SBIR/STTR reauthorization bill includes many big changes

A two-page proposal for a $40,000 Phase IA award? Phase II performance ratios required for companies receiving 10 and 25 Phase I awards over their lifetime? Halving the budget for STTR and shrinking university partner share? Creating a 0.25% carve-out of DOD SBIR funds for phase III awards up to $30M each? Limiting all federal technical assistance and outreach to 25 states with the fewest SBIR/STTR awards? Stronger, broader, tougher foreign risk requirements for the companies and agency due diligence? 

Webinar: Starting down the path for SBIR reauthorization

SSTI will hold a webinar to walk through the INNOVATE ACT as introduced on Monday, March 24 at 3:00pm (eastern). Interested technology-based economic development organizations may register here to attend or receive SSTI’s summary slide deck of the bill after the event.

The “Investing in National Next-Generation Opportunities for Venture Acceleration and Technological Excellence” INNOVATE Act includes these proposals and a lot more as it was introduced on March 5, 2025, by Senator Joni Ernst (R-Iowa), the chair of the Senate Committee on Small Business and Entrepreneurship. 

To continue to make any awards, SBIR and STTR have to be reauthorized before the programs expire on September 30, 2025. The INNOVATE Act will extend the program for only three years until September 30 ,2028. 

A few selected highlights:

• SBIR budget grows again. Maybe? The total set aside for SBIR raised to 3.45% beginning in FY 26 for agencies with annual extramural R&D budgets over $100 million. The current level is 3.25%, drawing 11 agencies into the program at FY 24 R&D budget levels. The number of participating agencies and total SBIR funds available across agencies are subject to change as they adjust to future R&D appropriation levels.
• The beginning of the end for STTR? Many changes are included in the SSTR program  which may result in a less relevant funding source for helping university-created technology move into the marketplace. The total STTR set aside is cut from 0.45% to only 0.20%. Additionally, the minimum share of STTR work that has to be performed by small businesses is increased to 50% of the award. That 10 % increase is taken from the minimum university participation level, which drops to 20%. 
  More telling of the committee’s intent is found in the redefinition of the purpose of STTR away from technology transfer. As written, SSTI is to fund small businesses “conducting fundamental, basic, or other scientific research that stands to benefit from partnerships with eligible research institutions.” DOD AND NASA are explicitly instructed only to use STTR for projects at technology readiness levels of 1, 2 and 3.
• SBIR gains a formal Phase III program? The act includes a carve-out of no less than 0.25% of the annual Defense SBIR budget being awarded as new “Strategic Breakthrough Awards” to be made to eligible SBIR Phase II awardees to help them move their SBIR-funded work into the defense market. Breakthrough awards may be up to $30 million and must be matched by the private firm. DOD must create an acquisition strategy for each awardee.
• New Phase IA program focuses on new entrants? Replacing the Proof of Concept pilot programs, which GAO has found few federal agencies have been using effectively, is a new simplified Phase IA award program that would require proposals of no more than two pages for awards up to $40,000. Recipients may move directly to Phase II if the work is ready to advance that far. Eligibility would be limited to companies new to SBIR and STTR. There is a limit of one Phase IA award per company, and agencies would be required to distribute 2.5% of their SBIR and STTR funding through this interesting new approach to teasing out new innovations.
• Outreach and assistance narrowed to “Emerging States.” The new phrase, an “emerging state,” is defined in the act as “the 25 States with the fewest combined number of award recipients in the SBIR program and the STTR program that have received their first Phase I award in the previous 10 fiscal years.” This definition is consistent with the Phase IA program’s focus on new entrants to SBIR/STTR and the goal of weaning companies away from becoming too dependent on SBIR for their livelihoods. SBA will need to determine which 25 states are included in that definition.
• Bye-bye tracking women and socially and economically disadvantaged individuals; hello emerging states and rural areas. Consistent with agencies recently eliminating DEI and gender-based programming, the act eliminates all specialized outreach, technical assistance and proposal requirements or selection preferences for these populations. Agencies would be no longer required to track and report awards for these groups. All references to them are changed to companies in emerging states and rural areas.
• Dealing with “the mills.” The perennial topic of “SBIR mills” is dealt with through several performance limits or metrics. The act also attempts to limit the potential for companies to become dependent on SBIR awards as a primary business model. The intent seems to be to emphasize that SBIR is intended to be a tool toward commercialization of new innovation, not an end-all in itself. Here are three examples in the legislation to address these concerns:
  
  • Single-year proposal limits for firms. The act includes caps on the number of proposals any single small business may submit in response to any single Phase I or Phase II solicitation to no more than three proposals across the firm. Businesses are also limited to no more than 25 proposals per year across all SBIR and STTR solicitations.
  • Phase I to Phase II performance standards. Multiple-award firms also must comply with minimum performance standards based on a company’s conversion ratio of Phase I awards into Phase II awards. Companies with more than 10 Phase I awards (over their lifetime) must reach a threshold of receiving one Phase II award for every four Phase I awards received (25% conversion success). 
    Companies that have received more than 25 SBIR Phase I awards must attain a 50% conversion rate. The penalty for both is a total ban on new Phase I awards for one year and no more than five Phase I awards until the appropriate threshold is met.
• Private investment or revenue requirements for SBIR firms. The act also strives to reduce any firm’s dependency on winning SBIR as their primary business model by setting revenue generation requirements. Companies with more than 25 awards over their lifetime must demonstrate that it has received an equal amount or more of non-SBIR/STTR revenues or investment since their first award, AND 65% of the lifetime total SBIR/STTR funding received must be matched during the three years preceding the fiscal year of their most recent award. The penalty is companies may receive no more SBIR/STTR awards until the two thresholds are met.

Join SSTI at the March 24 webinar to talk through these proposals and additional changes with your peers (see call out for registration information).