What many commercial companies do not understand is how difficult it can be to win large Phase III, sole-source contracts from the Small Businesses Innovation Research (SBIR) Program. It takes time for Department of Defense customers to formally request funding for a small business solution, and then it can take years for them to actually receive it. In this article, we are going to cover two key points for a better understanding of the SBIR program and its phases:
- Phase II awards have several mechanisms that help small businesses gain funding and time during this transition.
- There are several actions small businesses need to take during Phase IIs to help with the transition.
Let’s discuss these two components. During both the Phase I and Phase II periods of performance, small businesses should be on the hunt for their transition partner. In some military branches, you may have a head start by working with a Technical Point of Contact (TPOC) that could help you find a transition partner, but even in these cases, their knowledge and network may be limited. It is important for small businesses to start this process early, continue to network throughout the period of performance, and learn as much as possible about different transition pathways.
The biggest mistake that I see companies make is focusing only on their technology. While technology is a key component of the contract, it is crucial to focus on the other components as well. Too often small businesses get to the end of the performance period only to realize they do not know their next step. They are surprised when their assigned point of contact changes roles, moves to another base or is not helpful with the next step. The following are several ways to gain additional funding and time to help ensure technology is moved from early Phase Is and IIs to reaching the big, impactful Phase III sole-source contracts.
Phase II enhancements are an excellent way to add additional funding to a small businesses Phase II contract, ultimately pushing forward the development of the technology and also buying more time. These enhancements come in different varieties and can vary year by year. Many of the programs have matching funding, which incentivizes government customers to use their money since it goes twice as far on an SBIR contract as it would anywhere else. Some variations will match sales or investment in the private sector. All Phase II enhancements add time to your period of performance and funding to your project. The main takeaway here is to know that they exist and to learn the specifics of how they work. You can find information about these opportunities by checking your awarding organization’s SBIR website for updates, and by asking about them during the weekly information calls hosted by your awarding organization’s SBIR team.
A Phase II sequential is a second Phase II award. These awards can range from $750K to $1.5M or more. The purpose of the sequential is to aid in the transition from the SBIR program to programs of record (large DoD acquisition programs) or other Phase III vehicles. The provided aid could help pay for further development and potentially add one or two years to the contract, giving small businesses more time to cross the threshold.
Updated versions of the above programs come out from time to time. Last year, the Air Force rolled out a new type of enhancement program called Strategic Financing (StratFi). StratFi allowed companies that were raising Venture Capital to also bring AF customer dollars to the table. If they met the right criteria, the matching ratio was:
- One-part Air Force SBIR funds (minimum $3M)
- One-part non-SBIR Federal funds (from a Government end-user, minimum $3M)
- Two-parts private third-party funding (minimum $6M eligible third-party funds)
The various DoD SBIR organizations do not all follow the same path. The Navy is leading the pack by far when it comes to transitioning from Phase II to large sole-source Phase III awards. Their published information shows $3 billion in Phase III contracts between fiscal year 14 and fiscal year 18, compared to $1.3B from the Air Force and $0.7B from the Army.
The key during Phase I and II is to constantly work towards the transition strategy. You should always be asking questions to determine who is going to fund the next iteration. Who is going to use your technology? Who is going to pay for the use of your technology? Who else might be interested in your technology? Find other interested users, explore their budgets, and continue looking for ways to expand your success.
Coming up next are several articles for a deep-dive into Phase IIIs!