Modernize SBIR and STTR to fuel America’s innovators

The looming cliff facing America’s next generation of innovators and entrepreneurs is one that you have likely not heard about. A crucial and often overlooked piece of legislation is slowly making its way through the halls of Congress: the reauthorization of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. Set to expire on Sept. 30, these are two of the largest federal grant programs responsible for stimulating American entrepreneurship.

Popularly known by some in government as “America’s Seed Fund,” the SBIR/STTR programs are intended to catalyze early-stage commercialization by mandating that federal agencies with significant research and development budgets allocate approximately 3.5% of their funding to support small businesses innovating in areas relevant to those agencies’ needs. The program distinguishes itself through the flexibility it provides. Unlike the Department of Defense’s more rigid budgeting process, SBIR/STTR funding is made available in the same fiscal year, enabling agencies to quickly test, develop and integrate cutting-edge technologies.

Speed matters in innovation and is particularly beneficial to early-stage companies which need immediate feedback from their customers to refine their products and scale effectively. The DOD in particular benefits from having a funding mechanism that allows it to explore new technologies that could significantly impact defense strategies and force design. This mutually reinforcing relationship ensures the warfighter is testing capabilities that are at the leading edge.

The SBIR/STTR program has periodically been reauthorized since its inception in 1982. While often a relatively routine process, the program’s track record has come under renewed scrutiny. Criticized as a relic of innovation systems’ past, this year’s reauthorization has garnered increased attention from the likes of DOGE, especially for its currently suboptimal transition rates on bringing lasting capability to different problem sets.

The program must evolve to keep pace and drive improved results. The INNOVATE Act, led by Sen. Joni Ernst, chair of the Senate Small Business Committee, addresses these concerns through a common-sense series of reforms and improvements to modernize the SBIR/STTR program to drive improved outcomes for cutting-edge technologies. The bill’s provisions aim to accelerate the growth of defense-related startups by encouraging commercialization and scaling beyond the confines of small-business status.

Among several notable updates, a few areas we believe critical to unleashing American innovation through the proposed SBIR/STTR update include:

• Increasing opportunities for first time awardees.
•  Introducing a lifetime cap for how much SBIR/STTR funding a small business can win.
• Increasing scale for promising technologies through “strategic breakthrough awards.”
• Imposing ratios across Phase I, Phase II, and non-SBIR revenue to encourage commercialization for relevant technology. 

Recently, Rep. Roger Williams, chair of the House Small Business Committee, introduced the House version of the INNOVATE Act, which Sen. Ernst fully endorsed. While it mirrors much of the Senate bill, it strips out the ratios provision. We believe these ratios are critical to ensuring awards go to companies intent on building impactful businesses, not those primarily focused on winning SBIR/STTR contracts.

As veterans turned venture capitalists working alongside exceptional entrepreneurs in the national security mission, we applaud these reforms. Sen. Ernst and Rep. Williams’ proposal reflects an understanding that taxpayer R&D dollars work best in tandem with private capital to deliver technology that matters, technology capable of giving U.S. warfighters a decisive advantage. Gone are the days when breakthroughs were built solely in government labs. Today, the most consequential innovations are born in venture-backed startups, where risk tolerance is higher and speed is the norm.

Not surprisingly, the bill has drawn pushback from a small, but vocal group with a vested interest in keeping things exactly as they are. So-called “multi-time” award winners submit thousands of proposals and rack up 50 to 100 SBIR/STTR contracts a year, using subversive tactics to cling to their “small business” status. These “SBIR Mills” are choking the very program they claim to champion.

David Rothzeid is a Principal at Shield Capital, an early-stage venture fund focused on the intersection of national security and commercial capability. He served in the United States Air Force as an acquisition officer for over a dozen years and is currently a reservist at the Pentagon.

Zach Beecher is a Partner at Scout Ventures, where he focuses on seed-stage dual-use investments. A former 82nd Airborne Division Paratrooper who deployed to Iraq and current U.S. Special Operations Command reservist, he has since led across venture capital, health tech, and defense strategy.