Interview and article by Joel R. Crabtree

Maine Venture Fund recently had an opportunity to catch up with Karen West, the SBIR/STTR Consultant for Maine Technology Institute, to discuss the process of applying for funds, how companies can strengthen their application, and the benefits of the application process even if a company isn’t chosen for an award.

Q: What types of businesses can apply for SBIR/STTR funding? Can an organization that already has a product to market still apply for SBIR/STTR funding?

A: The formal definition is set by the Small Business Administration, and defines a small business as being up to 500 employees, which describes most companies in Maine. Technically, companies must be for-profit and U.S.-owned/operated. Most of the awards go to companies made up of between two and nine employees. Existing companies can certainly use it to keep their R&D pipeline full, while start-ups can use it to get their business off the ground.

The focus is on performing R&D. In reality, any company that is working to bring a new, innovative product to market, whether it is hardware or software, product or service, is eligible to apply. Even companies that eventually want to, or maybe even have, raised venture funding can use SBIR/STTR to help bring them closer to commercialization.

This is a gated program, where companies can take their idea or technology almost all the way to the commercial market, and most importantly, it’s non-dilutive and the Intellectual Property rights remain with the company.

Q: So speaking of the gated component, what is the difference between Phase I and Phase II funding?

A: Phase I is feasibility — that stage where you’re still wondering, will my idea work? It’s usually in a very basic prototype, and you have some hypothesis about your technology or innovation. This six-month award, roughly $250,000, allows you to prove that your idea or innovation will work the way you think it will. Once you’re successful in Phase I, you can apply to Phase II, which is usually for two years and up to $1.5 million for prototype development. Phase II is making the prototype to get ready for commercial launch, and talking to customers to line up those who would be early adopters of the technology.

However, even if you submit and don’t receive an award, most companies say the process is extremely valuable to move their product toward commercialization. Building the road map from how the technical work will be executed to who the customer is and the market outlook is critical to moving forward.

Phase III is commercialization, and there is no SBIR funding for that. This is where the companies must look to private sources of capital to continue development and/or launch into the marketplace. Sources of funding in Maine include the Maine Technology Institute, MVF, Angel investors, FAME, CEI, etc.

Q: Do you need to go through Phase I funding to apply for Phase II?

A: In most cases, yes. Eleven federal agencies take part in the SBIR/STTR program, and while one or two may allow companies to bypass Phase I – generally for experienced SBIR-awarded companies – it’s rare.

Q: When you’re going through SBIR/STTR applications, what is it that makes an application stand out?

A: It has to be innovative. It can’t be an iteration on a product already in the market or a version 2.0. Agencies want paradigm-shifting ideas — something that doesn’t exist in the marketplace. As an example, BlueTrace has used the NOAA SBIR program to launch its shellfish traceability solution for growers and distributors. Nothing like it exists in the market today, and it addresses key dynamics in the industry like food safety, an evolving regulatory environment, and operational efficiency.

The other thing they look at is the quality of the team. Since most awards go to really small businesses, they don’t always have all the expertise needed in order to execute a strong Phase I feasibility effort. University researchers or other nonprofit research institutions help lend credibility to the effort. Also, in an SBIR application, the small business may partner with a nonprofit research institution, while in an STTR application, they must partner with a nonprofit partner.

Q: How labor-intensive is it to complete an SBIR/STTR funding application?

A strong Phase I proposal is usually between 70 to 100 pages total when you add letters of support, budget documents, and peripheral documents supporting the project’s narrative. It’s like writing a thesis or a term paper on steroids. On average, Phase I will take 120 to 140 hours for the application over the course of two to three months.

Q: What is the success rate of SBIR/STTR applications?

A: The success rate of Phase I is anywhere between 10 and 20 percent. The two primary areas of review criteria are intellectual merit and scientific merit. For example, in response to the criteria, the reviewers will consider how well you’ve explained your hypothesis and how you’ll prove feasibility, what you want to do with that Phase I funding, what is the societal benefit of your search and finally how big is the market for your technology?

Even though the Phase I success rate is between 10 and 20 percent, you get reviewer comments about your proposal’s strengths and weaknesses because almost all the agencies conduct a peer-review process. Even if you’re not selected for an award, you can take those comments, rewrite and resubmit your proposal. Because of that, your odds of receiving an award go up significantly the second time around.

In Phase II, the award rate goes up to 40 or 50 percent because you’re only competing with other Phase I awardees, so the pool is much smaller.

Q: What role do you and the Technical Assistance Program (TAP) team play in assisting companies through the process?

A: When MTI was created in 1999, they were mandated to provide educational outreach and support to small businesses in Maine wanting to participate in the SBIR/STTR program. So MTI created this technical assistance team – TAP – of which I’m the lead consultant. There is a group of about five consultants that work with MTI, and together we support companies as they write their Phase I and Phase II proposals. The support is provided at no cost to the small business.

As the lead consultant, I do everything from introductions, strategization, proposal review, editing, and more. I’m there from the beginning. Then we bring in Stan Gavitt, CPA, and he works with the company to develop their indirect cost rate, budget, and budget justification. Then we bring in a commercialization expert, Suzanne Hamlin, of Transformative Knowledge to help guide the go-to-market strategy, and a market researcher, Jan Knight of Bancroft Information Services. Jan conducts secondary market research, which is used to inform the commercialization section of these proposals. Finally, we have a National Institutes of Health (NIH) biotech expert Jo Anne Goodnight to advise and guide NIH proposal development.

Q: Can companies hire outside consultants to assist in writing their applications?

A: Yes. If they’re not good writers, we highly recommend hiring a grant writer. The proposal has to be written to a scientific journal paper level. You can also leverage and include subject matter experts. If you have knowledge of something but don’t have that degreed experience, that’s where you might want to look to the research institution for assistance to give you credibility.

Q: Are there any MVF portfolio companies that have applied for and received funding?

Blue Trace, Chip Terry’s company, has been one of our more successful ones. They’ve received NOAA Phase I and Phase II awards, and they’re a perfect example of a company that was initially declined, resubmitted, and got an award.

Cerahelix is a successful SBIR awardee, as is OSS. American Unagi went after a USDA Value-Added Producers Grant and were successful.

The SBIR/STTR program is designed to strengthen small businesses, help them grow and ensure they get a piece of the federal R&D action. It’s not so much about the technology or basic research, but about growing the innovation through to commercialization. Many companies, especially here in Maine, are doing innovative work, but they don’t necessarily see it as innovative. They need a solution to a problem, and they know they need funding to achieve that.

Q: There are a lot of federal agencies involved with SBIR grants. How engaged are they with the grants?

It depends. Most of the agencies will not be the customer and will not be buying the product they’re paying you to develop, except the Department of Defense, for example. When you make a widget for DOD, they’re planning on buying it once you get it fully developed. So agencies and program managers within DOD are pretty heavily involved. In other agencies like USDA, National Science Foundation and the National Institutes of Health, they’re not going to be the customer. Most often, they’ll present you with the agency’s mission and goals and topic areas of interest, then it’s up to you to propose a technology-oriented solution which they’ll review and decide to fund or not fund it.

Q: If an organization is interested in engaging the TAP team, what would be their first step?

Go to MTI’s website, and underneath the “MTI Funding” tab, click on https://www.mainetechnology.org/mti-funding/federal-funding-assistance/, that link to the SBIR/STTR program contains a wealth of information, including previous webinars and presentations on the program. I’m always happy to engage in initial discussions with anyone who thinks they might have something that would fit the SBIR/STTR program.

Speaking of webinars, MTI is hosting a three-part NIH SBIR/STTR virtual webinar in January 2022. It’s free to attend, and more information can be found at: https://www.mainetechnology.org/events/part-one-national-institutes-of-health-sbir-sttr-proposal-preparation/.