Fifty years ago, the Small Business Innovation Research program was launched, heralded as potentially “the most significant government program” of the century in science and technology.
At the time, lawmakers recognized that the U.S. government couldn’t keep pace with private research and small businesses needed financial support to move R&D from the lab to the field. SBIR established a pathway to align venture capital with their innovation efforts and has since led to 70,000 patents and $41 billion in funding across almost 700 companies.
The federal government benefits immensely from this symbiosis, and while the SBIR program has historically been extended without issue, it now faces opposition. Letting SBIR expire would have existential consequences for the U.S. Department of Defense and the tech industry serving it. Instead of defunding SBIR, Congress must strengthen it to ensure small businesses that need support get it so the DoD can remain competitive on a fast-evolving global technological stage.
To maintain strategic advantage and ensure force readiness and resilience amid increasingly sophisticated cyberattacks, the DoD must embrace commercially borne innovation to address national security challenges.
“Failure to reauthorize the programs will result in approximately 1,200 warfighter needs not being addressed through innovative research and technology development,” Undersecretary of Defense for Acquisition and Sustainment William LaPlante and Undersecretary for Research and Engineering Heidi Shyu wrote in a June 3 letter to lawmakers. Meanwhile, government reports have detailed common security vulnerabilities discovered in weapon systems that put the military at risk. SBIR assures a pipeline of new defense and cybersecurity technology for the military.
If U.S. fails to fund SBIR, nation risks competitive advantage
For the tech industry, the consequences would be devastating if SBIR is not reauthorized. Since its inception, SBIR has facilitated a virtuous cycle of innovation and commercialization. The DoD in particular has benefitted from SBIR. Most digital components the military relies on, from information technology like routers and operating systems, to operational technology within critical infrastructure and military weapon systems, were developed commercially.
Today, the military is a net-importer of technology. But it’s ironic that venture-backed companies often eschew it as a customer due to its reputation for being difficult to do business with. The SBIR program is perhaps the single-most important tool the government has to combat this perception.
Don’t defund. Evolve
Over the past century, the military has exported many life-changing technologies to the private sector: the Global Positioning System; the internet; the Epipen, the microwave oven; and jet engines, to name a few. But the DoD can’t do cybersecurity R&D on its own, especially in light of its talent shortage. The private industry pays competitively-high salaries for the highly-specialized professionals needed to solve these hard problems. Congress must reauthorize the SBIR program in September, and modernize it to improve the effectiveness of the small business-DoD partnership. Here are my recommendations to accomplish that.
Funding for later stage projects
The Valley of Death is a glaring oversight in the SBIR program that prevents innovative technologies from reaching full-scale deployment within the DoD. Put simply, the funding gap between makeshift SBIR Phase III awards and reliable, congressionally-appropriated spending keeps innovative technology away from the warfighter. It can take years for congressionally-appropriated funding to make its way to DoD buyers, whereas venture-backed companies operate on 12- to 18-month funding cycles during which they must show meaningful progress towards aggressive growth targets.
To optimize the SBIR process, DoD should emphasize funding the Phase III transition. This would increase competition in the early stages of the funnel and expand the opportunities for small businesses nearing the deployment stage — thus increasing the volume of tech solutions available to the DoD and speed to market. Undersecretary Shyu is sensitive to this challenge; earlier this year she requested “bridge funding” to sustain companies through this Valley of Death. The government should significantly increase funding available for Phase III awards, in part funded by more stringent criteria for Phase I/Phase II awards.
Rules for early-stage funding
The main criticism of the SBIR program from its biggest opponent, U.S. Senator Rand Paul (R-Kentucky) is its abuse by so-called “SBIR mills,” companies that rely on Phase I and II grants as primary revenue streams with no intention of commercial expansion. In 2020, the State Science & Technology Institute (SSTI) found that 0.7%, representing 95 companies, won 40 or more Phase I and/or 30 or more Phase II awards.
The abuse of a small group cannot ruin the opportunity for the larger industry. DoD must address these concerns. The SBIR program already has performance benchmark requirements intended to emphasize transition from Phase II to Phase III, and in April 2021, the Small Business Association began designating suspected SBIR mills as ineligible for future awards. By strengthening and refining this approach, the legitimate concerns of Congress can be addressed while making the SBIR program even more potent.
Public-private cooperation, education
Finally, there must be greater collaboration and information sharing between the venture ecosystem and the DoD. Programs like the AFVentures Fellowship are excellent. By embedding career DoD officials with venture firms and venture-backed companies, we can strengthen shared understanding, build trust, and grease the skids for commercial technology to make its way into the hands of the warfighter.
Venture capital is America’s innovation engine. To spur innovation at the pace of technology, the U.S. government requires partnerships with private companies, particularly those that can manage lengthy acquisition cycles while demonstrating commercial success. This symbiotic relationship is the key to ensuring the DoD has access to the most cutting-edge technologies in the fastest possible route. The SBIR program has served the tech and science industries well for half a century. We need to strengthen it, not defund it over an issue that can easily be corrected because today — our national security depends on it.
Josh Lospinoso is Founder and CEO of Shift5, a cybersecurity company that provides hardware and software products to defend operational technology platforms such as planes and satellites.
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