ABSTRACT. The Small Business Innovation Research
(SBIR) Program is one of the most successful public programs
designed to support small firm innovation. The purpose and
structure of the program, however, are often misunderstood.
This paper clarifies the goals and rationale for the SBIR
program and reviews recent findings regarding the program’s
impact. The paper identifies five dimensions of the innovation
capital gap and outlines a possible extension of the program
to better address this finance gap.
The purpose of this article is to take stock of the
performance of the Small Business Innovation
Research (SBIR) Program, in light of its legislated
objectives and recent reviews of the program. The
SBIR is a program with multiple objectives and a
unique design. While the program’s breadth has
contributed to its ongoing success, it has at the
same time contributed to some confusion about
the program. The information in this report is
provided to help clarify the purpose, rationale, and
impacts of the program.
The article is organized as follows: Section 2
describes the structure and goals of the program.
Sections 3 and 4 focus on the program’s central
goals: meeting federal research needs with small
business and fostering commercialization of
federally funded research. Section 5 elaborates
on the gap in small-scale, early-stage, financing
which provides a rationale for public funding of
early stage innovation commercialization activi-
ties. Section 6 discusses commercialization obsta-
cles faced by some SBIR firms and describes a
prospective Phase III matching grant program to
ready SBIR firms for commercialization. Section
7 notes administrative improvements to the
program that the SBA has planned or already
II. Structure and objectives of the program
The SBIR program was created by the Small
Business Innovation Development Act of 1982
(P.L. 97-219). The Act mandated that each Federal
agency with an extramural R&D budget in excess
of $100 million designate a certain percentage of
this budget for awards to small businesses. The
set-aside was initially set at 0.2 percent of an
agency’s extramural R&D budget, with a legis-
lated growth to 1.25 percent in 1987. This level
continued through 1992. On October 28, 1992,
the program was reauthorized (P.L. 102-564)
through FY 2000 and Congress maintained the
growth in the set-aside by directing that the
percentage increase to 2.5 percent by FY 1997
and stay at that level through FY 2000.
December 2000, Congress reauthorized the SBIR
program through 2008, with the set-aside per-
centage to remain at 2.5 percent throughout the
Under the program criteria, ten Federal
agencies must currently participate in the program.
Total obligations for the program in 1999 were
about $1.1 billion (See Tables I and II).
The program was established with a three-phase
structure that promotes progress towards com-
Phase I awards of up to $100,000 are funded
for six months for research projects to evaluate
the scientific and technical merit and feasibility
Purpose and Performance of
the Small Business Innovation
Research (SBIR) Program
Ronald S. Cooper
Small Business Economics 20: 137–151, 2003.
2003 Kluwer Academic Publishers. Printed in the Netherlands.
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