The Three Phase Process

The Small Business Administration (SBA) sets some overall guidelines for the entire SBIR program. However, each agency establishes additional individual funding priorities, award limits, proposal deadlines, and review processes. Funding through the SBIR program is a three-phase process. On average, approximately one out of ten Phase I proposals are funded, and one out of three Phase II project proposals receive an award.

The SBIR-STTR Program is a Three-Phase Process:

  • Phase I is the startup phase, with awards of up to $150,000 for approximately six months, to support the exploration of the technical merit or feasibility of an idea or technology.
  • Phase II expands the Phase I results, with awards of up to $1,000,000 for as long as two years. During this time, the R&D work is performed to demonstrate efficacy. Only Phase I award winners are considered for Phase II.
  • Phase III is the period during which Phase II innovation moves into the marketplace. No SBIR funds support this phase. The small business must find funding in the private sector or other non-SBIR federal agency funding.

Phase I - Following the submission of proposals, agencies make SBIR Phase I awards based on a merit review process including: small business qualification, degree of innovation, technical merit, and future market potential.

Phase II - Businesses successfully completing Phase I awards are eligible to apply for Phase II funding. Phase II awards further the results of Phase I with additional R&D and prototype work (moving towards the implementation of a commercialization plan in Phase III). In the Phase II proposal process, businesses are required to show evidence of a contingent Phase II private funding commitment. Whenever possible, including this funding possibility in the proposal will strengthen the application, even if only an outline for this aspect of the project exists.

Phase III is the period during which Phase II innovation moves into the marketplace. No SBIR funds are available for Phase III. The small business must find funding in the private sector (or other non-SBIR federal agency) such as: corporate contracts, strategic alliances, manufacturing contracts, venture funding, marketing channels, and joint venture or distribution partnerships. This is a challenging time for small companies, since the ‘technology readiness level’ of their technology usually does not support market entry and significant technical and market validation risks remain. This period has been called the ‘valley of death’.

Some agencies are introducing Direct Phase II and Fast Track.

All businesses submitting proposals must include a commercialization report. This report must have a specific strategy for commercialization with clear and measurable milestones. Quantitative results from any prior Phase II projects (if prior awards have been received) should be included.