In order to receive either a Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) award, the proposing organization must qualify as a Small Business Concern (SBC), defined by the Small Business Administration (SBA) as a company that is for-profit, with 500 or fewer employees.

At the time of the award, the business must meet the following criteria:

• For-Profit Status: The business must be organized for-profit and have a place of business located in the United States. Non-profit organizations are not eligible to receive SBIR/STTR awards directly, though they can participate as sub-awardees or subcontractors.
• Ownership and Control: The business must be at least 51 percent directly owned and controlled by individuals who are citizens or permanent resident aliens of the United States, OR by another for-profit small business concern that is at least 51 percent owned and controlled by US citizens or permanent resident aliens.
• Note on Venture Capital: Some participating agencies permit awards to SBCs that are majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms, provided they meet specific registration requirements. While some federal agencies (such as the NIH or DoD) exercise the authority to make SBIR/STTR awards to small businesses majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms under 15 U.S.C. § 638(dd)(1), the DOE has opted not to participate in this provision.
• Size Limitation: The business, including all of its domestic and foreign affiliates, must have 500 or fewer employees. This calculation is based on the average number of full-time, part-time, or temporary employees over the preceding 12 calendar months.
• Location of Work: All research and development (R/R&D) work must be performed entirely within the United States.

In addition to the core SBC requirements, the SBIR program enforces specific rules regarding employment and the division of work:

• Primary Employment of the Principal Investigator (PI): The PI’s primary employment must be with the small business at the time of the award and during the entire duration of the project. “Primary employment” means that the PI spends more than 50 percent of their total employment hours with the small business, which generally precludes full-time employment elsewhere (such as at a university or another firm).
• Performance of Work (Minimum Level of Effort):
  • Phase I: The proposing small business must perform a minimum of two-thirds of the research or analytical effort. Up to one-third of the work can be subcontracted.
  • Phase II: The proposing small business must perform a minimum of one-half of the research or analytical effort. Up to one-half can be subcontracted.
  • Partnering: Partnering with a university, federal laboratory, or other research institution is completely optional for SBIR.

The STTR program is designed to facilitate cooperative research and development between small businesses and non-profit research institutions, introducing several unique requirements:

• Mandatory Research Partner: The small business must formally partner with a single, US-based, non-profit research institution. Eligible institutions include:
  • Non-profit colleges or universities.
  • Domestic non-profit scientific/research organizations.
  • Federally Funded Research and Development Centers (FFRDCs).
• Performance of Work (Minimum Level of Effort): Both the small business and the research institution must perform a statutory minimum amount of work:
  • The proposing small business must perform at least 40 percent of the R&D effort.
  • The partnering research institution must perform at least 30 percent of the R&D effort.
  • The remaining 30 percent of the work can be performed by either partner or outsourced to other subcontractors.

• Primary Employment of the PI: For STTR, the PI’s primary employment is not strictly restricted to the small business. The PI may be primarily employed by either the proposing small business OR the partnering non-profit research institution.
• Intellectual Property (IP) Agreement: Before work begins, the small business and the research institution must establish a formal, written agreement detailing how intellectual property rights and follow-on licensing/commercialization rights will be allocated.

Highly successful small businesses are able to apply for a second or third phase II award under this opportunity. Second Phase IIs are awarded to extend the funding to finalize the initial Phase II prototype, or expand on R&D efforts to bring the technology to the commercial market.

Businesses applying for a third phase II award will be required to provide a letter of funding commitment showing 1:1 matching funds from a third-party.

The 1:1 Match Ratio: The small business must secure a matching cash contribution from an eligible third-party investor that is equal to or greater than the amount of the federal award requested from DOE (excluding legal or administrative fees collected by the small business). For example, if you apply for $2,000,000 in DOE funding, you must secure a minimum of $2,000,000 in matching funds.

• Eligible Third-Party Investors:
  
  • Another small business concern (500 or fewer employees) other than the applicant.
  • Venture capital (VC) firms.
  • Individual/angel investors.
  • Non-SBIR Federal, State, or local government agencies.
  • Any combination of the above.
• Ineligible Sources of Matching Funds:
  
  • Any SBIR or STTR Phase I, II, or III funds from any federal agency.
  • The applicant’s internal research and development (IR&D) funds.
  • In-kind or other non-cash/intangible contributions (e.g., donated equipment, sweat equity, or intellectual property valuation).
  • Funds coming from the owners of the small business, or from family members or affiliates of those owners.
  • Funding attained through bank loans, lines of credit, or other forms of debt obligations.

DOE Funding Rules: Must be spent solely on eligible research and development (R&D) activities (with the exception of pre-approved Technical and Business Assistance [TABA] or patent costs).

Matching Funding Rules: Can be used much more flexibly. They may cover R&D costs not included in the DOE budget, or non-R&D commercialization expenses (e.g., marketing, regulatory compliance, sales, scaling manufacturing, and working capital).