SBIR Program Reauthorized with Broadened Availability to Venture-backed Companies

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The new year is starting with a some extra cheer for start-up companies. On December 31, 2011, President Obama signed the National Defense Authorization Act for Fiscal Year 2012 (the Act), which included provisions reauthorizing the Small Business Innovation Research (SBIR) for an additional six years and expanding the eligibility of venture-backed companies to receive SBIR grants (the Reauthorization).

The SBIR program is an award system for funding small businesses that propose and perform research and development that meet criteria specified by agencies within the federal government. The SBIR program envisions three phases for participant companies: Phase I, with up to $150,000 in funds (increased from $100,000 in the Reauthorization) to study feasibility and commercial potential; Phase II, with up to $1,000,000 in funds (increased from $750,000 in the Reauthorization) for additional research and development; and Phase III commercialization through non-SBIR money.

Under the Reauthorization, federal agencies that participate in the SBIR program are allowed to provide SBIR awards to enterprises that are majority owned by multiple venture capital operating companies, hedge funds, or private equity firms. However, such agencies may not allocate more than 15% of their SBIR funds (25% of such funds in the case of the National Institutes of Health (NIH), the Department of Energy, and National Science Foundation) for companies falling within the expanded access provisions. Previously, majority venture-backed enterprises were severely limited in gaining access to these awards unless the venture investors themselves met certain stringent criteria, including majority ownership of such funds by individuals.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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