5

Who Applies and Who Gets Funded

A foundational element of any evaluation of DOD’s Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs is gaining an understanding of who is applying to the programs and who among them is successful in receiving program funding. The committee was able to analyze trends in applications and awards, as well as examine the geographic diversity of the applications and awards of recent years. This information enabled the committee to consider the impact of DOD’s outreach efforts and to understand the variation in funding rates of applicants to the different services and components and from different states and congressional districts. The focus of this chapter is on SBIR program applications and awards; data relating to the STTR program are presented for purposes of comparison (see Chapter 6 for additional detail on the STTR program).

DATA SOURCES

This chapter draws on DOD-provided data on SBIR/STTR applications filed for the fiscal year (FY) 2019–2023 time period; these data include measures of race, ethnicity, and sex for firm owners for both funded and unfunded applications.

It should be noted that the application data received from DOD were incomplete at the time that the committee received it, and award totals differ from those reported in the Small Business Administration (SBA) SBIR/STTR award database, which was used for other chapters in the report. The total number of applications and the award status are known, but data are lacking on other variables. For example, among SBIR applications, the phase for which the firm applied was missing in about 14 percent of cases. However, the data do not reflect any systematic bias, and for completeness, the chapter reports cases of missing data. Given the limited number of years of data available for analysis in this chapter, moreover, it was not possible to identify long-term trends; however, these

data and the committee’s analysis do provide an important baseline for future research when additional years of data become available.

APPLICANTS TO THE SBIR PROGRAM

DOD’s SBIR/STTR programs received 71,146 applications during FY2019–2023 (see Table 5-1). The majority of these applications—86.6 percent (61,580)—were for the SBIR program, while more than 13 percent (9,566) were for the STTR program.

Table 5-1 shows the numbers of applications by fiscal year. These data reveal that the total annual number of applications fluctuated over the period, with growth in the number of SBIR applications increasing in FY2019–2021, followed by smaller numbers of applications. Indeed, the overall number of SBIR and STTR applications fell by 11.6 percent between FY2021 and FY2023. It is notable that the significant decline in SBIR applications after FY2021 coincides with the most recent reauthorization, which introduced new regulations regarding international ownership and limits on the number of applications per firm, and took place in the context of a lengthy reauthorization debate. This decline, however, is not reflected in the data for STTR.

While the STTR program is significantly smaller than SBIR, as indicated by the application numbers, it has a higher rate of funding (Table 5-1). The 5-year average funding rate for SBIR applicants was 22.1 percent, compared with 32.4 percent for the STTR program (Table 5-1). Indeed, STTR consistently has had a higher annual percentage of funded applications. This differential may reflect the collaborative nature of relations between small businesses and research institution partners and, relatedly, the skill and experience of these STTR partners in assisting small business partners in preparing program applications.

Table 5-2 breaks down annual application and award data by phase for the SBIR program and reports cases in which award phase information was not reported. Across the 5-year analysis period, more than 61,580 total applications were submitted. Of this total, 8,093 Phase I awards were granted, for an average funding rate of 17.8 percent. DOD’s SBIR Phase I funding rates declined over the period, dropping from 20.5 percent in FY2019 to 12.1 percent in FY2023. This decline reflects both an initial, modest rise in applications and a reduction in the number of awards over the period, particularly in the most recent year. Phase II applications were fewer in number, reflecting a more selective stage of the funding process, while funding rates were higher. Of 7,346 Phase II applications submitted during the period, 3,799 were funded, for an average funding rate of 51.7 percent. Funding rates for Phase II varied by year, peaking at 59.6 percent in FY2019 and falling to 37.4 percent by FY2023.

A notable feature of these data is the growing number of applications with missing phase information, particularly from FY2021 onward. In FY2021, nearly 2,000 applications were missing phase designation, followed by 3,509 in

TABLE 5-1 DOD SBIR and STTR Applications and Awards (Fiscal Years 2019–2023)

SOURCE: Committee calculations based on application data provided by DOD.

TABLE 5-2 DOD SBIR Applications and Awards, by Phase (Fiscal Years 2019–2023)

SOURCE: Committee calculations based on application data provided by DOD.

FY2022 and 2,779 in FY2023. Of the 8,684 total applications with missing phase information between FY2019 and FY2023, 1,707 received funding—2.8 percent of all applications over the period. These gaps in reporting complicate efforts to fully assess the distribution and success rates of applications by phase and underscore the need for improved data tracking and consistency in program reporting. Additional analysis of the data shows that most of the missing data were from the Air Force, accounting for almost three-quarters of those data.

Table 5-3 shows SBIR application data broken down by service/component for FY2019–2023. The Air Force has the largest program, accounting for 44.6 percent of all applications over this 5-year period. When combined with the Navy and Army, these three services account for 83.6 percent of DOD’s SBIR applications during the period. All three services—and the Space Development Agency—have many more applications for Phase I awards than for Phase II awards. Smaller services and components receive a smaller number of applications. Of the three major military services, the Navy had the highest funding rates for Phase II proposals (79.7 percent)—perhaps reflecting the Navy’s requirement that applicants identify potential use cases and customers by connecting with operations. Most of the smaller services and components, such as the Defense Threat Reduction Agency and the Defense Health Agency, have lower Phase I funding rates but higher Phase II funding rates.

DATA ON SBIR APPLICANTS

The legal entity of record for any SBIR and STTR application is a firm with under 500 employees. During the analysis period, 11,609 unique firms applied to the SBIR program. Of these, 4,865 (41.9 percent) applied to the program once, and 6,744 (58.1 percent) applied more than once. The median number of applications per firm was 2, and the mean number of applications per firm was 6.1. Reflecting the well-known skew in the distribution of SBIR awards (Feldman et al., 2022), the maximum number of applications by a single firm was 809.¹

Each of the 61,580 SBIR applications had a principal investigator, the project leader. Among these applications, principal investigator information was not recorded for 1,006 (1.4 percent). Approximately 21,543 unique principal investigators applied to the SBIR program over the analysis period.² The median number of applications per principal investigator was 2, and the mean number of applications per principal investigator was 3.3. Once again, the number of applications is skewed: the maximum number of applications from one principal investigator was 251. Unfortunately, demographic data on the principal investigators were not collected.

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¹See Chapter 9 for a more detailed review of firms receiving multiple awards.

²SBA.gov does not provide unique principal investigator identifiers. The committee’s analysis relies on name disambiguation.

TABLE 5-3 SBIR Applications, by DOD Service/Component (Fiscal Years 2019–2023)

SOURCE: Committee calculations based on application data provided by DOD.

More data were available for the firms that applied for SBIR awards. The average firm size of SBIR applicants was 21.5 employees. Half of the firms applying had fewer than 5 employees, while 5 percent had more than 100 employees, still well below SBA’s criterion for the size of a small firm.

Applicants varied in terms of prior experience with the DOD SBIR program. The Air Force stands out, with more than half of the funded Phase I awards being made to first-time SBIR awardees. This relatively high percentage reflects the Air Force’s adoption of an open topic model, which prioritizes exploratory innovation by issuing many small Phase I awards. The Defense Advanced Research Projects Agency (DARPA) also had a high rate of funding firms that were new to the program. Notably, DARPA’s mission differs from that of the services, and the agency has only a small internal procurement function relative to the services and compared to what it spends on research and development (R&D).

The committee’s analysis showed that funding rates increased with experience in submitting Phase I applications. Of course, it is reasonable that the likelihood of having an application funded depends on the number of applications submitted, given that as the number of applications increases, the likelihood that at least one will be funded rises. An experience factor also comes into play, in that firms may get better at writing proposals the more they do it or may even be able to have a dedicated grant-writing staff.

Geographic Distribution of Applications

The committee explored the geographic distribution of SBIR and STTR awards by the total number of applications and by the percentage of total awards for Phases I and II. The geographic distribution of SBIR awards is important because it reflects the extent to which the program meets its statutory objectives of promoting innovation and supporting technology-based economic development across all regions of the United States. As articulated in the Small Business Innovation Development Act of 1982³ and reaffirmed in subsequent reauthorizations—including the SBIR/STTR Reauthorization Act of 2011⁴—one of the program’s core purposes is to foster and encourage participation by socially and economically disadvantaged small business concerns and by small business concerns that are at a disadvantage in obtaining R&D funds. The geographic distribution of SBIR awards helps achieve this mandate by broadening access to federal R&D funding beyond historically dominant innovation hubs such as Silicon Valley and the Boston–Cambridge corridor. Table 5-4 presents the number of SBIR and STTR applications received, by state, in total and then normalized by the state’s total population.

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³U.S. Congress, Small Business Innovation Development Act of 1982, P.L. 97-219 (July 22, 1982).

⁴U.S. Congress, National Defense Authorization Act for 2012, P.L. 112-81, Sections 5001–5168 (December 31, 2011).

TABLE 5-4 Distribution of DOD SBIR/STTR Applications and Awards across States (Fiscal Years 2019–2023)

SOURCE: Committee calculations based on application data provided by DOD and population data from the U.S. Census Bureau.

The distribution of DOD SBIR/STTR applications follows a pattern of regional high concentration, with most applications coming from a small number of states. States such as California, Massachusetts, and Virginia dominate in total applications, accounting for a significant proportion of submissions. Remarkably, as Table 5-4 shows, nearly 70 percent of the total is concentrated in just 20 percent of states. Most of those states are in the Northeast (e.g., Massachusetts, New York, Pennsylvania) and the eastern United States (e.g., Ohio, Maryland, Virginia, Florida, Alabama). The West accounts for fewer states with high application rates, with the notable exceptions of California, Texas, and Colorado. This geographic disparity highlights the uneven distribution of innovation infrastructure and resources across different regions of the country (Boschma et al., 2025; Feldman and Florida, 1994).

Geographic Distribution of SBIR Applications and Funding Rates by Phase

Next, the committee examines separately the geographic distribution of DOD SBIR Phase I and Phase II applications and funding rates. The two phases serve distinct purposes and reflect different dynamics in the innovation pipeline. Phase I awards are designed to support feasibility studies, providing small businesses with early-stage funding to explore the scientific and technical merit of a proposed innovation. These awards typically have lower barriers to entry and attract a broader and more geographically dispersed applicant pool—including first-time participants, startups, and firms in emerging or less-developed innovation regions.

In contrast, Phase II awards are significantly larger and intended to support the continued development and commercialization of technologies initiated in Phase I. Because they require prior Phase I success and often involve stronger commercialization plans, Phase II awards are more likely to go to firms with existing infrastructure, experienced management, and access to follow-on capital—factors that tend to be concentrated in established innovation clusters such as Silicon Valley, Boston, and the DC metro area (Wallsten, 2000).

By analyzing the two phases separately, policy makers and researchers can assess whether the SBIR program is successfully fulfilling its mandate to broaden geographic participation. A relatively inclusive distribution of Phase I awards could indicate progress in reaching new regions and firms, while a narrower Phase II distribution could reveal persistent challenges in scaling innovations from underrepresented areas. This distinction is crucial for designing interventions—such as technical assistance, mentorship, or regional commercialization support—that can help firms in underserved regions transition from Phase I to Phase II, ultimately improving the effectiveness of the SBIR program (Lanahan and Feldman, 2015, 2018).

The acceptance rates for Phase I and Phase II suggest disparities in regional innovation ecosystems and the ability of firms operating in different

geographic areas to transition projects through funding phases. States in the East and Northeast, along with selected states in the West, such as Colorado, perform well in Phase I, while smaller and less populous states, such as Wyoming and Rhode Island, are among those that excel in transitioning to Phase II. Unfortunately, of the total number of awards reviewed for the committee’s analysis, 8,684 cannot be clearly assigned to a specific phase. Appendix D of this report provides detail on DOD SBIR applications and funded awards by phase for every congressional district.

As reflected in Table 5-5, the distribution of Phase I funding rates shows great variation across states, with some Eastern states and a few Western states achieving notably high success rates. Eastern states such as Massachusetts (23 percent) and New Hampshire (21 percent) have some of the highest acceptance rates, benefiting from robust innovation ecosystems supported by world-class universities and research institutions. Colorado in the West also achieves a high acceptance rate of 21 percent, reflecting the region’s growing focus on technology and innovation hubs. In contrast, states such as Nebraska (10 percent) and South Dakota (11 percent) show much lower funding rates, potentially because of fewer resources for fostering early-stage innovation or a lack of established innovation networks. Surprisingly, some smaller states, such as Rhode Island (21 percent), perform well despite their smaller application pools.

Phase II funding rates (Table 5-6) also show clear regional patterns, with the highest rates often seen in smaller or less populous states across the country. Western states such as Wyoming (with an 85 percent acceptance rate) and Arkansas in the South Central region (69 percent) lead the way in transitioning Phase I projects into funded Phase II awards, indicating strong support in these states for follow-up efforts and commercialization readiness. Similarly, New Hampshire in the East (56 percent) and Indiana in the Midwest (57 percent) perform well, likely because of effective infrastructure for advancing early-stage innovations. On the other hand, some states, such as South Dakota and Mississippi, have relatively low funding rates, with 32 and 22 percent of Phase I projects transitioning to Phase II, respectively. These regional differences suggest the importance of localized innovation ecosystems, as well as the need for tailored strategies to support proposals through both phases of the innovation pipeline.

FINDING

Finding 5-1: DOD’s SBIR/STTR programs employ competitive application processes. The applicant and awardee pools span the country, but there are significant differences in funding rates among and within states.

TABLE 5-5 Difference in Funded SBIR Phase I Applications, by State (Fiscal Years 2019–2023)

SOURCE: Committee calculations based on application data provided by DOD.

TABLE 5-6 Difference in Funded SBIR Phase II Applications, by State (Fiscal Years 2019–2023)

SOURCE: Committee calculations based on application data provided by DOD.