The Small Business Innovation Research (SBIR) program is a federal initiative started in 1982 to support the growth of small businesses through non-dilutive (i.e. the company does not have to give up any equity) R&D funding. Twelve federal agencies including the Department of Defense (DoD), Department of Health and Human Services (including the National Institutes of Health), Department of Energy (including the Advanced Research Projects Agency-Energy), and the National Science Foundation participate in the program. The ultimate goal of these programs is to help small businesses mature innovative research and prototypes into commercially viable, multipurpose products and capabilities that also address government and military challenges.
The Small Business Technology Transfer (STTR) program is the sister program to SBIR. It differs in that it is focused on the transfer of innovative technology from research institutions (such as federal laboratories) to small businesses as opposed to transferring innovation from small businesses to the government. It allows small businesses the chance to benefit from the greater resources available in universities and other such research institutions. SBIR and STTR are two sides of the same coin with a shared goal of bridging the innovation and growth gaps between private and public sectors. For the purposes of this article, we will focus on the SBIR program.
The DoD has the largest SBIR budget of any participating agency and has also shown considerable interest in changing its approaches to accessing new companies from outside the traditional defense industrial base through such new organizations as the Defense Innovation Unit and AFWERX. If you are thinking about pursuing business opportunities in the DoD market, chances are you arrived at the AFWERX SBIR website as a starting point. AFWERX is an innovation and acquisition arm of the U.S. Air Force under the Air Force Research Laboratory and provides excellent introductory resources for their SBIR program. AFVentures, the investment arm of AFWERX, manages the Air Force’s SBIR program.
The AFWERX framework for the SBIR process offers a great mechanism to access potential customers and users within the Air Force and wider DoD. AFWERX provides a fantastic front door and scaling mechanism (including potential additional sources of capital) for dual use companies looking to expand into DoD. This blog is designed to help companies better understand the overview, phases, requirements, and processes of the program.
What Makes AFWERX SBIR Program Unique?
The AFWERX SBIR program has been a pioneer of an innovative new approach to SBIR within the DoD. One of AFWERX’s first innovations with the program was its Open Topic approach, which allows companies with an innovative solution to pitch it without matching it to an already articulated military problem (the program has traditionally selected these research topics, sometimes with great specificity that risked inadvertently being too prescriptive in how a problem is to be solved in the solicitations). AFWERX also offers open pitch days for a wider array of technology solutions from the commercial sector. To date, AFWERX SBIR has also offered more small Phase I awards averaging $50,000 each. This diversifies the pool of innovation, but does not itself solve the legacy valley of death problem. AFWERX devised the STRATFI and TACFI programs, which offer supplemental funding options that help close the capability gap and scale up a successful prototype.
Entering the Program
Learning the paths and processes to entering the program is the first step. Vying for a SBIR award involves considerable eligibility requirements, comprehensive documentation, and researching defense mission needs.
With the exception of the occasional off-cycle announcement, AFWERX conducts three annual Broad Agency Announcements (BAA) a year, aligned with the rest of DoD’s SBIR release cycle, to solicit for commercial solutions. The specificity and the number of topic areas can vary significantly from solicitation to solicitation.
As the name indicates, an SBIR applicant must be a small business—and the government has specific criteria for eligibility, such as a company must be for-profit with 500 employees or fewer. The principal investigator, or primary responsible party for the project, must be primarily employed (more than 50 percent) with the small business according to AFWERX AFVentures. Companies have to register with the System for Award Management (SAM), the Small Business Administration’s (SBA) Company Registration, and a Unique Entity Identifier (SAM) number from SAM.gov. The Unique Entity Identifier (SAM) number is the latest authoritative identifier for organizations working with the government. DoD applicants including AFWERX Open Topic applicants must also secure a Commercial and Government Entity (CAGE) code. DoD SBIR proposals are submitted to the Defense SBIR/STTR Innovation Portal (DSIP).
A company then submits a proposal for their project ideas. Phase I award proposals are shorter and simpler than phase II proposals. Phase I proposals usually establish the innovative quality and viability of the proposed research initiative. Phase II proposals require more details articulating the mission needs, estimated project timelines, funding commitments, and transition plans. Stakeholders in the project are also detailed in the proposals, codified via a signed memorandum. These stakeholders are the customers, end users, and technical points of contact (TPOC). For phases I and II, a life cycle certificate and funding agreement must be completed and submitted before the final payment.
Phase I, II, and III
Phase I and II of the AFWERX SBIR program are the phases funded by the program, in contrast to phase III. Phase I and II are where the bulk of the R&D will be conducted, whereas phase III is more or less permission for government users to buy the capability developed under phase II directly without further competition.
Phase I—Phase I is where the groundwork is laid for establishing the scientific and economic feasibility of the proposed work. It is also when a lot of research into the mission is conducted, particularly for the Open Topic approach where an end-user may still need to be identified. During phase I, networking with end users and customers to understand their needs will help to refine the project goals and develop a successful phase II proposal.
Phase II—Phase II is a continuation of the activities started in phase I but on a larger scale and budget (and can also sometimes be accessed directly in Direct to Phase II or D2P2 solicitations). Tangible prototypes are usually produced in this stage from the R&D efforts. These prototypes can be used to test and demo with customers and end users. This gives SBIR awardees chances to build understandings about and adapt products based on hands-on experience and reviews from the stakeholders.
Phase III—Phase III does not offer funding from the SBIR program directly, but instead provides the contractual justification for the government to buy the capability developed in phase I and II directly without further competition because it was developed, at least in part, with government funding under the SBIR program.
Phase I and II are for building. Phase III is for fielding. Phases I and II are where the project comes to life, and hopefully, where the SBIR program’s mission statement in regards to innovation is realized. Phase III is where the product takes a deliverable form—and for companies, where the economic benefits are realized.
STRATFI and TACFI
The Strategic Funding Increase and Tactical Funding Increase Program (STRATFI/TACFI) are implemented by AFWERX to further bridge the gap and resource promising companies to scale up as they come to the end of the SBIR program. They accomplish this by matching funding, at different ratios, for the most promising AFWERX SBIR awardees with pathways for both matching of funds from private investors like venture capitalists (VCs) and also other government organizations.
AFWERX’s SBIR program is a great opportunity for small businesses to both innovate and break into a new market. With non-dilutive funding, business owners can worry less about losing ownership while still getting an infusion of R&D funding. AFWERX’s SBIR program is among the most innovative in defense acquisition because it is tailored to help companies new to defense orient to the defense market, prepare a phase II proposal, and successful participating companies are eligible for additional support. Participation in the program provides a great contractual justification for the government to buy your capability directly. For any company looking to enter the DoD market or even the wider government space, AFWERX is a great place to start searching for problem spaces where your commercial solutions can address pressing mission needs.