SBIR Proposal Writing Basics

SBIR Proposal Writing Basics: Surviving the Phase I-Phase II Funding Gap

Gail & Jim Greenwood, Greenwood Consulting Group, Inc.

The good news is that you won a Phase I SBIR/STTR and it looks like your innovation is proving feasible so you are submitting your Phase II proposal. The bad news is that between the end of your Phase I and the start of your Phase II is the dreaded funding gap. That’s the time when you no longer have any Phase I funding coming in, and there’s no Phase II award yet so no dollars are coming from there, either. How do you survive the three- to eight-month (or more, depending on how negotiations go) time between the two Phases of the project?

One option is to get another Phase I award that just perfectly fits into the funding gap in your first project, such that you perform the second Phase I while waiting for a decision on your Phase II. In theory, this is great—in reality, you would be very lucky to have that second Phase I just magically align time-wise. But the general notion of filling the gap with other work, SBIR/STTR or otherwise, is a reasonable strategy for some companies.

A second option is to find out what programs might exist in your state for SBIR/STTR competitors facing the funding gap. Some states have programs in which a Phase II applicant can receive a modest grant to keep pushing the SBIR/STTR work forward while waiting for the agency to decide whether to fund the Phase II. We know of only a handful of states with such programs, but it is worth asking around to see if yours is one of them.

A third option is to consider whether the agency that made your Phase I award has any programs to help with the funding gap. These programs take on different names and features in the various SBIR/STTR agencies. Both the National Institutes of Health (NIH) and the Department of Defense (DOD)have FastTrack programs that either lessen the time between Phase I and II, and/or give you some money to keep you going (Dept of Homeland Security says it also intends to have a Fast Track program, similar to the one at DOD). Several DOD components have "options" that competitors can request as part of their Phase I proposals—the usual scenario is for the DOD component to first decide that it is going to make a Phase II award to you, and then they will allow you to work on the Phase I option, so again the idea is to lessen the length of the funding gap. Note that you have to have the foresight to include a statement of work and budget for the option in your Phase I proposal.

Several agencies also allow you to start working on your Phase II project before the Phase II contract or grant is officially in place; NIH, the Dept of Energy (DOE), and the Dept of Agriculture (USDA) all have variations on this sort of gap filling program. This allows you to start working, and then get reimbursed when the Phase II paperwork is in place. Two cautions here, however: first, working but still not getting paid during the funding gap may worsen your cash flow problems in the short term, and most agencies say you are "at risk" for starting work on the Phase II meaning they won’t reimburse you for this work if for any reason a Phase II award is not made to your company (DOE is the only agency that we know of that will pay regardless).

There are undoubtedly many other creative ways to deal with the funding gap, such as holding corporate bake sales or taking a part-time job temporarily to put groceries on the table. The point is that any Phase I SBIR/STTR winner who plans to go on to Phase II needs to be aware of the likelihood of a funding gap and prepare and plan for it in advance.