Inside Entrepreneurship: A grant program for small businesses

Inside Entrepreneurship: A grant program for small businesses

November 8, 2007 8:31 p.m. PT

LAST WEEK’S column provided resources
for non-profit and for-profit organizations on where to find
information about government and foundation grants. The frustration for
many businesses, especially in the social service sector, is that most
grant programs favor non-profit entities in their award criteria.

This week’s column highlights a government grant program for
prerevenue-stage and expansion-stage small businesses. This program is
called the Small Business Innovation Research program, or SBIR.

SBIR funds are granted in two phases: Phase I awards provide up to
$100,000 to help businesses research and test the feasibility of a new
product or service idea. Often Phase I goals involve the development of
a working prototype. With completion of all Phase I development goals,
award recipients can then apply for a second, Phase II, grant award of
up to $500,000 to help bring developed technologies or services to

In 2005, 4,300 Phase I grant awards totaling more than $461 million
were awarded to for-profit small businesses in the U.S. In addition,
there were 1,871 Phase II awards representing $1.4 billion in 2005.
Minority business owners received about 8 percent of the number of 2005
Phase I and Phase II awards.

Perhaps the most important element of the SBIR grant program is that
annual awards are based on the specific technology investment
objectives of the Departments of Homeland Security, Agriculture,
Energy, Commerce, Health and Human Services, Defense, Transportation
and Education, as well as the Environmental Protection Agency, the
National Science Foundation and NASA.

Each year, these government agencies announce research topics or
specific areas of technology interest for upcoming Phase I grant
awards. Companies that best match these development objectives should
apply for SBIR grant funding. For example, the National Science
Foundation’s areas of interests broadly include advanced materials and
manufacturing, biotechnology, wireless networks, mobile computing and

It is not surprising that, in 2005, 55 percent of SBIR grants were
awarded through the Defense Department. The second-largest SBIR budget
allocation was to the Department of Health and Human Services at 23

The neat thing about the SBIR grant program is that it helps
qualifying businesses at the time when funding options are most scarce.
Typically startup and early-stage entrepreneurs have to exhaust
personal savings, prey upon family members to support their dreams, or
give up a high percentage of their business to sources of seed or
early-stage investors to develop their products or services.

There is another, lesser-known benefit of SBIR funding. Many
agencies operate what is called a "match" program, whereby successful
SBIR grant recipients are introduced to corporations, venture capital
funds and other potential partners who may be able to further advance
the young company’s growth.

I’m frequently asked if entrepreneurs should alter their business
plans just to try to get SBIR or other grant funding. My answer is
usually no. Whenever you take a business off-track for any single
fundraising effort, it is likely that the overall business will go
off-track, too.

The best way to learn about the SBIR grant program is to visit the
Web sites of relevant government agencies for application information.
In addition, the Small Business Administration frequently operates
regional seminars on the SBIR grant program and may be able to provide
references to local grant awardees.

With a quick Web search, entrepreneurs can find a long list of
fee-based resources for SBIR application development, including tool
kits for budget preparation. Buyers should beware as each agency has
different application requirements that may change year to year. When
in doubt, always write SBIR applications to the standards presented by
the government agency.

Susan Schreter writes about startup planning and
small-business financing for the Seattle P-I. She has an investment
banking and buyout background and serves as a coach to entrepreneurs
and consultant to corporations. Find more Inside Entrepreneurship
columns at Send questions about small-business
management or raising money for your business to or by mail to Inside Entrepreneurship, c/o Seattle P-I Business Section, 101 Elliott Ave. W., Seattle, WA 98119.

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