Useful Stats: SBIR awards per 1,000 innovation research establishments by state, 2019

States often estimate their participation in the Small Business Innovation Research (SBIR) program by counting the number of awards made, total of award value, or (when available) the success rate of applications in their state. In this edition of SSTI Useful Stats, we attempt to go beyond these measures to estimate states’ untapped potential for capturing future SBIR awards. This creates a baseline proxy for tailoring and assessing a state’s outreach and support activities.

While the traditional measures of SBIR participation are important, only the success rate begins to reveal potential future growth for a state’s SBIR participation. Another approach is to estimate the participation rate in SBIR among companies that are similar to a typical SBIR awardee. Of course, identifying “similar” firms is a challenge, as there are many factors that determine which companies are willing and able to participate in the program.

As a starting point, this analysis utilizes the industries (4-digit NAICS) of SBIR winners, which has been compiled by Dawnbreaker, a consulting firm in technology commercialization. There is a very small pool of NAICS codes from which the vast majority of SBIR winners are classified (“scientific R&D services” alone comprises 46 percent of awards). In fact, based on SSTI's analysis, 87 percent of all firms with linked NAICS codes winning SBIR awards between 2011 and 2019 fall within 15 NAICS codes; collectively called "innovation research" industries in this article.

Our analysis then gets at the state’s potential for future SBIR participation by comparing the state’s number of SBIR awards against the number of firms in these industries with the greatest levels of participation in the program.

The first measure in this analysis shows the relative size of the innovation research sector in states. There are several definitions of and methodologies for determining which industries qualify as innovation research industries. This analysis — focused on exploring SBIR participation in states — uses the Small Business Administration’s (SBA) SBIR award data cross-referenced to data from the System for Award Management (SAM.gov) to determine the primary 4-digit NAICS codes claimed by SBIR awardees and identifies innovation research industries as the 15 NAICS codes* most frequently claimed by the majority of SBIR awardees. Setting the cut-off point at 15 industries, although somewhat arbitrary, was based on a natural break in the data between the 15th and 16th most frequently used NAICS codes and the cumulative share of SBIR awards represented by these NAICS codes (87.2 percent of the sample). Establishments in these sectors are referred to as “innovation research establishments.”

Using these 4-digit NAICS codes as our definition of the innovation research sector, determining the size of this sector in each state is calculated as the average annual count of innovation research establishments as a share of all establishments in a state. As seen in the first map below, the area with the greatest share these establishments in 2019 was the District of Columbia (21.1 percent), followed by Colorado (14.8 percent), Maryland (14.5 percent), Utah (13.5 percent), Virginia (12.9 percent), New Hampshire (12.9 percent), Delaware (12.8 percent), Arizona (12.5 percent), Vermont (12.4 percent), and North Carolina (11.3 percent). Using this measure, the states typically associated with high levels of innovative technology firms such as California, Massachusetts, and New York appear less reliant on this sector than the states previously mentioned.

Having established the relative size of the innovation research sectors in states, the second measure in this analysis aims to show the degree to which this sector participates in the SBIR program. This metric is calculated as the total number of SBIR Phase I and Phase II awards in a state per 1,000 innovation research establishments. As seen in the map below, the area with the greatest number of SBIR awards to 1,000 innovation research establishments in 2019 was Massachusetts (22.2), followed by New Hampshire (13.6), Hawaii (12.7), Ohio (10.9), Virginia (10.9), California (10.6), Maryland (9.9), Colorado (9.3), New Mexico (8.5), and Alabama (8.2).

This week's edition of the SSTI Useful Stats is a first attempt at helping states develop a baseline proxy for current SBIR saturation. Feedback on this measure is welcomed and can be directed to either Colin Edwards (edwards@ssti.org) or Mark Skinner (skinner@ssti.org).

Click here for the SSTI spreadsheets used in this analysis.

*Please see the link above for the spreadsheet containing the list of 15 4-digit NAICS codes used in this analysis.