This post is part two of the “SBIR/STTR 101 for New Entrants” series. You can find links to all installments below.
Part 1 — What Are SBIR & STTR? (The Beginner Breakdown)
Part 3 — Understanding Topics and Finding the Right Opportunity
Part 4 — What You Need to Prepare Before Applying For an SBIR/STTR
Introduction
Understanding the SBIR/STTR structure is essential before moving forward with any proposal effort. These programs follow a defined progression that moves from concept validation to prototype development and, ultimately, to commercialization. Each phase has a specific purpose, funding level, and set of expectations. Companies that understand this structure in advance are better positioned to plan resources, set realistic timelines, and align their long-term strategy with federal priorities.
Phase I: Feasibility Study
Purpose: Determine whether the proposed idea is technically feasible and worth further investment.
Typical Funding: Often between $50,000 and $250,000, depending on the agency.
What Happens in Phase I:
- A company conducts early-stage research or technical analysis.
- Tasks focus on feasibility, risk identification, and validating core assumptions.
- Deliverables often include a final report, technical data, and recommendations for next steps.
Why It Matters:
Phase I allows businesses to confirm that their concept meets agency needs before committing significant internal resources. For many new entrants, this phase is an opportunity to build an initial relationship with the sponsoring agency and demonstrate capability in a low-risk environment.
Phase II: Prototype or Technology Development
Purpose: Expand on Phase I results and develop a working prototype or functional system.
Typical Funding: Commonly ranges from $500,000 to $1.5 million or more, depending on the agency and topic.
What Happens in Phase II:
- Companies execute a structured development plan.
- Work typically includes design, engineering, integration, testing, and identifying specific customers for commercialization.
- Milestones must demonstrate progress toward a deployable or commercially viable product.
Why It Matters:
Phase II is where most of the technical progress occurs. It also lays the groundwork for customer interest, transition opportunities, and future contracting. A strong Phase II sets the stage for commercialization and positions the company to engage more deeply with federal stakeholders.
Phase III: Commercialization
Purpose: Bring the technology to market, either within the federal government or the private sector.
Funding: No SBIR/STTR funds are awarded in this phase. Funding comes from:
- Federal program offices or acquisition programs
- Commercial customers
- Private investment
- Partnerships or licensing agreements
What Happens in Phase III:
- The company transitions its technology into real-world use.
- Government customers may issue sole-source contracts for the technology.
- Companies pursue commercial sales, scaling, or additional partnerships.
Why It Matters:
Phase III represents the culmination of the development cycle, functioning as an authority rather than a funding source. Phase III awards can be issued directly to the SBIR/STTR awardee, without the need for competition, for work related to previous SBIR projects, making it a powerful pathway for companies entering the government market. This stage can open doors to longer-term contracts, broader adoption, and stronger strategic positioning within an agency’s portfolio.
A Practical View of the Entire Process
For many businesses, the SBIR/STTR journey serves two purposes simultaneously:
- Technical Development: The program funds the work needed to move from idea to prototype.
- Market Positioning: It creates opportunities to build relationships with program offices, end-users, and acquisition stakeholders.
One company Agility worked with noted that the structured nature of the SBIR process provided clarity on how to pace development, allocate budget resources, and communicate progress effectively; skills that directly translated into later contracting success.
Key Considerations for Businesses
- Companies are not required to complete all three phases, and both Phase I and II awards can qualify a company for Phase III authority.
- Agencies evaluate proposals based on technical merit, feasibility, team capability, and commercialization potential.
- Phase III opportunities can benefit heavily from early engagement and alignment with customer needs during Phases I and II.
How Companies Should Use This Framework
Businesses can use the SBIR/STTR phase structure as a planning tool. Understanding each phase enables better forecasting of staffing, funding requirements, development milestones, and long-term strategy. It also helps leadership determine which opportunities are worth pursuing and how to position the company for sustained growth in government and commercial sectors.