Major Changes to SBIR Program Debated as Reauthorization Deadline Nears

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September 05, 2025

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by Jason Miller (WTOP Federal News Network) The Small Business Innovation Research program expires on Sept. 30 and there is little agreement on what the future of the program will look like. -- The reauthorization of the Small Business Innovation Research program is caught in a tug-of-war.

The new-age venture capitalists want to transform the 43-year-old program to meet what they say is the 21^st century approach to research and development.

Long-time program supporters say those changes, as proposed by Sen. Joni Ernst (R-Iowa) in her INNOVATE Act, are trying to solve problems that generally do not exist and would harm both small businesses and the agencies that depend on the program, most particularly the Defense Department.

This debate over the future of the SBIR is the undercurrent to the fact that the program’s current three-year authorization expires on Sept. 30. If Congress doesn’t act this month, programs at the Defense Department, NASA, the Energy Department and eight other agencies will be put on hold pending action by lawmakers.

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The debate over reauthorizing the SBIR and Small Business Technology Transfer (STTR) programs is centered around the changes Ernst’s bill would bring.

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Among the changes the Investing in National Next-Generation Opportunities for Venture Acceleration and Technological Excellence (INNOVATE) Act is proposing are:

To reserve 2.5% of the SBIR allocation for smaller, one-time $40,000 awards to new applicants with a shorter, streamlined application focused on the commercialization potential of their innovation.
To impose a $75 million lifetime cap on awards for companies in the SBIR program.
To increase the total set aside for SBIR to 3.45% from 3.25% starting in fiscal 2026 for agencies with annual extramural R&D budgets over $100 million.
To initiate one-time strategic breakthrough Phase 2 awards of up to $30 million to scale the strongest technologies.
To establish default fixed price contracts.
To strengthen the due diligence of companies to prevent adversary-linked companies from exploiting program dollars.
To reform the application process to make it easier for small firms to apply for SBIR/STTR awards.

“The INNOVATE Act ensures that SBIR/STTR award dollars go to the best and brightest that are developing technology supporting our warfighters. For too long, SBIR mills have gamed the system by taking in hundreds of millions of award dollars, but too often produced nothing more than policy white papers,” said a spokesman for Sen. Ernst in an email to Federal News Network. “Firms producing mission-critical and commercially viable technology will thrive under Chairwoman Ernst’s legislation, and those leeching off taxpayers will be exposed.”

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The legislation hasn’t moved out of the Small Business and Entrepreneurship Committee, of which Ernst is the chairwoman. Rep. Roger Williams (R-Texas), chairman of the Small Business Committee, introduced a companion bill in July.

There is a second bill to reauthorize the SBIR program permanently. Sen. Ed Markey (D-Mass.) and Rep. Nydia Velazquez’s (D-N.Y.) legislation also would make some other changes to broaden participation of small businesses and protect federal investments. This bill also hasn’t moved out of committee.

Experts say the most logical way for Congress to reauthorize SBIR will be by attaching one of these two bills or some compromise version to the 2026 Defense Authorization bill.

Future of SBIR being contested

Until then, the debate around the future of the SBIR program will continue to heat up.

On one side of the debate are the supporters of Ernst’s bill, who believe the SBIR/STTR programs are stuck in the 1980s, don’t set up the DoD and other agencies to compete with China and other nation states and say both programs have created cottage industries of consultants and a small number of companies who make their living off SBIR awards.

David Rothzeid, a principal of investments at Sheild Capital, which invests in small businesses, including those in the SBIR program, said the approach to research and development used to be the domain of the government labs, which is how Congress set up the program in 1982.

“Dual use technology meant that it spilled out into the commercial sector, and businesses were built around it. Today it’s going in the opposite direction. It’s commercial driven companies who then have national security applications, and so the government would be better off pulling it in versus pushing it out,” said Rothzeid, who also testified in March in support of the INNOVATE Act. “If you go back to 1960s, which predates the SBIR program, 36% of all the world’s research and development funding was rooted in the Department of Defense. That’s a lot. Today, it’s less than 1.5%. Your purchasing power around these technologies is just a very different equation, and it’s the venture capital community who are able to provide very patient capital around the technology that’s going to matter for the future. We are also willing to take risk.”

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On the other side of the debate are those who believe the current SBIR program is not only one of the most successful programs in the government’s history, but has evolved and transformed to address the potential and real problems of the past.

Jere Glover, the executive director of the Small Business Technology Council, which is a non-profit, nonpartisan organization dedicated to promoting America’s high-tech, innovative small companies, said the INNOVATE Act would promote the concept of “picking winners and losers,” which is something the government has never been good at. He said it would push the SBIR program to look too much like the investment model used by venture capitalists.

“They want to refocus it to later stage, venture-type investments, and for a lot of reasons, that doesn’t work. Quite frankly, the multiple award issue has been floated around since the first 10 years of the program, but as the data all shows, multiple award winners have been a very successful and integral part of the program. They’ve been critical strategic partners for the Department of Defense in particular, and a lot of great technology has been developed because you need to have the expertise, the equipment, the scientists that know specific areas of the government that’s being developed,” said Glover, who helped write the SBIR law in the early 1980s. “That has been a concern raised by Congress, and lawmakers changed that by increasing the focus on commercialization. Maybe 15 years ago, the evaluation criteria said if you don’t commercialize at least 25% then you get kicked out of the program. By and large, the companies that have exited the program have always been acquired because their technology became critical.”

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Alec Orban, staff member of the Small Business Technology Council, added Ernst’s bill places too big of a focus on companies that produce a single technology and then tries to commercialize it quickly.

“Those types of companies are great to have in the program. We don’t want to exclude them, but they shouldn’t be the only type of company that can compete in SBIR, because there are other types of companies who have technologies, who have research that the government needs, particularly the DoD,” Orban said. “DoD has historically pushed back on any cap for multiple award winners, and the Ernst bill basically throws everything at the wall trying to get something to stick. If you can’t ban them this way, then we’ll try to ban them that way or this other way.”

Concerns over SBIR mills also are overstated, Glover and others say.

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Problems are with agency implementation

The Government Accountability Office found in a March 2024 report that repeat winners were, generally, not a problem for the SBIR/STTR programs. Between 2011 and 2020, GAO found 22 small businesses received 50 or more Phase 2 awards, accounting for less than 1% of all awardees. These firms received about 10% of the total Phase 2 award dollars.

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Bob Smith, the former director of the Navy’s SBIR/STTR programs, said the problem the INNOVATE Act is trying to solve by pushing for more commercialization of these technologies is grounded in the Defense Department and other federal agencies processes rather than the companies themselves.

He said agencies have to incentivize program and acquisition offices to use the technologies that come out of SBIR.

“The program is doing what it’s supposed to, but it still runs up against the Valley of Death. Ernst’s bill expects the SBIR program to get that poor company across the Valley of Death, versus encouraging and directing acquisition to use those solutions,” he said. “Congress hasn’t held agencies accountable for that. Why aren’t you agencies using their successful SBIR companies? Why aren’t agencies giving preference to the SBIR firms that solved their problem? Where we really need a fund is in the valley of death. The program is flawed. It’s a federal program. Is anything perfect? But if you look at the statistics, if you look at solid programs like the Navy’s or the Army’s, it’s getting better, SBIR can and does work quite well.”

Better ways to measure SBIR’s impact

Smith said the Navy helped address this issue many years ago by working with the acquisition offices who had to provide a 3% “fee” for the SBIR program. READ MORE

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Change Phase II Small Business Programs from Grants to US Investments: It’s Needed to Get Innovations to Market (Advanced Biofuels USA)

Excerpt from Advanced Biofuels USA: The recent action by the US government to take a $10 billion equity position in the chip manufacturer, Intel, offers an exciting way to push US Small Business to the forefront of commercializing their hard won technological advances. These advances would help take US energy, security, medical, and agriculture industries to new worldwide innovative leadership positions.

Most current Phase II SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer) projects are primarily focused on commercialization rather than straight R&D. This is especially true in Department of Defense and Department of Energy Phase II projects. They largely involve prototype testing/verification and commercial plan implementation. In other words, the very stages usually associated with venture and other forms of capital investment.

But, do current Phase II funding polices do an adequate job of advancing science and technology in a commercial direction on their limited budgets? A convincing case can be made that they do not. Specifically, a relatively small percentage of Phase II projects are currently funded based on non-transparent evaluations of separate reviews of technical and commercial portions of the Phase II proposal. Or, in other words, an academic type process.

Also, remember that SBIR/STTR projects are known as big bang for the buck investments. And, they are limited in their funding. For example, In 2024 the Department. of Energy spent only $52 million to issue 229 Phase I awards.

So, instead of using this academic review approach, Phase II SBIR/STTR offices should be converted into Equity Funding Locations. And, instead of being tied to only Yes/No funding decisions because of limited funding, flexibility should be provided on funding amounts.

The Phase II Equity Funding Program

Here’s how it could work: in 4 steps. READ MORE