The Small Business Innovation Research (SBIR) Program and its companion, the Small Business Technology Transfer (STTR) Program, provide non-dilutive funding exclusively to U.S.-based small businesses. These programs support early-stage research and development of innovative products, services, and methods that advance public needs while offering the potential for commercial success.
The SBIR/STTR programs lapsed on September 30, 2025, and have not yet been reauthorized. Without congressional action, companies currently relying on this critical seed funding face a real risk of failure. Future innovators, meanwhile, are left with a set of deeply unattractive alternatives:
- Compete with universities and federal research centers for highly competitive research funding;
- Self-fund development, assuming the full financial risk of bringing an innovation to market; or
- Seek pre-seed equity funding through incubators or accelerator programs.
Each of these paths poses serious challenges for small businesses developing breakthrough technologies.
Competing against well-funded academic institutions and federal research labs offers a low probability of success while consuming hundreds—or even thousands—of hours that founders would otherwise spend advancing their technology. Self-funding, particularly for hard-tech or wet-lab-based innovations, is prohibitively expensive. Wet lab space, waste disposal, specialized equipment, and regulatory compliance costs far exceed those of software development. Most innovators lack the capital to absorb these costs and are unlikely to qualify for traditional business loans, leaving promising ideas stranded.
Equity financing at the pre-seed stage presents its own risks. Early-stage technology development is inherently uncertain, and investors often demand substantial ownership stakes in exchange for assuming that risk. When founders later seek funding to scale and commercialize their technology, they may find themselves diluted into minority ownership of the very companies they created.
Given these realities, why has Congress failed to reauthorize SBIR and STTR?
Senator Joni Ernst’s INNOVATE Act aims to curb so-called “SBIR mills” through significant reforms, including lifetime caps on SBIR funding and limits on the number of proposals submitted by principal investigators and organizations. While these reforms are intended to promote accountability, opposition has emerged, particularly from the Department of Defense and its contractors. Many of these firms develop DoD-specific solutions that meet defense needs but are not easily commercialized in civilian markets.
Senators Ed Markey and Nydia Velázquez have proposed compromise legislation that would make the SBIR/STTR programs permanent, strengthen national security safeguards, limit repeat awards to companies that fail to commercialize, and introduce post-Phase II “Strategic Breakthrough” awards exceeding $30 million.
Despite differing approaches, both Senators share a central goal: successful Phase III commercialization. If taxpayer dollars support early-stage research and development, the public benefit is ultimately realized only when new products and services reach the market.
The SBIR/STTR program remains a cornerstone of the U.S. innovation ecosystem and one of the most effective federal tools for supporting technology-driven small businesses. Congress must act swiftly to permanently authorize these programs and ensure that American innovation continues to thrive.