Demystifying Federal Funding for Small Business Innovation

(Contributed by Pat Dillon)

Small businesses with innovative ideas don’t often make the connection between their technology-based ideas and federal funding sources. They assume federal funds are not available for their idea or technology, or they simply don’t know how to get started. 

Two federal funding programs, the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Programs, make available funding to support small business (1-500 employees) research and development. Yet maneuvering the idiosyncrasies and nuances of these programs can be daunting and overwhelming.

As a state, we must demystify these programs to enable small businesses to capitalize on this funding for economic gain. We must “spread the gospel” about federal R&D funding opportunities to benefit small businesses in both urban and rural areas.

Recently, a small, rural-based business in Rice Lake, WI, was successful in winning a $3.2 million grant from the National Institutes of Health SBIR Program to construct a prototype mobile fetal magnetocardiography (fMCG) system. The project partners include UW-Madison, Department of Medical Physics; three industrial partners; and four well-known clinical sites, all aimed at developing this new mobile fMCG system to help women with high-risk pregnancies during the second half of their pregnancy.

This NIH SBIR grant is the second largest in Wisconsin and the first SBIR grant in northern Wisconsin (north of Highway 8). To bring this medical advance to the forefront, the company leveraged the state’s resources, programs, services and brain power to prepare and submit its proposal to the NIH. They continue to leverage that expertise to manage the grant.


Since 1983, Wisconsin’s technology-based businesses have been awarded about $200 million of SBIR and STTR funding, resulting in many new and innovative products and services for government and commercial customers in many industry sectors. Nationally more than $50 billion has been awarded to thousands of small businesses to research, develop and commercialize technologies in the life sciences, defense, energy, education, agriculture, homeland security, space, software, environmental, transportation and many other areas of science and technology. SBIR/STTR Programs were established to:

  • Stimulate technological innovation
  • Use small businesses to meet federal R&D interests/needs
  • Encourage participation of disadvantaged and minority persons in technological innovation
  • Increase private sector commercialization through federal R&D investment
  • Promote collaboration and partnerships between small business and academic institutions, federally funded R&D centers and/or private sector firms  



These programs enable small businesses to fund and conduct innovative R&D efforts in collaboration with private or public sources; retain intellectual property rights of the federally funded R&D effort; retain 100 percent ownership of their small business; and achieve credibility in the federal R&D marketplace. 



SBIR requires 11 federal agencies to reserve a portion of their extramural R&D funds for award to small businesses. STTR requires participating federal agencies (5) to reserve a portion of their extramural R&D funds for award to small business/nonprofit research institution partnerships. Collectively, these agencies award more than $2.5 billion annually.



There are three phases to the SBIR/STTR Programs. Each federal agency publishes its solicitation, which includes information on research topics and interests, rules and regulations, and instructions for submitting a proposal. SBIR/STTR funding can be used to cover direct and indirect (overhead/G&A) costs and a small profit/fee. Eligible expenses include research personnel salaries; consultants; supplies; equipment; facilities; human and animal studies; and project-related travel.

At each phase, the small business submits a proposal to the appropriate federal agency. A small business can receive up to $850,000 over three years (two phases) to determine the technical feasibility of the innovative idea leading to the production of a working prototype.

During the third phase, the commercialization phase, the company is encouraged to seek private sector financing, licensing, and/or strategic partners to commercialize the product/technology. Some agencies (Department of Defense and NASA) may award non-SBIR/STTR procurement funds for “sole source” procurement from the small business. This can result in millions of dollars in sales for the small business.

Should you pursue SBIR/STTR?  

Deciding to pursue SBIR/STTR funding really depends on the vision and goals of the business, and its product development pathway. It is a strategic business decision – one that requires dedicated internal resources (time, people and materials).

The competition for these funds is fierce; the process is time consuming; and it has risks. But persistence and tenacity result in huge opportunities and rewards for those who are smart, savvy and strategic about pursuing federal R&D funding to support their innovative product development.

Wisconsin-based companies, like the Rice Lake company mentioned above, are encouraged to leverage the knowledge, expertise and relationships in government, academia and the private sector to successfully compete for federal SBIR/STTR funding.


Pat Dillon is the Northwest Regional Director for the Wisconsin Entrepreneurs’ Network. Dillon has extensive experience with SBIR and STTR programs and can be reached at or 715-836-5056.


One response to “Demystifying Federal Funding for Small Business Innovation

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