	Overview

The Small Business Innovation Research (SBIR) program was established by Congress in 1982 to expand the role of small businesses in federal research and development (R&D). Both the SBIR and STTR statutes require that federal agencies with extramural R&D budgets in excess of specified amounts set aside a percentage of such funds to conduct their own SBIR and STTR programs. Currently, 11 federal departments and agencies operate SBIR programs and 5 operate STTR programs. Through FY2011, federal agencies had made more than 133,000 SBIR and STTR awards to small businesses to develop and commercialize innovative technologies. The total amount awarded was $33.7 billion. There are two exceptions to this guideline: (1) a federal agency may issue an SBIR Phase II award to a Small Business Technology Transfer (STTR) Phase I awardee to further develop the work performed under the STTR Phase I award; and (2) through FY2017, the National Institutes of Health (NIH), DOD, and ED are authorized to make Phase II grants to small businesses that did not receive Phase I awards. Phase III

Phase III of the SBIR program is focused on the commercialization of the results achieved with Phase I and Phase II SBIR funding. The small business must be:
(1) more than 50% directly owned and controlled by one or more citizens or permanent resident aliens of the United States, other small business concerns (each of which is more than 50% directly owned and controlled by individuals who are citizens or permanent resident aliens of the United States), or any combination of these; or
(2) more than 50% owned by multiple venture capital operating companies, hedge funds, private equity firms, or any combination of these, with no single such firm owning more than 50% of the small business; or
(3) a joint venture in which each entity to the joint venture meets the requirements in paragraphs (1) and (2) above. While more than two-thirds of SBIR grants made in FY2011 were Phase I awards (68.0%), more than three-fourths of SBIR funding went to Phase II awards (76.4%). Small Business Technology Transfer

		STTR Overview

The Small Business Technology Transfer (STTR) program was created by the Small Business Research and Development Enhancement Act of 1992 ( P.L. 102-564 ) and has been reauthorized several times, most recently by the SBIR/STTR Reauthorization Act of 2011 ( P.L. Modeled largely after the SBIR program, the STTR program seeks to facilitate the commercialization of university and federal R&D by small companies. Under the 2011 reauthorization act, the minimum percentage of funds to be set aside for the program is to increase from 0.30% in FY2011 to 0.35% in FY2012 and FY2013; to 0.40% in FY2014 and FY2015; and to 0.45% in FY2016 and beyond. STTR Phases

Like the SBIR program, the STTR program has three phases. Phase II

Phase II grants are intended to further R/R&D efforts initiated in Phase I that meet particular program needs and that exhibit potential for commercial application. The STTR program does not provide funding in Phase III. While 67% of STTR grants made in FY2011 were for Phase I awards, more than 76% of STTR funding went to Phase II awards. Two agencies—DOD ($120.9 million, 48%) and HHS ($77.5 million, 31%)—accounted for nearly four-fifths of STTR funding in FY2011. SBIR/STTR Reauthorization Act of 2011 Provisions

The SBIR/STTR Reauthorization Act of 2011 (enacted as Division E of the National Defense Authorization Act for Fiscal Year 2012, P.L. 112-81 ) authorizes the SBIR and STTR programs through September 30, 2017. Other federal agencies may not award more than 15% of SBIR funds to such firms. Agency Set-Aside Percentages and Award Limitations

The act increases the percentages of extramural R&D funding that agencies must set aside for the SBIR and STTR programs, introducing the changes over multiple years. Recipients of a Phase I award from one federal agency may now apply for a Phase II award from another agency to pursue the original work (e.g., a company that received a Phase I award from the Department of Energy may apply for a Phase II award from the Department of Defense to build on its Phase I work). To this end, the act:
requires the SBA administrator to amend the SBIR Policy Directive and the STTR Policy Directive to include measures to prevent fraud, waste, and abuse; directs that the amendments to the policy directives include definitions or descriptions of fraud, waste, and abuse; guidelines for the monitoring and oversight of applicants to, and recipients of, awards; and a requirement that each SBIR/STTR agency provide information on the method established by each agency inspector general to report fraud, waste, and abuse on its website and in any SBIR/STTR solicitation; requires SBIR and STTR applicants and award recipients to certify its compliance with the laws relating to the programs and the conduct guidelines established under the policy directives; directs inspectors general in SBIR and STTR agencies to establish fraud detection indicators; review regulations and operating procedures; coordinate information sharing between agencies, to the extent otherwise permitted under federal law; and improve the education and training of and outreach to program administrators, applicants, and recipients; and requires the GAO to publish an initial report within one year from the date of enactment and every four years thereafter.
The Small Business Innovation Research (SBIR) program was established in 1982 by the Small Business Innovation Development Act (P.L. 97-219) to increase the participation of small innovative companies in federally funded R&D. The act requires federal agencies with extramural R&D budgets of $100 million or more to set aside a portion of these funds to finance an agency-run SBIR program. As of 2014, 11 federal agencies operate SBIR programs. A complementary program, the Small Business Technology Transfer (STTR) program, was created by the Small Business Research and Development Enhancement Act of 1992 (P.L. 102-564) to facilitate the commercialization of university and federal R&D by small companies. Agencies with extramural R&D budgets of $1 billion or more are required to set aside a portion of these funds to finance an agency-run STTR program. As of 2014, five federal agencies operate STTR programs.
Both the SBIR and STTR programs have three phases. Phase I funds feasibility-related research and development (R&D) related to agency requirements. Phase II supports further R&D efforts initiated in Phase I that meet particular program needs and that exhibit potential for commercial application. Phase III is focused on commercialization of the results of Phase I and Phase II grants, however the SBIR and STTR programs do not provide funding in Phase III.
The SBIR and STTR programs have been extended and reauthorized several times since their initial enactments. Most recently, the programs were reauthorized through September 30, 2017 under the SBIR/STTR Reauthorization Act of 2011 which was enacted as Division E of the National Defense Authorization Act for Fiscal Year 2012 (P.L. 112-81). Among its provisions, the act incrementally increases the set-aside for the SBIR effort to 3.2% by FY2017 and beyond; incrementally expands the set-aside for the STTR activity to 0.45% in FY2016 and beyond; increases the amount of Phase I and Phase II awards; allows recipients of a Phase I award from one federal agency to apply for a Phase II award from another agency to pursue the original work; allows the National Institutes of Health, the Department of Energy, and the National Science Foundation to award up to 25% of SBIR funds to small businesses that are majority-owned by venture capital companies, hedge funds, or private equity firms, and allows other agencies to award up to 15% of SBIR funds to such firms; creates commercialization pilot programs; and expands oversight activities, among other things.
Through FY2011, federal agencies had made more than 133,000 awards totaling $33.7 billion under the SBIR and STTR programs. In FY2011, agencies awarded $2.224 billion in SBIR funding. The Department of Defense (DOD) and Department of Health and Human Services (HHS) accounted for more than three-fourths of SBIR funding in FY2011. While more than two-thirds of SBIR grants made in FY2011 were Phase I awards, more than three-fourths of SBIR funding went to Phase II awards. In FY2011, agencies awarded $251.2 million in STTR funding. DOD and HHS accounted for nearly four-fifths of STTR funding. Like the SBIR program, most STTR grants (76%) were for Phase I awards, while most funding (76%) went to Phase II awards.
In exercising its oversight authorities for the SBIR and STTR programs, Congress has placed a strong emphasis on monitoring the implementation and effects of changes made by the 2011 reauthorization act. In particular, Congress has expressed continuing interest in the participation of majority-owned venture capital firms in the SBIR program, the effectiveness of efforts seeking to improve commercialization outcomes, the share of awards and funding received by women-owned and minority and disadvantaged firms, and the SBA's agency coordination, policy guidance, data collection, and dissemination responsibilities.