On May 15, 2012, the U.S. Small Business Administration (SBA) published a proposed rule to amend regulations governing eligibility for the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Programs to implement provisions of the SBIR/STTR Reauthorization Act of 2011, which was included as part of the FY12 National Defense Authorization Act (NDAA). The NDAA reauthorized the SBIR Program for six years and now allows small firms that are majority-owned by venture capital operating companies (VCOCs), hedge funds, or private equity firms to receive SBIR grants. The conditions imposed upon such investors will affect the structure of investments in SBIR-funded companies. This advisory briefly summarizes the most important changes to the SBIR eligibility rules being considered* and briefly discusses how investments in or acquisitions of SBIR-funded companies may be affected.

*The recent publication is a proposed rule and subject to change, but the most material changes are required by the NDAA, and thus are likely to survive in the final rule to be published later this year.