SUMMARY OF GOVERNMENT PROGRAMS

For quick facts about the different programs listed here and lists of relevant web links, visit http://www.evelexa.com/startups/grants.htm.

SBIR PROGRAM

The NIH SBIR Program offers two stages of grant support to small companies. Phase I SBIR grants are intended to support rapid determination of initial feasibility, allowing the company and the grant program to determine whether a particular product warrants further investment. Phase I grant guidelines are for a maximum of $100,000 and a maximum period of six months; however, most agencies are willing to consider well-justified requests for larger amounts of money and longer periods of time. If you obtain a Phase I SBIR and successfully meet the objectives you described in your application, you may apply for a Phase II grant, for which the guidelines are a maximum of $750,000 over a two-year period. The goal in Phase II is to move the product into the market or at least to a stage of development where the company can attract enough capital from investors or partners to complete commercialization.

To qualify for an SBIR grant, the company must be American owned (>51%), independently operated, have a principal place of business on U.S. soil, control its own research space, have less than 500 employees, operate as a "for profit" entity, and be able to carry out innovative research. This means that the company must employ well-qualified investigators and less than 30% of the work (based on the dollar amount spent) can be outsourced in Phase I and less than 50% can be outsourced in Phase II. The company must employ the principal investigator (the person listed as PI on the grant) more than half time during the award period.

If the proposed principal investigator is based at an academic institution, many companies get through the Phase I portion of an SBIR by taking advantage of the fact that many universities have only nine-month faculty appointments, technically giving investigators the summer off. If the company proposes slightly less than six months worth of work during Phase I, an academic principal investigator can be employed full-time for three months during the summer, resulting in >50% employment by the company during the Phase I award period. Universities vary in their reactions to this type of scheme. Some Universities have implemented programs that allow their scientists to take a leave of absence and rent their own space and equipment from the University for use by the company. Be sure to inquire about the policies at an academic founder's institution. If they are not compatible with the SBIR policies, you should consider applying for an STTR grant (see below).

Make sure that your business/administrative people know up front that a variety of assurances will be required when dealing with the federal government. Useful information on such assurances is provided on http://grants.nih.gov/grants/funding/welcomewagon.htm. Assurances will be required regarding the following topics: Human Subjects Vertebrate Animals; Debarment and Suspension; Drug-Free Workplace; Delinquent Federal Debt; Research Misconduct; Civil Rights; Handicapped Individuals; and Age Discrimination. If your company will be working with human subjects, you will have to comply with new NIH policies regarding education of investigators proposing to use human subjects. See http://grants.nih.gov/grants/guide/notice-files/NOT-OD-00-039.html and http://grants.nih.gov/grants/policy/hs_educ_faq.htm

In addition to awarding to grants, some programs also offer SBIR/STTR contracts for particular projects. When applying for a contract (as opposed to a grant), applicants must respond specifically to a research topic described in a solicitation. The latest listing of open SBIR contracts may be found at: http://grants.nih.gov/grants/funding/sbir.htm\#sbir

STTR GRANTS

An STTR grant funds a collaborative effort between a company and an investigator at a university or research institution. The university/research institution personnel must perform >30% of the research, the company must perform >40% of the research, and up to 30% can be outsourced during Phase I. Eligibility for STTRs is very similar to that described above for SBIRs. The major difference is that the principal investigator does not have to be employed by the applicant company at the time of or during the course of the award. Documents detailing the assignment of intellectual property must be in place so that there will be no confusion over patent rights.

STTRs can be very useful because they bring technology and expertise out of research institutes and into a company while still involving the inventors in the development phase. The STTR funding pool is much smaller than that for SBIRs, and the application is more complex because of the requirement for a budget from the research institution as well as from the company. In 2002, the NIH awarded STTR grants totaling $30M.

FAST TRACK

Some SBIR/STTR programs allow companies to apply for both Phase I and Phase II grants at the same time, eliminating the 6-9 month gap between Phase I and Phase II awards. Clear, measurable milestones for moving from Phase I to Phase II are key to success and "third party" matching dollars may be required (true of DoD, but not NIH; check with target agencies).

Department of Defense (DoD): DoD primarily funds projects developing military hardware though also includes some biomedical topics. The DoD generally puts out two SBIR/STTR solicitations per year. The Army, Navy, and other branches of the armed forces participate. This program is somewhat different from that of the NIH as the intent is to develop suppliers for the armed forces. Only proposals responsive to the stated research topics are accepted and the topics change for each solicitation. Typically 3 SBIR Phase I awards are made ($70,000 each) for each topic and a single Phase II award follows.

Frequently, if the Phase II work is successfully accomplished, a contract will be awarded to the company.

NIST/ATP: The National Institute of Standards and Technology (NIST) manages the Advanced Technology Program (ATP), which awards grants to support the commercialization projects that have a high degree of technical risk but an obvious and rapid path to market once the technical hurdles are overcome. In addition, the product being developed must have the potential to significantly impact the US economy; companies developing niche products need not apply. The program funds research on enabling technologies but does not support subsequent product development. Applicants must include a detailed business plan for bringing the new technology to market once technical milestones have been achieved under ATP support.

Up to $2 million for 2 years may be awarded to an individual company, but the company must be able to match this funding either with cash or in kind, making ATP grants more appropriate for emerging companies than very early startups. This program has been criticized in the US Congress as "corporate welfare" because large well-established companies and consortia can also apply. There are periodic threats to kill the program, but it has had significant successes and has many supporters. It is worth monitoring this program if your company's technology might qualify for an ATP grant.

SPECIAL PROGRAMS

A variety of specific program announcements (PAs) and requests for proposals (RFAs) are made each year and an increasing subset of these utilize both R01 and SBIR/STTRs as the mechanism for funding. PAs are best found by monitoring the NIH's website for special announcements of small business research opportunities: http://grants.nih.gov/grants/funding/sbir_announcements.htm.

STATE/LOCAL ECONOMIC DEVELOPMENT PROGRAMS

Although it would be impossible to cover them all here, most states and many local governments also have various types of grants and/or low-interest loan programs intended to support the growth of small businesses. In general, the amounts of funding available from these programs are relatively small ($50,000 - $500,000), and not all of them are appropriate for early startups. It is always worth checking how you might be able to use these programs to stretch investor capital or federal grant money. For instance, Pennsylvania's Ben Franklin Technology program requires matching funds (which can come from an SBIR grant) but will pay for items not eligible for SBIR funding such as market surveys or patent preparation and filing. California has a program in which SBIR recipients can receive additional matching money from the state. Non-profit and charitable foundations may also be a source of grant funding, particularly for projects that the company has outsourced to an academic collaborator's laboratory.