Congress Should Extend Small Business Innovation Research Program in Defense Authorization Bill

The Small Business Innovation Research (SBIR) program is the largest and most important public research and development funding program for small businesses in the United States. The $4 billion/year program has an outsized impact on the startup and scientific communities by stimulating the development of innovative technologies and moving those discoveries closer to commercialization. It is so important to American innovation that it has become known as “America’s Seed Fund.” However, SBIR is on the verge of expiring on September 30th unless Congress takes action. With the window of opportunity narrowing due to the August recess, the scientific research and startup communities are calling on Congress and President Joe Biden to reauthorize the small business program as part of the FY2023 National Defense Authorization Act (NDAA).

While extending the SBIR should be a top priority for Congress, it is doubtful that it will get a stand-alone extension by the end of September. This is why Congress should make the NDAA (which normally enjoys bipartisan support) the vehicle for an SBIR extension. The House already passed a 2-year extension as part of its NDAA, and the White House indicated its support for the measure.

Unfortunately, SBIR’s path to reauthorization is slightly more muddled in the Senate. Despite overwhelming support from the Department of Defense, research universities, and the small business community, the Senate NDAA that was reported out of the Senate Armed Services Committee last month did not include an extension. It’s not clear whether the Senate can pass its version of the NDAA (with or without the extension) and reconcile differences with the House before the program expires. This is likely due to concerns raised by Sen. Rand Paul (R-KY) that have slowed the program’s reauthorization. Paul has routinely expressed fears that SBIR grants are wasteful spending and represent a national security threat.

While Prime Movers Lab shares Sen. Paul’s concerns about US technology falling into the hands of foreign adversaries, we believe protections can be put in place that do not hinder the SBIR program. For instance, the White House Office of Science and Technology Policy is already developing policies on research security that should assuage many of Sen. Paul’s concerns.

As for concerns about “wasteful spending,” the majority of research shows that SBIR and the Small Business Technology Transfer (STTR) program have had significant benefits for U.S. startups and defense technologies. An economic impact study of the program conducted by the DoD found that SBIR and STTR generated a 22 to 1 return on investment, including $347 billion in total economic impact, and created more than 1.5 million jobs between 1995 and 2012. That is a pretty robust return on investment for a meager $4 billion per year program, and it is even more impressive when you realize those figures are only based on the DoD awards and do not include technologies commercialized by the Department of Energy, Department of Health and Human Services, NASA, and the National Science Foundation.

SBIR proponents are also pointing out Paul’s unrealistic expectations for the program. In a committee hearing, Sen. Paul asked whether taxpayers should continue to “fund the folly without any expectation of a return on investment.” If SBIR program managers were capable of only funding winners, they would have abandoned their government jobs years ago to take positions with Wall Street hedge funds — or more likely as Las Vegas bookies. No program is going to be able to only pick game-changing technologies — just like no venture capital fund bats 1000% with each of its investments. A small number of portfolio companies provide the majority of returns. The same is true in the SBIR program. A few awards will support transformational technologies while some will fall short.

In recent weeks, DoD has become one of the program’s biggest supporters, highlighting the program’s importance to national security. Last year, DoD granted almost 3500 SBIR awards totaling $1.7 billion, making it the federal government’s biggest provider. In a letter to leaders of the House and Senate small business committees, Department of Defense’s Undersecretary for Research and Engineering Heidi Shyu wrote, “The small businesses that participate [in SBIR] are a vital part of the DoD R&D enterprise. The Department is concerned that any gaps or delays in reauthorization will cause irreparable harm to the small business community and have an adverse effect on national security.”

If changes are going to be made to the program, they need to make the application process more streamlined. A 2022 Assessment of the SBIR and STTR Programs at the National Institutes of Health found that “administration is both unnecessarily complex and not timely enough to serve the unique needs of small and young innovation-driven life sciences businesses.” Congress should resist any calls to place caps on the number of awards that individual companies can receive. As other supporters of the program have pointed out, caps will reduce competition and diminish innovation. Congress should also reconsider requirements that force recipients to have significant sales revenues. Most early-stage startups have little or no revenue, especially ones focused on scientific research.

While Prime Movers Lab supports a permanent extension of the SBIR program, the Senate should follow the House’s lead and include a 2-year extension for the program in its FY2023 NDAA. To ensure the SBIR is extended, readers should meet with their senators at town hall meetings while they are home during the August recess and remind them that non-dilutive capital like SBIR funds are critical for the small business and technology ecosystems in every state. Members need to understand that the SBIR program is a critical catalyst for many of the ideas and innovations that make the US a beacon of innovation around the world.

Gavin Mathis is the Communications and Government Relations Partner for venture capital firm Prime Movers Lab, which invests in breakthrough science startups that are transforming billions of lives.

Prime Movers Lab invests in breakthrough scientific startups founded by Prime Movers, the inventors who transform billions of lives. We invest in companies reinventing energy, transportation, infrastructure, manufacturing, human augmentation, and agriculture.

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