Some 163,000 research projects, more than 7,000 patent applications, close to US$41 billion invested in small technology businesses, and thousands of jobs created at 52,000 companies; these are the results of the Small Business Innovation Research program (SBIR), which was created by the United States in the early 1980s and has now been running for 35 years. Considered the greatest initiative of its kind in the world, it was the inspiration for the FAPESP Technological Innovation in Small Businesses program (PIPE), established in 1997.
Processor manufacturer Qualcomm, cyber security company Symantec, robot developer iRobot, and hydro power systems provider Natel Energy—all multinational companies—are just some of the businesses that received SBIR funding in their early days. Every year, around 2,800 companies are awarded funding by the program, which originated from the Small Business Innovation Development Act (Public Law 97-129), approved by US congress in 1982.
Inspired by a pilot innovation project implemented by the US National Science Foundation (NSF) in the 1970s, the SBIR program emerged with the aim of supporting scientific excellence and technological innovation through the investment of federal resources in projects relevant to American society. The idea was to invest in innovation within businesses to strengthen the economy.
Four objectives were established by the program: to stimulate technological innovation in the country; to meet federal research and development (R&D) needs; to foster and encourage the participation of women and the socially and economically disadvantaged in innovation and entrepreneurship; and to increase private sector commercialization of innovations derived from federal R&D.
Source of funding
From the outset, the SBIR program has been multi-institutional, with multiple sources of funding. By law, federal agencies with a research budget exceeding US$100 million per year had to allocate 2.5% of their budget to the program—over the years, that number has grown to 3.2%. Eleven institutions are involved in the initiative, five of which provide 97% of the program’s annual US$2.5 billion budget: The Department of Defense (DoD), the Department of Health and Human Services (HHS)—the agency under which the National Institutes of Health (NIH) belongs—the Department of Energy (DOE), the National Aeronautics and Space Administration (NASA), and the National Science Foundation (NSF). The remaining six member agencies are the Department of Agriculture (USDA), the Department of Homeland Security (DHS), the Department of Transportation (DOT), the Department of Education (DE), the Department of Commerce (DOC)—which includes the National Institute of Standards and Technology (NIST) and the National Oceanic and Atmospheric Administration (NOAA)—and the Environmental Protection Agency (EPA).
“This is a fundamental difference between SBIR and PIPE. While the US program is supported by several agencies, PIPE is run by one single institution: FAPESP,” says engineer Sérgio Queiroz, a professor at the University of Campinas (UNICAMP) and coordinator of research and innovation on the FAPESP Science Board. Another obvious distinction between the two programs, says Queiroz, is the amount of funding each of them provides. FAPESP allocates R$60 million per year to PIPE; “Nothing compared to SBIR in terms of funding,” says Queiroz.
“There is another important difference: SBIR is a federal program implemented nationally, while PIPE is run by a state institution,” says Guilherme Ary Plonski, scientific coordinator of the Technology Policy and Management Center at the University of São Paulo (USP) and vice-director of the Institute for Advanced Studies. While US agencies allocate 3% of their spending to research under the SBIR program, FAPESP applied 5.2% of its budget in 2016 and 6.5% until November 2017.
Because it is tied to federal legislation, the SBIR program must be periodically authorized by US Congress to remain in operation. In 2017, the Small Business Administration (SBA), which manages the program, obtained backing for the program to continue until 2022. The SBIR program funds research in a number of sectors and establishes the conditions for funding to be granted. Companies applying for funding must be owned by one or more US citizens, with a maximum of 500 employees—twice the number stipulated by PIPE.
While developing PIPE, FAPESP was inspired by the spirit of the US program and its structure, which is divided into three phases. The objective of the first phase is to establish the technical merit, feasibility, and commercial potential of the proposed project. Phase 1 grants do not normally exceed US$150,000 over 6 months. The purpose of the second phase is to continue the R&D efforts initiated in phase 1, to further advance the technology. Companies receive up to US$1 million over a two-year period. The third phase involves introducing the innovation to market. Like with PIPE, SBIR does not fund this stage. Companies must seek funding from the private sector or other federal agencies unrelated to the program.
Because it is a multi-agency program, SBIR functions a little differently from PIPE. Based on a set of general guidelines, each agency administers its program individually, determining the fields of research it supports and managing operations. Businesses submit the proposal directly to one of the 11 participating agencies—there is therefore no single department that receives the projects.
“Each SBIR member agency manages a substantial volume of resources and accepts project proposals in their respective field of activity, while in São Paulo, FAPESP covers all areas. It publishes the calls for proposals, evaluates the programs, and measures their impacts. In this sense, FAPESP functions more completely, because everything is concentrated within this one organization,” says Sérgio Salles-Filho, a professor at UNICAMP and one of the coordinators of the Laboratory for Studies on the Organization of Research & Innovation (GEOPI).
Although it is not directly involved in approving proposals submitted by small businesses, the SBIR’s coordinating institution, the SBA, is responsible for monitoring the progress of the program at each federal agency and submitting an annual report of the results to congress. American entrepreneurs also have access to another tool designed to foster innovation: the Small Business Technology Transfer (STTR). The main difference between STTR and SBIR is that STTR applicant companies must establish a partnership with an academic institution or a research organization—FAPESP operates a similar initiative: the Partnership for Technological Innovation program (PITE).
The STTR is funded by federal agencies with annual R&D budgets of over US$1 billion. Today, only five institutions qualify: the Department of Defense, the Department of Health and Human Services, the Department of Energy, NASA, and the NSF—which not by coincidence are the five largest members of the SBIR. Each agency allocates 0.3% of its research budget to the STTR program.
An SBIR assessment conducted by the US National Academies of Sciences, Engineering, and Medicine revealed that the program is meeting three of its four objectives. It has, however, failed to encourage the participation of women and minorities in small technology companies. The analysis, looking at the program’s first 20 years, examined the projects supported by the five largest donor agencies.
Due to its success, the SBIR program has served as a paradigm for other countries looking to implement similar initiatives, many of which were established from around the year 2000 onwards, long after FAPESP created PIPE in 1997. “In Brazil, we tend to see ourselves as late followers, but some countries were even later in this case, such as Canada, which only this year started talking about establishing an SBIR-inspired program,” says Plonski.
The United Kingdom’s Small Business Research Initiative (SBRI) began in 2001. “The British program did not function well at first and had to be reviewed several times, most recently in 2009,” says Sérgio Queiroz. In the beginning, British ministries were encouraged to allocate 2.5% of their R&D budgets to the SBRI, but because it was voluntary, participation was low.
In 2005, the financial contributions became mandatory, but the program continued to face problems, because the funds were not being used for their intended purpose—some of the money was directed to research in academic institutions rather than businesses, or to developments that were already in late stages. Just four years later, a reformed SBRI was launched by the British government, rectifying these issues. Since then, more than 1,300 contracts have been signed, worth a total £130 million (US$185 million).
There are important differences between SBIR and the SBRI. The British program is open to companies of any size. “Unlike the US, who reserve their contracts for smaller companies, the UK offers them to many institutions and just expects most applicants to be small businesses, as the program shouldn’t be as attractive to larger companies,” wrote researchers Emma Tredgett, from the University of London, and Alex Coad, from the University of Sussex, in an article evaluating the performance of the SBRI in its early years.
Another difference is the structure of the British program, which has only two phases—in the first, which lasts six months, projects can be awarded up to £100,000 (US$142,000), while in the second, companies can receive up to £1 million (US$1.42 million) over two years. At the end of the second phase, the company should be able to market its product or service.
India also has a similar support program, called the Small Business Innovation Research Initiative (SBIRI), implemented in 2005. It is slightly different in that it only funds innovations in biotechnology sectors such as medicine, agriculture, industrial processes, and the environment. Companies are eligible for the tri-annual application process if they are run by Indian citizens and have less than 500 employees. Like the British program, the SBIRI is composed of two stages.
The Netherlands also focuses on certain sectors of the economy through its Small Business Innovation Research Programme, created in 2004. According to the Netherlands Enterprise Agency, which manages the program, the funds are designated to research in energy, bioeconomics, and security. Companies of any size based in the European Union can apply for funding, provided that the proposal addresses the needs of Dutch society. The projects are assessed by an independent committee.
“The Indian program is also limited, in the sense that it defines certain sectors where the funds may be used,” Plonski says. “Initiatives inspired by SBIR around the world share a fundamental essence, but every country makes adjustments to meet its own needs,” says the researcher, noting that whether or not the government should target funds to specific areas is also currently being discussed in Brazil.
“FAPESP has adopted a healthy intermediary procedure, since PIPE funding is not directed to sector X, Y, or Z specifically, although part of the investment does go to particular areas,” says Plonski, in reference to the PIPE-PAPPE program, which focuses on strategic areas of federal public policy (see article), such as combating the Zika virus, developing technologies for the aerospace sector, and increasing productivity in the agricultural sector.