Summary¹

The Small Business Innovation Research (SBIR) program, established in 1982, sets aside a portion of an agency’s external research and development (R&D) funding for awards to small businesses, with the aim of translating scientific findings and engineering achievements into technology developments and innovation activities. This program was augmented in 1992 by the Small Business Technology Transfer (STTR) program, which includes the requirement for the small business awardee to partner with a college, university, Federally Funded R&D Center (FFRDC), or qualified nonprofit research institution on a cooperative R&D project, thereby helping to promote technology transfer and commercialization of the parties’ research collaborations. The programs were most recently authorized through September 2025; as of this writing, their reauthorization is pending in Congress.

The two programs are overseen and coordinated by the U.S. Small Business Administration (SBA). Participation is governed by the size of an agency’s extramural R&D budget, and participating agencies enjoy wide autonomy in managing their programs to best achieve their mission and objectives. Today, 11 federal agencies have SBIR programs; 6 operate STTR programs, including the Department of Agriculture as of 2022. The largest of these programs, and the subject of this report, are those of the Department of Defense (DOD). Over the lifetime of the programs, DOD has made awards to more than 13,400 unique firms.

DOD asked the National Academies of Sciences, Engineering, and Medicine (the National Academies) to conduct a quadrennial review of DOD’s SBIR and STTR programs, in accordance with a legislative mandate. The committee convened by the National Academies to carry out this request gathered and analyzed quantitative and qualitative data to produce this report on program operations and outcomes stemming from DOD SBIR/STTR awards.

This report presents a detailed analysis of DOD’s SBIR and STTR programs in accordance with the legislative mandate. Drawing on published research plus existing data, the study committee examined (1) the extent to which

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¹ This summary does not include references. Reference citations for the content herein can be found in the body of the report.

the programs have stimulated technological innovation and engaged small businesses to meet DOD needs; (2) the effectiveness of the STTR program in stimulating new collaborations between small businesses and research institutions and potential barriers to those collaborations; (3) the effectiveness of the STTR program in transferring to acquisitional and operational use the technology and capabilities developed through federal funding; (4) challenges facing DOD in outreach to potential applicants for program awards; (5) application and award procedures and their effectiveness in meeting DOD mission needs; (6) support provided for awardees, especially those with connections to DOD prime contractors; and (7) the impact of statutory changes to the programs, especially those related to the number of awards or award sizes. To further assess whether DOD’s SBIR/STTR programs serve as a gateway for engagement for innovative small firms in the defense innovation ecosystem, the committee also analyzed whether firms that participate in DOD’s SBIR/STTR programs receive other sources of funding from DOD.

DOD is a complex organization comprising service branches such as the Army, Navy, Air Force, and Space Force; defense agencies such as the Defense Advanced Research Projects Agency (DARPA) and the Defense Threat Reduction Agency (DTRA); and combatant commands such as the United States Special Operations Command (USSOCOM). Each military service and component (defense agency or combatant command) has a distinct mission, budget, and organizational structure. Organizational entities have emerged and evolved over time to address emerging threats and adapt to changing national security priorities. Examples include the creation of the United States Cyber Command (CYBERCOM), the Defense Innovation Unit (DIU), and the Space Force. There are currently 14 military services and component agencies within DOD that operate SBIR/STTR programs, all managed individually within DOD and SBA guidelines, with oversight by a central body within the Office of the Under Secretary of Defense for Research and Engineering (OUSD[R&E]).

Different services and components within DOD execute R&D that is specific to their individual missions. For example, DARPA funds high-risk, high-payoff science and technology programs to generate technological advantage over adversaries, and organizations such as DTRA and the Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense (JPEO-CBRND) fund research to address threats resulting from weapons of mass destruction. DOD funds small business research performers through the SBIR/STTR programs, as well as with other research, development, test, and evaluation (RDT&E) funds.

Still, as a defense mission agency, DOD performs a wide range of activities in addition to RDT&E to support its defense operations, including installation management, the provision of educational services, health care management, and policy development and execution. DOD’s procurement enterprise (over $150 billion in fiscal year 2023) is an ancillary function of the Department’s daily global military operational activities and the training, equipping, and fielding of military capabilities around the world to support the

execution of national defense missions, such as power projection, homeland defense, humanitarian assistance, and deterrence of future conflicts.

Total DOD RDT&E funding for fiscal year (FY) 2023 was $145 billion, which represented about one-sixth of the Department’s overall budget in that fiscal year. DOD determines the share of its overall RDT&E funding that is distributed extramurally, and a fixed portion of that funding is set aside for the SBIR and STTR programs (currently 3.2 percent for SBIR and 0.45 percent for STTR). For FY2023, the total amount allocated to the SBIR/STTR programs within DOD was nearly $2.9 billion, or about 11 percent of DOD’s total budget for “science and technology activities,” which are the earlier stages of the R&D pipeline. While spending on SBIR/STTR represents a substantial portion of DOD’s science and technology budget, it accounted for only about 2 percent of the Department’s overall RDT&E funding and about 0.3 percent of its total spending in FY2023.

Overall, the committee considers the SBIR/STTR programs to be effective tools for achieving many of DOD’s stated modernization and industrial base goals. They enable DOD organizations to develop and transition new and disruptive technological capabilities, address long-standing challenges that face operational forces and acquisition programs, and support efforts to expand the defense innovation and industrial base. The key findings and recommendations discussed in this summary highlight that a crucial strength of the programs is their flexibility: DOD organizations can execute and prioritize the programs in a manner that suits their mission requirements. On the other hand, the programs would benefit from increased attention by senior leadership, especially to address the transition of technologies from the programs into acquisition and operational use, as well as to overcome bureaucratic and policy challenges that sometimes reduce the programs’ effectiveness.

KEY FINDINGS AND RECOMMENDATIONS

Although the SBIR/STTR programs represent only a small portion of the DOD budget, they are critically important for small business innovators working on defense-related topics. Practically speaking, these programs are the world’s largest initiatives dedicated to small business innovation in defense technology. The committee’s analysis led to several key findings about the importance of these programs to both the firms that receive the awards and the defense innovation ecosystem.

Finding 7-1²: DOD’s SBIR/STTR programs serve as a gateway for small firms to enter the defense innovation ecosystem and receive subsequent R&D funding from DOD, consistent with their role in expanding the defense industrial base.

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² The committee’s findings and recommendations are numbered according to the chapter of the main report in which they appear.

Finding 7-5: Firms that have participated in DOD’s SBIR/STTR programs ultimately meet a significant and growing fraction of DOD’s extramural R&D needs and represent nearly one-third of participants in the defense R&D base.

Finding 7-6: DOD SBIR/STTR firms ultimately attract more than 4 dollars in non-SBIR/STTR funding from DOD for each dollar of DOD SBIR/STTR funding.

Finding 8-3: DOD SBIR/STTR awardees register a significant rate of knowledge transfer to prime contractors. For example, patents attributed to DOD SBIR/STTR funding are cited nearly three times more often compared with non-SBIR/STTR patents among the same recipients. Additionally, nearly 20 percent of acquisitions of DOD SBIR/STTR-funded firms are by one of the top defense contractors.

Importantly, the committee found that DOD SBIR/STTR-funded firms do better on traditional innovation metrics, such as acquiring patents and attracting venture capital funding, compared with small firms that contract with the government for R&D but do not receive DOD SBIR/STTR awards. At the same time, while the committee found strong evidence of DOD’s continued support for these firms using R&D dollars outside of the SBIR/STTR programs, it rarely found evidence of direct procurement by DOD. This finding may be attributable to data issues: Phase III awards are not reported uniformly, and subcontracting or the transfer of technology through acquisition by more established firms (e.g., Tier I suppliers or even prime contractors) is not always transparent.

Taken together, the key findings above served as the basis for the committee’s key recommendations. First, because the programs serve their purpose and fulfill their statutory mission, the committee recommends that they be extended permanently. Second, the committee proposes a set of focused recommendations, articulated below, to raise the profile of the SBIR/STTR programs within the DOD hierarchy, and to increase their visibility to Congress and defense suppliers and funders.

Recommendation 7-1: Given the demonstrated impacts of the Department of Defense’s Small Business Innovation Research/Small Business Technology Transfer (SBIR/STTR) programs on the development and fielding of new defense systems and capabilities, as well as on the defense innovation ecosystem and defense research and development industrial base, Congress should make the SBIR/STTR programs permanent.

Recommendation 4-1: The Department of Defense’s (DOD’s) Under Secretary of Defense for Policy should include in Defense Planning

Guidance that the DOD Small Business Innovation Research/Small Business Technology Transfer (SBIR/STTR) programs should be used as a mechanism for strengthening and broadening the defense industrial system, and direct the Department’s services and components to promote the transition of SBIR/STTR-generated technologies into mainstream science and technology and acquisition programs.

Recommendation 4-3: The Department of Defense’s (DOD’s) Office of Local Defense Community Cooperation should include DOD Small Business Innovation Research/Small Business Technology Transfer (SBIR/STTR) awards in its annual Defense Spending by State report.

Recommendation 3-1: The Department of Defense’s (DOD’s) Office of the Under Secretary of Defense for Research and Engineering, working with the Under Secretary of Defense (Comptroller), should develop information systems to provide greater fidelity and precision for the tracking of DOD Small Business Innovation Research/Small Business Technology Transfer (SBIR/STTR) awards, and a single, public portal to access and sort this information. This portal should link awards from Phase I to Phase II to Phase III in a consistent, clear format. These actions would provide the foundation for improving the programs’ effectiveness and efficiency, as well as communicating the value of DOD SBIR/STTR awards.

Maintaining Program Agility

DOD’s federated nature means that each SBIR/STTR program is executed differently throughout the Department. Each entity within DOD operating SBIR/STTR programs must remain simultaneously responsive to SBA directives and to high-level DOD officials in the Office of the Secretary of Defense, as well as the leadership of the military service or defense agency where the individual SBIR/STTR program resides. Each service or component within the Department has significant autonomy in administering its programs and defining its portfolio of projects, tailored to meet specific defense needs. This decentralized approach presents challenges in evaluating DOD’s SBIR/STTR programs. There are, in reality, numerous unique program implementations across the various DOD organizations, each reflecting different strategic priorities and technological focuses.

Given the federated nature of program management, the diversity of program goals, and a lack of consistent attention from leadership within DOD, those operating the programs face considerable challenges in shaping program activities to match institutional goals and strategies. The next three key findings

highlight some of the complexities related to several new program requirements, such as the use of open topics and due diligence requirements. Although the use of open topics has the potential to increase the number of new SBIR/STTR firms submitting proposals, it appears to work better in the larger organizations within DOD, such as the Air Force. For smaller and more specialized agencies, the number and range of proposals received in response to open topics can create a significant administrative burden for processing and review while not necessarily yielding the specialized capacity needed.

In addition to the mandate concerning the use of open topics, the SBIR and STTR Extension Act of 2022 required new due diligence procedures to enhance the security of proposals submitted by small businesses seeking DOD awards. A critical aspect of the due diligence process is a review of the information provided by small businesses regarding their foreign affiliations or relationships with foreign countries, including an analysis of cybersecurity practices, patents, employee backgrounds, potential foreign ownership and/or financial ties, and obligations to foreign entities. Currently, all proposals are evaluated, not just those deemed to be meritorious, and the committee found this process to be burdensome for smaller components within DOD.

Finding 4-1: DOD’s SBIR/STTR programs vary in terms of size, mission, and operational approaches. Codifying and communicating best practices would help all DOD organizations improve their SBIR/STTR programs.

Finding 4-2: Certain activities related to the implementation of DOD’s SBIR/STTR programs, such as due diligence, application assistance, and commercialization assistance, create an administrative burden for smaller DOD services/components.

Finding 4-3: Open topics help bring into DOD’s SBIR/STTR programs a broader range of firms that could reduce the concentration of awards, but the use of open topics is administratively burdensome for smaller DOD services/components.

In response to these findings, the committee offers three key recommendations for addressing these issues and helping different DOD organizations operate the programs more efficiently.

Recommendation 4-4: The Department of Defense’s (DOD’s) Office of the Under Secretary of Defense for Research and Engineering (OUSD[R&E]), which is the DOD office of primary responsibility for the Small Business Innovation Research/Small Business Technology Transfer (SBIR/STTR) programs, should codify and communicate best practices, such as those for integrating the SBIR/STTR awardees into programs of record or improving

outreach to new small businesses. In addition, OUSD(R&E) should incentivize early collaborations across services and components for projects with potential multimission transition pathways.

Recommendation 4-5: Congress should allow but not require the use of Small Business Innovation Research/Small Business Technology Transfer (SBIR/STTR) open topics. Congress should encourage more flexibility for the Department of Defense’s services and components to experiment with approaches that help broaden their supply base.

Recommendation 4-10: The Department of Defense’s Small Business Innovation Research/Small Business Technology Transfer (SBIR/STTR) Program Office should prioritize due diligence reviews for proposals that are being seriously considered for funding.

The Impact of Experienced Firms

The final set of key findings and recommendations resulted from the committee’s investigation of whether firms that over time win multiple SBIR/STTR awards have a greater impact on DOD’s missions and goals relative to those that receive fewer awards. Because the mark of success of these programs is their ability to serve DOD, it is not surprising that some of the most successful performers are those that receive multiple awards. DOD’s procurement process is difficult to navigate for performers without prior experience with the Department. The committee found that there appears to be a certain threshold—five Phase I awards—beyond which firms are effective in producing inventions and innovations that attract follow-on DOD funding or private financing.

In its 2022 reauthorization of the programs, Congress placed heightened restrictions on program participation by what it deemed “experienced firms”—those that received more than 50 Phase I awards over a 5-year period or more than 50 Phase II awards over a 10-year period—based on either their transition from Phase I to Phase II or their commercialization record. The 2022 reauthorization also limited the definition of commercialization to sales to or investments from the private sector alone, which excludes continued engagement with the Department beyond Phase I and Phase II. Looking at Phase I award counts, the committee found that experienced DOD SBIR/STTR firms were more likely to receive subsequent financing (both from DOD and from the private sector) and more likely to receive patents compared with a similar set of small businesses that did not receive DOD SBIR/STTR funding. In addition, experienced firms were much more likely to receive DOD procurement contracts or private financing than were small businesses that had won a smaller number of DOD Phase I awards.

The 2022 reauthorization also restricted the measure of commercial success to include only sales to or investment by the private sector in order to

determine whether experienced firms are eligible to receive new awards. However, many of these experienced firms are from states in which firms receive lower levels of venture funding, so these firms often help expand the defense innovation ecosystem beyond those areas of the country viewed by some as traditional innovation centers.

Finding 7-2: Firms that receive more than five DOD SBIR/STTR Phase I awards are more likely to become part of the broader defense innovation ecosystem than are firms that receive fewer.

Finding 8-2: DOD SBIR/STTR firms with at least five Phase I awards are associated with higher levels of patenting and follow-on financing relative to those with fewer.

Finding 9-1: Performance standards (concerning follow-on funding or transition to Phase II) that potentially limit participation in the SBIR/STTR programs by particular firms, whether by limiting the ability to submit proposals or the number of awards that can be received, add administrative burden and limit the discretion of program executive officers and program managers.

Finding 9-2: DOD SBIR/STTR firms with more than 50 Phase I awards over a 10-year period are more likely to contribute capability and expertise to the defense supply chain and innovation ecosystem than are firms that receive fewer awards.

Finding 9-3: DOD SBIR/STTR firms with more than 50 Phase I awards over a 10-year period often come from states that receive relatively low levels of venture capital and are outside of those areas of the country perceived as traditional innovation clusters.

Restricting experienced firms from participating in the SBIR/STTR programs—either by restricting them from submitting proposals or restricting DOD program managers from selecting their applications when those firms may be submitting the most meritorious applications—is a detriment to DOD’s efforts to modernize warfighting capabilities. Indeed, eliminating additional investment by DOD based on the measure of private-sector commercialization success discounts the value that these firms are bringing to the Department.

Recommendation 9-1: Congress should direct the Small Business Administration to revise the Policy Directive restriction on proposal submission by certain applicants that do not meet commercialization or transition benchmarks. Doing so would ensure that the Department of Defense can review and select the best proposals to meet its needs.

Recommendation 9-2: Congress should ensure that program executive officers and program managers have the flexibility to choose among applicants with the best technologies and those that can quickly deliver results for the warfighter. Congress should not mandate strict benchmarks restricting the receipt of awards based simply on the number of previous awards or prior Small Business Innovation Research/Small Business Technology Transfer (SBIR/STTR) funding received by a small business.

Recommendation 9-3: Congress should include additional federal funding in calculations of commercialization.

CONCLUSION

In general, the committee found that DOD’s SBIR/STTR programs are attracting small businesses with distinct capabilities to support the Department’s mission and broaden the defense industrial base. SBIR is one of the most emulated government R&D programs in the world, with countries as diverse as India, New Zealand, South Korea, Taiwan, and Turkey adopting programs of a similar nature.

This summary has presented the key findings and recommendations resulting from the committee’s analysis of DOD’s SBIR/STTR programs. In addition to the key recommendations for improving the programs’ effectiveness included here, the committee recommends that DOD provide tailored training to both program officers and acquisition officials. The committee also recommends that DOD improve its data collection, particularly with respect to subcontracting and Phase III awards, to provide additional transparency. The complete set of the committee’s findings and recommendations is presented in Box S-1.

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