I've sat on three sides of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) table. As a squadron commander, my first company came out of Hacking for Defense (H4D) at Stanford and recently landed a $1.8M STTR. I've been an AFWERX evaluator scoring logistics and space tech proposals for dual-use potential. And I've managed a portfolio north of $25M across 21 projects spanning Phase II, Phase III, Strategic Funding Increase (STRATFI), and Tactical Funding Increase (TACFI). I've seen the rubric and beta-tested the AI scoring system. This overview is enough to get you started but just scratches the surface of the SBIR/STTR niche.

Throughout the years, I've learned this program is one of the most misunderstood funding mechanisms in the federal landscape. And the misunderstanding isn't about the paperwork. It's about what the program is and what it isn't.

What SBIR/STTR Isn't

Let me start with what it isn't. SBIR/STTR is not free money. Regardless of how the Small Business Administration (SBA) website categorizes certain agency awards or how your accountant classifies them, treating it like a no-strings-attached grant is the fastest way to burn through a Phase I and wonder why you're staring at a rejection letter for Phase II. The government is buying research and development (R&D). You are a vendor. The moment you internalize that distinction, everything changes.

What It Is: Your Entry Point

What it is: your entry point into the government contracting (GovCon) marketplace.

For small businesses and startups, SBIR/STTR is the front door to federal contracting without needing a decade of past performance or a lobbyist on retainer. It's also non-dilutive capital—cash that doesn't cost you equity. You can fund R&D, build prototypes, and prove out technology without handing over a piece of your company to a venture capitalist (VC) who wants a board seat and a five-year exit. For founders, it means they get to chase their tech a little more and money a little less. It also helps those who want to build something lasting—and that's not a minor detail, that's the strategic advantage.

The Encore Entrepreneur Advantage

This program is particularly well-suited for a demographic that's increasingly entering the GovCon space: Encore Entrepreneurs. These are experienced professionals—often military retirees, former government civilians, or industry veterans—who are launching second-act companies later in their careers. They bring domain expertise, security clearances, and existing relationships with end users. What they often lack is startup capital and a tolerance for equity dilution. SBIR/STTR helps solve both problems. You fund your R&D with government dollars, retain your intellectual property (IP), and keep your cap table clean while building something you own.

For those already funded, the news is also good. The government considers it a positive sign that others have been willing to invest in your tech. You represent a less risky proposition and therefore have a higher chance of being selected.

Other R&D Vehicles in the Federal Toolkit

Now, SBIR/STTR isn't the only R&D vehicle in the federal toolkit. Broad Agency Announcements (BAAs) allow agencies to solicit proposals for basic and applied research across a range of topics. Other Transaction Authorities (OTAs) provide flexible contracting mechanisms outside the Federal Acquisition Regulation (FAR), often used for prototyping and production. Commercial Solutions Openings (CSOs) target innovative commercial technologies. Each has its place. But for small businesses—especially those without extensive past performance—SBIR/STTR remains the most accessible entry point. It's purpose-built for companies that are long on innovation and short on contract history.

The Numbers: $4 Billion Annually

The numbers back it up. Eleven federal agencies are legally required to allocate a percentage of their extramural R&D budgets to small businesses—over $4 billion annually. SBIR takes 3.2%. STTR takes 0.45%. The difference? STTR requires a research institution partner—a university, a federally funded research and development center (FFRDC), or similar organization with an academic mission. SBIR doesn't.

Both programs have three phases: feasibility, development, and commercialization. Phase I is your proof of concept, usually around $50K–$300K depending on the agency. Phase II scales the R&D, typically $750K–$2M. Phase III is where commercialization happens—and here's the critical point—Phase III has no SBIR funding ceiling and uses non-SBIR dollars. It's a type of regular procurement—often on a sole-source basis. That's where the real money lives. It's also worth mentioning the vast majority of SBIR/STTR dollars reside in the Air Force, hence the heavy focus on Big Blue.

That said, by the time you graduate to Phase III, you're not a startup hoping for a break. You're a contractor with past performance, a relationship with the program office, and technology the government has already helped you build—and you own it.

Understanding the Government's Investment Logic

To get started, it's important to understand why the government would invest in your R&D: either there is a real operational requirement, or your technology represents a promising opportunity they want to explore. Companies that know which of those buckets they're in make better strategic choices from day one. For those that grew up or raised children in the 80s, there’s an axiom that revolves around “knowing” and the “battle.” The difference being in the SBIR battle, knowing is two thirds.

In Part 2, I'll address where the motivated but naive stumble—from chasing topics instead of problems, to misunderstanding capture, to treating Phase II as a finish line instead of a starting point. I'll also cover STRATFI, TACFI, and the reality of Phase III transition.