For non-U.S. space companies considering access to government funding, the issue of eligibility for programs such as Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants is a complex and important consideration.
Ownership structure is a key factor in determining eligibility, creating a paradox in which the U.S. government seeks to promote domestic innovation while setting strict requirements that may exclude foreign-owned companies. I am. Understanding the nuances of SBIR/STTR eligibility is important for international space companies looking to take advantage of this valuable source of research and development funding.
At the forefront of U.S. grant initiatives are the SBIR and STTR programs. Managed by the Small Business Association (SBA), they are the backbone of government research and development funding and are intended to foster commercial innovation in U.S. interests. It involves 11 government agencies and is funded exclusively by the Department of Defense, which contributes $2 billion annually.
Within the Department of Defense, the Space Force and Air Force identify capability gaps and communicate them to AFWERX, the primary awarder of SBIR/STTR space technology grants. SpaceWERX is an extension of AFWERX.
Last year, AFWERX awarded $1.2 billion in SBIR/STTR grants and directed $259 million to 221 selected companies in the space technology and satellite sector. Notable grants supported advances in enhanced imaging, sensor processing, space services, optical communications, propulsion technology, and satellite operations.
Eligibility requirements
Although the Space Force and Air Force frequently utilize SBIR/STTR grants for space-related technologies, other departments of the Department of Defense issue grants in this area less frequently, but from these technologies. We may also support programs that benefit you. In addition, NASA distributes approximately $200 million annually in similar grants. Meanwhile, agencies like the National Science Foundation invest sporadically in space technology through funding allocations.
The SBIR/STTR program provides grants of up to $300,000 and $2 million in Phase 1 and Phase 2, respectively. The ultimate goal is to secure a Phase 3 contract, a more significant government contract outside of SBIR/STTR funding. Many companies are able to win Phase 2 or 2 contracts, but struggle to win Phase 3 contracts, which is often referred to as crossing the “valley of death.”
Eligibility for SBIR/STTR depends on whether you are a U.S.-based, profit-driven business with 500 or fewer employees and primarily owned and controlled by U.S. citizens or permanent residents.
While the first two standards are generally simple, the ownership requirements contain many nuances and are explained in detail in the SBIR Compliance Guide. One example presented in this guide is a U.S.-owned company that has U.S. investors but does not meet the requirements based on a combination of corporate and venture capital ownership.
Joint venture restrictions
Creative structures such as joint ventures are restricted. Additionally, all research and development for the program, including work performed by subcontractors, must be conducted in the United States. This can be difficult for companies that primarily have R&D teams overseas. In some cases, the Department of Defense may have concerns about work performed by non-U.S. personnel. Additionally, there are limits to the extent of subcontracting that is permitted.
To ensure that companies do not waste their efforts on opportunities for which they are not eligible, it is important to emphasize that all SBIR/STTR programs share the same eligibility requirements.
This highlights a scenario in which the U.S. government is eager for new innovations but has set up barriers through ownership rules, while other countries are open to R&D funding with less stringent conditions. This is in contrast to .
According to the SBA, its purpose is to increase the likelihood of stimulating innovative activity in the United States, but the counter-argument to this is that by allowing non-U.S.-owned companies to participate in the program, new The idea is that the technology remains protected, even as jobs are created and new innovations are fostered. This is because our research and development activities are conducted within the United States and are subject to export regulations.
This situation is likely to evolve as the U.S. government becomes increasingly open to cooperation with non-U.S.-owned companies. However, at this time, there are several potential options if a company does not meet the current ownership requirements.
Create a new U.S. corporation with majority U.S. owners and the Company as a minority shareholder. Although theoretically feasible, there are many considerations regarding potential SBIR/STTR grant benefits, including investment, valuation, ownership, control, cost, subcontractor restrictions, U.S. R&D work, and export controls. will occur.
Partner with an existing US-owned commercial company It serves as the lead applicant for SBIR/STTR grants. While it may be a smoother route than the first, there are still layers of consideration around subcontracting restrictions, R&D practices, and export controls.
Skip SBIR/STTR authorization. Alternative routes to the government market bypass ownership and state R&D requirements, but require additional work. This strategy involves skipping the SBIR/STTR process and targeting Phase 3 contracts directly.
While SBIR and STTR subsidies may have a tactical advantage for companies that naturally meet the criteria, they do not guarantee success. One potential drawback of these subsidies is that they can distract from a company's main goals. Additionally, many venture capitalists are wary of becoming SBIR “factories,” or companies that rely heavily on government subsidies without significant commercial success.
More importantly, companies need to objectively assess their operational capabilities in relation to U.S. government demand and spending and focus on strategies that will get them to the top of the mountain rather than stuck in the valley of death. That means there is.
Jerry Welsh, founder and CEO of Exec One, coaches CEOs and founders in the space industry.
