Constraints on the Principal Investigator

Like SBIR, STTR legislation imposes requirements on the small business concern and the principal investigator (PI). However, under STTR, employment restrictions for the PI are in critical respects less burdensome than those for SBIR, where the PI must be at least 51 percent employed at the applicant company. In comparison, STTR permits the PI to remain primarily employed at the partner research institution (RI). This difference makes STTR much more attractive for faculty members who wish to retain their academic positions, although university regulations also play a role in this area.³

Some agencies also mandate level of effort. For example, at DoE SBIR/STTR PIs must devote for the duration of the project a minimum of 3 hours per week if it is in Phase I and 5 hours per week if it is in Phase II.⁴ Some other agencies do not mandate such restrictions.

Requirements for Research Institution Participation

Under SBIR, there is no requirement that the research team include a research institution, and no requirement that any specified amount of funding flow to the RI. SBIR awardees are required to perform at least two-thirds of the research or analytical effort in house for Phase I and at least 50 percent for Phase II, and there are no constraints on the selection of subcontractors. Agencies may decide that “research and analytical effort” includes the entire award, or they may exclude some equipment and indirect costs.

Under STTR Phase I and II, at least 40 percent of the research or analytical effort must be performed by the applicant and at least 30 percent must be performed by a single RI. Such research institutions include universities and federal laboratories. The remaining 30 percent may be spent at either entity or on third-party goods or services.

While the small businesses must remain the responsible party, the application requires that the small business concern and the research institution enter into a formal partnership and reach a formal agreement on project-related IP. The relationship between the small business and the research institution may be quite different under STTR.

Phase I Timelines

For some agencies (e.g., NASA), STTR provides for a longer timeline for Phase I completion, based on the rationale that organizing a collaboration with a research institution takes additional time. Most agencies (but not all, and some but not all components at DoD) permit 12 months to complete an STTR Phase I project, compared to 6 months for the basic SBIR Phase I project.⁵ Phase II timelines are set at 2 years for both SBIR and STTR.

These broad requirements pertaining to principal investigator and research institution involvement in STTR are implemented across all of the agencies; however, as with SBIR, the program is managed differently at the different agencies, and even within the DoD components. The following section describes STTR activities at the five study agencies.

Department of Defense

For each phase at DoD, success rates for STTR are consistently higher than those for SBIR. The Phase I success rate is 16 percent for SBIR and 22 percent for STTR,⁶ and the conversion rate from initial Phase I application to eventual Phase II award was 8 percent for SBIR and 11 percent for STTR. For both, the conversion rate to Phase III was 4 percent (see Figure 2-1).⁷

FIGURE 2-1

SBIR and STTR conversion rates at DoD. SOURCE: Christopher Rinaldi, “STTR at DoD,” presentation at the Academies STTR Workshop, May 1, 2015, p. 3. Access at http://sites.nationalacademies.org/PGA/step/PGA_160863.

The primary research partners for DoD, by a wide margin, are universities (as opposed to other RIs). Eighty-eight percent of STTR Phase I awards and 83 percent of STTR Phase II awards have a university partner. STTR companies also partner with other small companies to a considerable extent (more than one-third of Phase II projects do so), which illustrates the notion that small companies are a part of a larger innovation ecology that serves DoD (see Table 2-1). To a much lesser extent, STTR companies also partner with large companies. Overall, research partners received about $34 million in FY 2014 from the DoD STTR program.

TABLE 2-1

Research Partners for Phase I and Phase II STTR Projects at DoD.

In 2013, 220 universities participated in STTR partnerships at DoD. Pennsylvania State University participated in the most projects—3.5 percent of all DoD STTR awards.

Although research institutions (and particularly universities) participate in SBIR projects, they play a far less prominent role and conclude far fewer teaming agreements than in STTR projects (see Table 2-2).

TABLE 2-2

Teaming Agreements in SBIR Awards at DoD.

Component Perspectives on STTR

The different components at DoD use STTR in different ways. Army STTR Program Manager Bradley Guay noted that more than one-half of Army STTR topics in recent years were generated by PhD scientists at the Army Research Center and were not reviewed by potential customers within Army.⁸ He emphasized that Army STTR topics were more research-oriented and that topic authors had to justify the use of STTR by explaining the importance of the connection with research institutions. It is notable that none of the Army Program Executive Offices formally participates in the Army STTR program and that more than one-third of topics originate in the Army Research Lab (see Figure 2-2). In contrast, all Navy topics are reviewed by program executive officers, who have acquisitions authority.

FIGURE 2-2

Source of technical topics at Army, FY2011-2015. SOURCE: Bradley Guay, Army STTR Program Officer, “The Army STTR Program,” June 2015.

Similarly, Navy STTR Program Manager Dusty Lang confirmed that STTR topics differ substantially from SBIR topics.⁹ Although agency staff propose a wide range of topics every year, her office worked to ensure that the project involved an important role for RIs, such as access to cutting-edge research at research institutions. In contrast, the primary objective for SBIR was the immediate delivery of tools for the war fighter. She observed that STTR topics not only tend to focus on a lower technology readiness level (TRL), but also often provide applicants with more room for exploring still unformed or at least unconfirmed ideas.¹⁰

Department of Energy¹¹

The Department of Energy manages the STTR and SBIR programs as identical administratively and functionally, which reduces administrative overhead. Other than the congressionally mandated differences between the programs, the agency does not see any significant or strategic distinctions between the two programs. Small businesses in both programs collaborate with RIs, and only a small percentage of STTR awards go to PIs employed primarily by an RI.

DoE offers two Phase I solicitations per year, both of which are open to applicants to either program. The solicitations propose the same topics for each program, and uniquely among the funding agencies, both Phase I and Phase II applicants can apply to either program or to both using a single application—as long as they meet the qualifications for both. Approximately as many applicants select both SBIR and STTR as do those who check just STTR.

Annual funding for DoE STTR is about $25 million. Awards are highly competitive, with a success rate of about 10 percent for STTR Phase I and 50 percent for STTR Phase II. DoE offers the same period of performance and award size for both programs: Phase I awards last 9 months for either $150,000 or $225,000. Phase II awards last 24 months, and may be for $1 million or $1.5 million.

Both the DoE SBIR and STTR programs have in recent years evolved to add emphasis on the commercialization of funded technologies. As a result, SBIR/STTR Phase I and Phase II applications must provide an initial evaluation of commercial potential, as the programs focus on providing seed capital for early-stage R&D that have commercial potential. Awards are, like those at other agencies, comparable in size to private-sector angel investments. However, both programs will deliberately accept greater risk than do angel investors, reflective of the agency focus on advanced energy technology.

Although STTR is designed to encourage collaborations between small companies and RIs, DoE notes that this is also the case for many SBIR projects as well. More than one-half of all Phase II SBIR projects include some funding for research institutions, and overall about 9 percent of SBIR funding goes to research institutions.¹²

The STTR program supports an extensive set of collaborations with DoE national laboratories, which on average constitute about one-third of DoE’s STTR RIs, although their share has varied—from a high of 80 percent in FY1999 to a low of 13 percent in FY2014 (see Chapter 4 for a further discussion of National Labs and STTR).

Principal investigators for DoE projects mostly come from small business concerns, with only 13 percent coming from research institutions (including a small number primarily employed at National Labs)—even though STTR permits the principal investigator to be primarily employed at the research institutions. In 2014, only 3 out of 35 principal investigators in STTR were employed at the research institutions.

Like the other agencies, DoE has followed the 2011 reauthorization law to permit grantees to switch the type of program when entering Phase II. DoE has found that some STTR Phase I awardees are switching from STTR to SBIR during Phase II, but not the reverse. Since the program permitted such a switch in 2011, 10 out of 83 STTR Phase I applicants for Phase II funding have sought SBIR Phase II funding, and 4 have received it.

In 2013, DoE began a new technology transfer initiative, using the SBIR and STTR programs to transition technology developed at DoE National Labs and universities funded by DoE to the marketplace. The agency is prohibited by statute from using only the STTR program to foster technology transfer from its labs, so it uses both SBIR and STTR. This creates a range of new opportunities for collaboration between companies and both kinds of RIs, through the publication of specialized topics.

National Institutes of Health, Department of Health and Human Services¹³

The STTR program at the National Institutes of Health provides $95 million annually (compared with $691 million for the NIH SBIR program), an increase from $74 million in 2010.

NIH does not publish a separate solicitation for STTR with different topics: the annual SBIR/STTR Omnibus Solicitation for grants¹⁴ lists all NIH topics, and companies can apply for SBIR or STTR at their discretion (although not both, as is the case at DoE). NIH also publishes targeted funding opportunity announcement (FOAs) throughout the year, primarily from individual Institutes or Centers (ICs) seeking to focus their research on a specific technical area. Most of these funding opportunities are open to SBIR or STTR applications.

Overall, success rates for NIH STTR Phase I applications are slightly higher than for SBIR Phase I applications, but success rates have varied substantially by year (see Figure 2-3). The Fast Track program, which combines Phase I and Phase II applications, is available to both SBIR and STTR applicants and its success rates typically tracks those of Phase I.

FIGURE 2-3

Success rates for STTR, SBIR, and Fast Track at NIH, FY2014. SOURCE: Matthew Portnoy, “The NIH STTR Program,” presentation at Academies STTR Workshop, May 1, 2015.

In FY2014, STTR funded 160 out of 788 Phase I applications, and 37 out of 87 Phase II applications. Of the 60 Fast Track applications received, 5 were approved—a notably lower percentage than for SBIR. That year may have been an anomaly, because the success rate for FY 2013 was 28.6 percent—almost double that for SBIR.

In recent years, small business concerns and research institutions have received 50 percent and 45 percent on average, respectively, of STTR Phase I funding (see Table 2-3). For Phase II, small business concerns and research institutions have received about 58 percent and 40 percent, respectively, of total funding.

TABLE 2-3

Small Business Concerns (SBC) and Research Institution (RI) Shares of STTR Funding, FY2010-2014.

Universities accounted for about 79 percent of all research institutions funded through STTR Phase I in FY2014 (see Table 2-4). No federal labs or other Federally Funded Research and Development Corporations (FFRDCs, which are public-private partnerships that conduct research for the United States Government) have been funded since FY2010.

TABLE 2-4

Number of Universities and Other Research Institutions Funded by Phase through STTR, FY2010-2014.

NIH-provided commercialization support programs opened to STTR awardees in FY2012, as provided for under the reauthorization legislation (P.L. 112-81). Since then, 22 percent of STTR Phase I awardees have participated in the Phase I market assessment program operated on behalf of NIH by Foresight Inc., and 10 percent of STTR Phase II awardees have participated in the Phase II Commercialization Assistance Program operated for NIH by Larta Inc. In addition, two STTR companies sought funding for their own technical assistance.¹⁵

Two new initiatives may have a significant effect on STTR applications and companies: the NIH Center for Accelerated Innovation and the Research Evaluations and Commercialization Hub (REACH) award program. Both utilize the reauthorization of 2011 to establish “phase 0” proof-of-concept centers using, in part, STTR budget funding. Phase 0 programs provide support to innovation centers and hubs that develop promising technologies and position them for transfer into a start-up company or for licensing.

Since the programs were implemented about 18 months ago, NIH has made six grants to 14 partnering institutions belonging to consortia in Boston and in Ohio, and to five universities in the University of California system among others. All of the grants focused on the mission of the National Heart, Lung, and Blood Institute, which was recently joined in these programs by the National Institute for Drug Abuse. These programs are described in more detail in the 2015 Academies report on the NIH SBIR program.¹⁶

Overall, NIH staff have made it clear that, from the agency’s perspective, there are no strategic differences between the SBIR and STTR programs, and to the maximum extent possible runs them in parallel (for example, offering only a combined solicitation). While they differ as outlined in the first section of this chapter, NIH does not use the programs for different purposes and operates them in close tandem, and specifically does not differentiate between the programs on the basis of their alignment with more or less commercial opportunities: they are equally expected to result in commercial outcomes.

National Science Foundation

Within the National Science Foundation, the SBIR and STTR programs are operationally located in the Directorate of Engineering’s Division of Industrial Innovation and Partnerships (IIP) and are run as a single separate entity.¹⁷

NSF described its SBIR and STTR programs as “similar in almost every way,” despite the statutory differences described in the overview section of this chapter. In addition, NSF awards SBIR grants of up to $150,000 for 6 months but STTR grants of up to $225,000 for 12 months. Additional funding for STTR and SBIR may be provided under NSF’s Phase IB program, which matches funding provided by a third party with up to $30,000 more in NSF funds.

Phase II grants are identical for both programs—up to $750,000 for 24 months. Again, additional funding may be provided through NSF’s Phase IIB program, which provides up to $500,000 in additional matching funds.

According to NSF staff, the agency experimented with targeted STTR topics that differed from SBIR topics in 2010-2012, but they were not popular with the business community (hence the low numbers of applicants; see Chapter 3). The agency has therefore returned to using the same topics for SBIR and STTR.

NSF describes STTR as a program for candidate companies whose technology is “earlier” on the TRL spectrum than those of SBIR companies. It sees STTR as closer to basic research than to development and earlier even than “early-stage” companies as seen from the perspective of a venture capital investor (see Figure 2-4). The NSF STTR and SBIR programs aim to move novel technologies to a point where private investors and industry can use them and move more rapidly toward commercialization. “Even an early-stage firm has a product and has revenue,” said Barry Johnson, director of the Division of Industrial Innovation and Partnerships at NSF. “They just need help in scaling up. In the NSF STTR program we are trying to get our companies to that point.”

FIGURE 2-4

Strategic vision of STTR/SBIR innovation at NSF. NOTE: Figure 2-4 shows STTR and SBIR in the context of other NSF innovation related programs, including the Science and Technology Centers (STC), Grant Opportunities for Academic Liaison with Industry (GOALI), (more...)

The STTR program also works with other components and initiatives at NSF, including the iCorps program, which is described in the Academies 2015 report on the SBIR program at NSF.¹⁸ STTR is also aligned with the Industry and University Cooperative Research Center program (I/UCRC), which has significant industry funding. The I/UCRC program addresses applied research, attempting to align what universities are doing with what industries are seeking—“university push and industry pull,” according to Barry Johnson.

Discussions with NSF staff reveal that the agency places different emphasis on the programs, but considers them to be strategically similar and operates them together as closely as possible. The openness of the NSF SBIR program to early-stage ideas and to research proposals not tightly tied to specific solicitation topics suggests that the SBIR program at NSF is in some respects more closely similar in spirit to the STTR program than at other agencies.

National Aeronautics and Space Administration¹⁹

While NASA addresses the differing congressional objectives for SBIR and STTR, the agency is overall focused on generating technologies that can be adopted for use within the agency and directly serve the agency’s mission.

NASA provides separate solicitations annually for SBIR and for STTR. The solicitations have different topics, and these are developed through somewhat different set of processes and procedures. In recent years Mission Directorates (MDs) have had increasing influence over SBIR, and SBIR topics have been approved by designated Mission Directorate staff, but the process for developing STTR topics is different.

For STTR, the Center Chief Technologist (CCT) at each of the NASA Research Centers plays a key role in developing topics related to the activities of their Center. These topics are usually aligned with the technology roadmaps and other strategic plans developed by the Centers and are primarily focused on the development of technology that will fit into the defined forward pathway. Unlike topic development for SBIR, the STTR approach does not seek technology that can be relatively quickly adapted for use within NASA. According to Joseph Grant, Deputy Program Executive, for the NASA SBIR/STTR program, “Each of the STTR topics and subtopics are mapped to the Space Technology Road Maps defined Technology Areas.²⁰

The selection process is also strongly influenced by the Centers. The Technology Infusion Manager (TIM) at each Center works with the CCT to rank and prioritize proposals received in response to the solicitation, and it is the CCT who provides the final ranking and recommendations for funding to the SBIR/STTR Program Executive.

STTR phase I contracts at NASA are the same size as SBIR Phase I—$125,000—but can be performed over 12 months instead of 6. Phase II contracts are identical—a maximum of $750,000 over 2 months. Under reauthorization, companies can request to switch between SBIR and STTR after Phase I, but NASA has not yet received any such requests as of September 2015.

STTR projects are eligible to participate in agency programs designed to bridge the gap between technologies at the end of Phase II and the levels required for further commercialization. Figure 2-5 describes NASA’s key programs, Phase II-E and Phase II-X.

FIGURE 2-5

Phase II-E and Phase II-X programs at NASA. SOURCE: Joseph Grant, presentation to the Academies STTR workshop, May 1, 2015. Access at http://sites.nationalacademies.org/PGA/step/PGA_160863.

While data on outcomes from the STTR program at NASA do not exist, the agency points to a number of successful projects that have made a positive impact on agency programs. For example, NASA STTR funding supported development of Techshot Inc.’s bone densitometer, which was the first x-ray machine on the space station. The technology allowed scientists to measure the bone density of rats under weightless conditions, following a $3.6 million Phase III award in 2012, for use on the space station in September 2014.

Discussions with NASA staff indicate that they perceive a distinct strategic difference for STTR: it is focused on earlier stage projects, it creates a specific connection to RIs and it focuses more closely on the technology and less on the commercialization or NASA’s use of the technology. It rebalances the program to at least some extent toward a more research-oriented perspective, and enables funding projects that have longer time lines and higher risk than SBIR.