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Healthcare startups turn to SBIR grants to fill funding gap

on April 26, 2012

The Small Business Innovation Research grants distributed by 11 federal government agencies are an excellent source of non-dilutive funding to get small companies on their feet, says Lisa Kurek, a managing partner at Biotechnology Business Consultants. Many times these grants get new healthcare businesses to a point where they’re able to develop a prototype or proof of concept, enabling them to then seek institutional investments.

One of the good things about SBIR grants, Kurek says in this interview with Futures in Biotech, is that a certain amount of money is allotted by Congress for SBIR grants every year, so unlike angel investors or VC firms, the agencies with this money are guaranteed to spend all of it within a certain time frame.

The 11 agencies – including the National Institutes of Health, the National Science Foundation and the Department of Defense – put out solicitations for grants, at which point companies can submit their applications. Companies must apply in phases: A Phase 1 feasibility study grant is worth $150,000 maximum, and a Phase 2 research and development grant can be worth up to $1 million. According to Kurek, the NIH funds about 22 to 24 percent of the Phase 1 grant applications they get and about 35 to 40 percent of the Phase 2 applications.

A company applying for an SBIR grant must meet a few basic criteria: It must be an established, for-profit company in the U.S. with fewer than 500 employees and a company-owned space to do work in. Although the company can’t be institutionally owned, it can be at nearly any stage, from having not yet started operations to already having a product on the market.

The proposal should be about 10 to 20 pages plus supporting documentation, Kurek says. The most important things to include in the proposal are the significance of the project, what problem it’s going to solve, how it’s going to solve the problem, who’s going to be doing the work and where it’s going to be done.

This all sounds like a great deal, but just like with anything, there are a few points of frustration for entrepreneurs, Kurek says. First, these grants are restricted money, meaning they can be used to pay for direct expenses like salaries, supplies, materials, rent and other expenses but can’t be used to do business aspects of the commercialization process, like applying for patents, doing market research or setting up a general laboratory.

And, Kurek says, often people assume that because the grant is through the government, it’s all about the science. “One of the hard things about SBIR is it brings together cutting edge technologies that will enable amazing things to happen in the future, but it has to be paired with sound commercial opportunity,” she says. “SBIR doesn’t fund science just for science’s sake.”

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