sam.gov) ? ? ? ? ? ? ? ? ? ? ?
DUNS (dnb.com) ? ? ? ? ? ? ? ? ? ? ?
EIN (irs.gov) ? ? ? ? ? ? ? ? ? ? ?
Grants.gov ? ? ? ?
DoDSBIR.net ?
eRA Commons (NIH.gov) ?
FastLane (nsf.gov) ?
PAMS (energy.gov) ?
ASAP (asap.gov) ?
FedConnect (fedconnect.net) ?
EHB (nasa.gov) ?
39
Agency Perspectives DoD
  • General DoD Descriptions
  • Primary focus is on the warfighter
  • Additional Service requirements also
  • Topics may cover nearly any technology area
  • Many medical topics in Army solicitation
  • DARPA seeks most advanced technologies
  • Moving back to longer-range insertion
  • Applicants should show strong connections to
    Service users
  • DARPA PMs may serve just 4 years, often adopt
    other Phase II proposals
  • SOCOM wants quick deployment of practical
    technology
  • Other Services in-between in level of technology
  • Navy has had most successful Phase III program
  • Other Services modifying programs to improve
    transition

40
Agency Perspectives DoD
  • 12 participating DoD Components
  • Each with its own culture, needs, requirements,
    and SBIR solicitation (6 with STTR)
  • Organizations within Services may vary as well

FY10 SBIR (STTR) Topics Ph I proposals Ph I awards Award Rates Ph II awards
Navy 343M (41M) 232 (50) 4,098 (804) 666 (151) 16.3 (18.8) 310 (46)
Air Force 331M (40M) 181 (37) 2,494 (309) 501 (125) 20.1 (40.5) 282 (59)
Army 244M (29M) 176 (29) 3,240 (446) 434 (64) 13.4 (14.3) 202 (22)
MDA 90M (11M) 35 (4) 553 (33) 126 (25) 22.8 (75.8) 77 (12)
OSD 86M (6M) 64 (6) 915 (54) 143 (9) 15.6 (16.7) 41 (3)
DARPA 67M (8M) 27 (0) 833 (0) 107 (9) 12.8 (N/A) 127 (16)
CBD 15M 10 127 21 16.5 19
SOCOM 10M 8 142 23 16.2 6
DTRA 8M 17 307 21 6.8 5
DLA 2.4M 1 55 6 10.9 2
DMEA 2.2M 2 35 4 11.4 0
NGA N/A 0 0 0 N/A 0
41
Agency Perspectives NIH
  • Largest part of HHS (NIH, CDC, FDA, ACF)
  • 24 Institutes Centers (23 Directors Office
    w/ funding)
  • Parent SBIR STTR FOAs released January
  • Standard due dates Apr. 5th, Aug. 5th, Dec. 5th
  • AIDS-related due May 7th, Sep. 7th, Jan. 7th
  • SBIR Contract Solicitation (NIH, CDC) rel. In
    Aug.
  • Closes Nov. 13th
  • Additional FOAs (PAs, RFAs) released periodically
  • Budgets (2012)
  • NIH SBIR 632M NIH STTR 85M
  • CDC SBIR 8.3M FDA SBIR 1M
  • ACF SBIR 350K

42
Agency Perspectives NIH
NIH Institutes Centers relative SBIR/STTR
budget allocations
43
Agency Perspectives DOE
  • Granting agency that acts like a
    contracting agency
  • Program undergoing major changes
  • Now two solicitations per year (ST Program
    Topics, Applied Program Topics)
  • Now providing Technical Points of Contact for
    pre-solicitation period
  • Requires Letter of Intent
  • Note that DOE Program focus may not be what youd
    expect
  • Includes Defense nuclear nonproliferation, fossil
    fuels, nuclear clean-up, as well as renewable
    energy and energy conservation

44
DOE Program Offices Participating in SBIR/STTR
New for FY12 ARPA-E SBIR/STTR Programs
Defense Nuclear Nonproliferation
Energy Efficiency Renewable Energy
Advanced Scientific Computing Research
Electricity Delivery Energy Reliability
Basic Energy Sciences
Environmental Management
Biological Environmental Research
Nuclear Energy
Fusion Energy Sciences
Fossil Energy
High Energy Physics
Nuclear Physics
Goal 1 Clean Energy Technologies Goal 2
Science and Engineering Leadership Goal 3
Nuclear Security
DOE SBIR/STTR Programs Office
45
DOE SBIR vs. STTR
  • DOE uses the same topics for SBIR STTR
  • Applicants can apply to either or both programs
    with a single application. If you apply to both
    programs, you must meet the requirements for
    both.
  • STTR Small business collaborates with a
    non-profit research institution
  • For both Phase I II
  • Small business gt40
  • Research Institution gt30
  • SBIR Small business is required to perform the
    majority of the RD
  • Phase I gt67
  • Phase II gt50

46
Agency Perspectives NSF
  • National Science Foundation wants to see
    transformational, game-changing technology based
    upon good science, real innovation, real risk
  • Peer reviews typically by university faculty in
    relevant fields
  • Your team should have recognized experts,
    published scientists in relevant fields of
    science or technology, doing real research
  • NSF values strong industry/university
    collaborations
  • Likes to see commercialization of prior
    NSF-funded research
  • Especially values university spin-outs
  • NSF has very strong focus on commercialization
  • Need to show significant market opportunity,
    ability to address it (e.g. partner/customer
    support, incl. relevant letters of support)
  • NSF has led other agencies in support for,
    emphasis on commercialization planning and
    broader impacts

47
Strategies for SBIR/STTR Success
48
Keys to Long-Term Success
  • Focus Strategically
  • Dont chase money opportunities just cause we
    can
  • Focus on opportunities that take you towards
    goals
  • Work with customers (agencies) to create new
    opportunities
  • Network, Collaborate, Partner!
  • Work with university researchers wherever
    possible
  • Biggest single factor in winning Phase I SBIR
  • Partner with fed. labs, esp. if agency is target
    customer
  • Cooperative RD Agreements (CRADAs), Test Service
    Agreements may be paid for with SBIR/STTR funds
  • Work with Prime Contractors where relevant
  • Can be subcontractor on SBIR/STTR
  • Other partners for design, mfg., dist., service,
    etc.

49
Consider a First Strategic Partnership
The single greatest factor for SBIR (Phase I)
success is partnering with a research institution
(esp. a university). - Observation noted by top
SBIR experts and Program Managers
  • Recognized scientific expertise adds credibility
  • University labs are significant sources of
    innovation
  • University laboratory research facilities may be
    needed
  • University scientists have lots of technical
    proposal experience
  • Dont let them take lead in writing full
    proposal!!

50
Partnering with Federal Labs
  • Advantages of a CRADA (Cooperative RD
    Agreement)
  • Tie into significant RD capability at little or
    no cost
  • Utilize specific RD capability available nowhere
    else
  • Increase your perceived credibility based on
    partnership
  • Become familiar with Agency (customer) needs,
    culture
  • Agency personnel become familiar with your
    capabilities for potential advantages
  • Often opens doors for other funding opportunities
  • SBIR/STTR plus the OTHER 96 - tremendous
    long-term value!
  • Note federal law prohibits payment to company
    under a CRADA, while companies may pay lab for
    services, which may now be allowed as an
    SBIR/STTR subcontract.

51
Partnering with Primes
  • Prime Contractors (Boeing, Raytheon, Lockheed,
    etc.) often seek out SBIR companies for
    partnering.
  • Can subcontract to Prime on an SBIR. Amount may
    not be significant to them, but future system
    enhancements, contract opportunities can be.
  • For SBIR company, tremendous future business
    opportunities for subcontracting, even business
    acquisition.
  • Caveat Get professional advice on IP, SBIR Data
    Rights (7018 Clause), before signing any
    agreements.

DoD Perspective Partnering with Primes shows
intent to transition technology, and capability
to do so.
Boeing SBIR/STTR PM adriana.s.ocampo_at_boeing.com
Lockheed Martin SBIR Team Sbir.Fc-LMC_at_lmco.com
orysia.d.buchan_at_lmco.com
52
SBIR and the Business Development Timeline
53
Timeline SBIR to Commercialization
Ideal Case
Perfect Match SBIR topic posted
Phase II Award
Phase II Enhancement
Phase I Award
Year 1
Year 2
Year 3
Year 4
Company Experienced, Competent, Capable, Focused,
Aggressive
Initial Product Introduction (Software)
Prime Contractor / Commercial Partner Relevant
Contract, Technical Need, Eager to
Partner, Willing to work with small business
54
Client Example Visual Learning Systems,
Inc.Transition Success Feature AnalystTM
Software
Technology Software for automated feature
extraction in hyperspectral or panchromatic
images. Learning algorithms are orders of
magnitude faster than manual digitizing, also
easy to train.
  • Developed under multiple SBIRs
  • 3 NASA SBIR awards, 3 NSF
  • Army TEC Ph. I II, NAVAIR Ph. I II
  • CRADAs Partnerships with Govt
  • Army TEC NUWC CRADAs
  • NASA TCA
  • NIMA NRO partnerships
  • Partnered with Primes
  • ESRI, Leica, BAE, Intergraph

Chosen by NGA for deployment across all NGAs
Integrated Exploitation Capability (IEC)
workstations Now Dual-Use (Commercial
Military) Success!
55
Timeline Feature Analyst Transition
NASA Stennis Phase II
Army TEC Phase I award
Army TEC Phase II award
NASA JPL Phase I
NAVAIR Phase I award
NAVAIR Phase II award
TCA with NASA JPL
NUWC CRADA
NRO Fastmax
NSF Phase I
Army TEC CRADA
Army TEC Phase II award
NASA Stennis Phase I
Army TEC Phase I award
NSF Phase II
NIMA Big Ideas
NIMA BAA
NRL contract
Textron Acquisition 325M
Overwatch Acquisition
1998
1999
2000
2001
2002
2003
2004
2005
USFS Testing
BAE Systems partnership
New Company Visual Learning Systems
FA for SOCET SET
ESRI partnership
NGA Product Adoption (Integrated Exploitation
Capability)
Leica Geosystems partnership
Company Integrated Geosciences
Feature Analyst for ArcGIS
FA for ERDAS
56
Getting Started in SBIR/STTR
  • Sign up for PNNLs free SBIR Alert
  • http//www.pnl.gov/edo/opportunities/sbir.stm
  • Attend SBIR conferences and workshops as able
  • Network at relevant industry technology
    conferences
  • For Defense, check out NDIA
  • Other relevant SBIR resources
  • SBIR Gateway www.zyn.com/sbir
  • Insider news, agency links, calendar, and best
    historical topic database to search - can help
    determine relevant agency interests, find DoD
    contacts.
  • SBIR.gov Official central government SBIR
    website
  • Greenwood Consulting Group, proposal writing
    tips
  • http//www.g-jgreenwood.com/sbir_proposal_writing_
    articles.htm
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