Secure Non-Dilutive Funding: How to Use STTR to Fund your Startup
$50K - $3M in Equity-Free Cash to Grow Your Business
While traditional funding routes often require sacrificing equity, there’s a compelling alternative that allows you to keep full control over your venture. Enter the Small Business Technology Transfer (STTR) program—an often overlooked and misunderstood source of non-dilutive funding specifically designed to fund universities, colleges and research institutions in commercializing research with the help of US small businesses through a partnership.
In this post, we’ll break down the STTR program, what it entails, how it differs from SBIR funding, and the steps you need to take to win a STTR contract.
If you are pursuing topics designated “SBIR” or if you don’t need a partnership with a research institution to develop your innovation, we have a separate guide for that program here.
1. Understand the Program
What it is: The Small Business Technology Transfer (STTR) program provides commercialization funding to small businesses to help bring academic research to the market in the form of products and services.
How it Differs from SBIR. Unlike SBIR, STTR requires a partnership between a small business and a research institution, such as a university or a federally funded research and development center. Generally the research partner must perform 30% or more of the work, so this is a significant partnership and not a few hours of consulting.
Phases: Like SBIR, the STTR program is structured in three phases:
Phase I: Feasibility study and proof of concept development.
Phase II: Further R&D based on Phase I results, typically resulting in a tested prototype.
Phase III: Commercialization, typically funded through private sector or non-STTR government sources.
Specific agencies have other programs or Phases (such as a “Follow on Phase II,” “Phase IIe” or “TACFI/STRATFI” before a Phase III) but understanding those programs comes in after your startup has won its first Phase I.
Intellectual Property Implications. The collaborative nature of the STTR program means the ownership of any IP developed as a result of the project can be more complex. Most agencies require that an IP Agreement, called an “Allocation of Rights” is signed and in place prior to submitting a proposal. The DoD has a suggested model here that you can edit and most academic institutes will have a standard form in place that you can use. We aren’t lawyers, so consider the follow when you consult your legal counsel about IP agreements:
Internally align your startups IP strategy
Define what IP you’d bring to the table in a proposed collaboration before seeking a research partner
What government use IP rights you want to give away and what requires a license for existing IP
2. Identify Your Eligibility
Not all startups and businesses are eligible for this funding. Your business must meet the below criteria and there are some additional criteria if your business has venture capital already. Review the detailed and most up to date information on SBIR.gov. At a glance, your startup is likely eligible if you:
Are legally registered in the US as a for-profit business
Have less than 500 employees
Are primarily owned by U.S. citizens or permanent residents
Are partnered with a U.S.-based research institution. This institution could be a college, university, or a federally funded research and development center
The Research Institute partnership must be “meaningful”, with the research institution contributing at least 30% of the effort. Companies with 50% or more of their shares owned by investors are eligible for some STTRs, but not all. If this applies to you, remember to check the BAA to see if you’re eligible.
3. Find a Partner Research Institution
Partnering with a research institution is a requirement for accessing funding through the Small Business Technology Transfer (STTR) program. If you don’t already have a partner, here’s how to engage with a suitable research institution:
Identify and Define your research needs. Consider technical skills, knowledge and resources that will complement your startup's capabilities. This could include expertise in a research are, access to specialized equipment, or prior intellectual property. Document your wishlist and rank each need by priority.
Create a Target List. Focused on the specific research need you want to fill, start reaching out to local universities and colleges that have departments with relevant academics. If the collaboration can be done remotely, consider reaching out to the alumni universities or institutions of your startups founders or executives. Cold emails can be effective when there is a clear alignment of interests and/or an alumni connection.
Craft a Reach Out. As you begin to reach out to your target list, make sure to include the following in your email if you don't have a warm lead.
Brief 1-2 sentence description of the STTR program from the researchers perspective (highlight the funding is available to expand on their current research). Don’t assume they are familiar with the program unless they have disclosed prior STTR participation online.
Clear and concise articulation of what about their current research and/or background was interesting to you.
A summary of the STTR topic and deadline to apply with 1-3 options of how (based on your understanding of their research) they and your startup could work together on a solution for the topic. Make sure to attach a copy of the proposed topic as well.
If the topic is ITARs restricted, be sure to note that in your email. If the researcher is not a US citizen, they may not be able to lead on your STTR. Check the BAA for details for your topic.
Availability for an introduction call spanning at least 3 days in their timezone (if known).
Offer to have them connect you to a colleague if the topic or timing doesn't align to their current research but they know someone who may be interested.
Meet Prospective Partners. Schedule a call or in-person meeting to get to know your prospective research partner. Ask question like:
Have you done an STTR or subbed on a grant with a small business before?
What were your impressions of the topic I sent over?
Is there a specific aspect of the topic that interested you the most?
Select your RI. Select the RI that is the best fit, and begin to prepare your proposal.
4. Know the Funding Limits and Timelines
While often referred to as “America’s Seed Fund”, STTR is not the same as raising a VC seed round, so plan accordingly. For Phase Is under the Department of Defense, the time from when a topic is announced to when you actually have an award signed and in your hand, is easily six months. And on the most optimistic timeline it will be another six months before you have a Phase II awarded and ready to invoice against. While a year isn’t long for the government, a startup can be born, live and die in that time. Crucially, 30% of the STTR funds MUST be allocated to the partnered Research Institution which reduces the overall budget for the small business for an award.
Funding Limits. Depending on the agency, the funding limits for each Phase can vary. In general, funding caps looks something like this:
Phase 1s vary from $75-250K, with a 90 day to 6 month contract duration (typically referred to as a period of performance)
Phase IIs vary from $250K-3M, typically with a 12 to 24 month duration
Phase IIIs have no funding limitations but are not funded with SBA dollars
Timelines. The timeline from deciding to apply to your first SBIR to learning the result of that proposal is longer than most new entrants into this process expect. While it can vary slightly by agency, the timeline is typically as follows. Remember, this doesn’t apply to NSF and NIH.
Topic Open in Pre Release: 14-30 days
Topic Open for Submission: 30-60 days
Proposal Evaluation: 60-120 days (most programs will notify by 90 days, but many agencies have the option to request an additional 30 days for evaluation if necessary)
Contracting: 30-60 days from award notification
5. Secure Relevant Registrations
Unfortunately, it's not as simple as seeing a topic your business’s solution is a good fit for and submitting your proposal. We broke down all the various registrations you need for a smooth application and contracting process here. These all take some time, so if you haven’t started registration yet and you’re trying to submit a proposal in the next two weeks, it’s probably not going to happen for you this round.
6. Find a Suitable Agency
While the STTR program is all under the Small Business Administration (SBA), each government agency has its own unique focus areas, application processes, and funding priorities. Understanding these differences can significantly enhance your chances of success.
Focus Areas. Each STTR participating agency has specific missions and interests that guide their funding priorities. For instance, the National Institutes of Health (NIH) primarily supports health-related innovations, while the National Science Foundation (NSF) tends to focus on broad scientific advancements, including engineering and technology. The Department of Defense (DoD) has a more security-oriented agenda, funding projects that can enhance national security. Before applying, research the agency’s interests and align your proposal with their strategic goals.
Funding Mechanisms. There are two primary mechanisms through which funds are awarded for STTR: contracts and grants. With both, agencies expect regular progress reports, forms, and adherence to milestone schedules. If your topic is designated as a grant the reporting requirements are significantly more burdensome and often require dedicated accounting software. This cuts into your budget, so make sure you check what the individual requirements are before submitting and make sure it’s something you actually want to commit to.
7. Prepare Your Proposal
Don’t skip the topic pre-release period. When a topic is in “pre-release” it means you can’t submit a proposal yet but you are able to ask the topic owner questions. Topic owners are usually listed as the “technical point of contact” (TPOC) listed on the solicitation. You can email them directly with clarification questions during the pre-release period. If no email is provided you must submit questions publicly on DSIP. Make sure you review everyone else's Q&A on DSIP too.
Start the Partnership Agreements between your organization and the Research Institutions early. The BAA for the topic you are pursuing will specify which documents are required. Some universities are well equipped and can turn around the paperwork quickly. We recommend providing the university with a deadline that is at least 5 days before the DISP deadline, to ensure ample time for getting all paperwork in on time. The aspect that is likely to take the longest is the allocation of rights, be clear up front with your prospective partner what IP your business is bringing to the table and what you would ideally do with any IP created as a result of the STTR partnership.
Start a Proposal and Build Out the Volumes. When a round opens or goes into “release” you can now create a proposal and start filling out all the required information to craft the proposal package. DoD agencies use a website called DSIP to accept proposals. NASA uses a similar website called ProSAMS. Feeling daunted by the required workload? We offer guides, as-submitted winning proposals, and strategy walkthroughs to increase the efficiency of your proposal prep.
Double check, then Certify Before the Deadline. We collected the most common mistakes to check for before hitting submit on your proposal, read more here. Submission portals tend to get buggy on the final day so if you can submit and certify your submission a day or two before. You can make changes up until the deadline, just remember to “recertify” to save your edits.
8. Listen to Feedback and Take Advantage of Free Resources
If you are awarded a contract or grant based on your proposal, know that if it was a closed topic it is likely that others (your competitors) were awarded at the same time. You should treat the win less like an assurance of the customers intent to purchase your technology long term and more like an agreement for a second sales call from a prospective private investor or customer. You should request the feedback letter on your proposal and create as many opportunities as possible into your performance period to get feedback and visibility.
If you receive a rejection, request the feedback letter for your proposal and use what you learn to improve your proposal for future submissions.
Check out our top STTR templates and resources below.
