Recent Research: Access to information is key to SBIR effectiveness

Accelerators, incubators and entrepreneurial assistance programs work to ensure their startups understand their product’s market competition, customers, and supply chain. As it turns out, that’s also good advice for small research-based firms trying to move from SBIR proof-of-concept funding to securing the larger Phase II awards. A survey of approximately 250 National Institutes of Health (NIH) Small Business Innovation Research (SBIR) program awardees by researchers finds market information from suppliers, customers, and competitors to be key for small entrepreneurial firms to increase publicly funded research and development (R&D) effectiveness.

In Knowledge-Based Information and the Effectiveness of R&D in Small Firms (published April 27, 2022, in Springer’s Small Business Economics: An Entrepreneurship Journal), researchers from RTI International and UNC Greensboro explore and discuss the impact of external sources of information on R&D effectiveness in small entrepreneurial firms as measured by changes in the probability of small firms receiving Phase II invitations from their federal SBIR program Phase I sponsors and winning awards from a Phase II submission.

The authors chose the NIH, instead of one of the 10 other agencies required to participate in the SBIR program, as NIH offers the second largest number of Phase I awards and funding each year. The U.S. Department of Defense, which offers the most SBIR awards and funding among the participating federal agencies, was not selected to avoid the national security clearance aspects of some DOD SBIR projects.

Phase I data was gathered via an online survey sent to the principal investigator (PI) listed on Phase I research projects that received funding between 2016 and 2018. Because the survey asked for information regarding Phase II invitations and awards, the authors imposed a three-year minimum lag to allow sufficient time to pass before final data was collected. It is important to note that this means participants who received funding in 2016 and 2017 were given more time than those in 2018.

The authors identified 1,724 publicly available Phase I awards that listed an active email address of the PI, of which 246 returned completed surveys. Those who returned completed surveys reported an average of 12 employees at the time of Phase I awards and approximately 40 percent were first time awardees.

Key findings:

• Information regarding competitors is important for increasing the probability of being invited to submit a Phase II proposal;
• Information concerning suppliers and customers is important for increasing the probability of receiving a Phase II award;
• The size of a given firm’s Phase I award is positively correlated with the probability of receiving a Phase II award, but not with the chances of being invited to apply for a Phase II;
• Neither past SBIR award experience nor the number of employees at the time of a Phase I award is correlated with Phase I R&D effectiveness;
• Neither the number of employees, nor previous SBIR award experience has any correlation with the probability of being invited to submitting a Phase II application.

SSTI assessment: These findings have important policy implications for state and local SBIR assistance programs and other initiatives serving innovation-driven entrepreneurs. Assisting small businesses with proposal writing, coaching on project design, and mentoring through Phase I so the firms will “be engaged in a market discovery process” early in their SBIR work will increase the probability of moving to Phase II and closer to everyone’s goal of the company’s successful commercialization of a resulting product – and the regional economic development that will be enjoyed as a result.