Pat Dillon, President and CEO of MNSBIR
In March, Congress ended a five-month standoff over a key slice of federal research and development funding for small businesses. With the president's signature on April 13, the Small Business Innovation Research-Small Business Technology Transfer (SBIR/STTR) program was reauthorized for five years, until September 30, 2031, reopening a critical source of funding for University of Minnesota innovators seeking to commercialize their ideas and technologies through startup companies.
University of Minnesota-affiliated startups have been successful in seeking SBIR/STTR support. Since 2020, 38 UMN companies have been competitively awarded more than $41 million in SBIR/STTR funding, according to Pat Dillon, president and CEO of MNSBIR, Inc., which delivers free and confidential education and expert technology commercialization coaching to businesses seeking funding from the programs.
"SBIR/STTR support has helped many innovations that have come out of University of Minnesota labs and the minds of its faculty, researchers, and students," said Dillon. "I think about Niron Magnetics, which is building a major facility outside St. Cloud based on the rare element-free magnets developed by Professor JP Wang, and other established companies such as Marpam Pharma, Miromatrix, B-MoGen Biotechnologies, Q-Rounds, XanthosHealth, Lakril Technologies, and Insight Sensing that were helped along their path to market by SBIR/STTR.”
Restoring a Vital Pipeline for Innovation
In the six-month period without reauthorization, federal agencies have not been able to issue new SBIR/STTR solicitations or award new grants or contracts, although many already awarded projects were able to continue with existing funds. Many federal agencies have been anxiously waiting for reauthorization legislation to be signed so they can issue their solicitations to begin accepting applications from startups and small businesses, some of whom have had to suspend clinical trials and halt other research activities because of the funding lapse.
US investments in research and development have helped make the country a world leader in science and technology, and last year the federal government spent $195 billion on research and development across many different agencies. SBIR/STTR was formally created in 1982 to ensure that small businesses benefitted from the federal R&D enterprise. When the SBIR/STTR program is authorized and funded, 11 federal agencies, including the National Institutes of Health (NIH), the National Science Foundation (NSF), Department of Energy,(DOE) and the Department of War (DoW), set aside more than $4 billion annually to support 5,000 companies across the country, making it world’s largest innovation program.
The reauthorized SBIR/STTR program includes a new, higher dollar Strategic Breakthrough Award of up to $30 million that is intended to move promising technologies from early-stage development to deployment more quickly within a milestone-driven timeline of up to 48 months. The new award will be contingent on 100% matching funds from non-SBIR/STTR sources.
Strategic Support for UMN Startups
The University of Minnesota is the state’s largest single source of startup companies and has spun out nearly 300 of them, with more than 120 of those companies formed since 2020. Most UMN startup companies work with the Venture Center, part of UMN Technology Commercialization, to assess the commercial potential of their ideas, create business plans, connect with potential company leaders, and identify funding opportunities. SBIR/STTR funding is often top among those opportunities.
SBIR/STTR grants and contracts are attractive to startups because it is non-dilutive funding, meaning the government does not take an ownership stake in the company, leaving more of the company for other investors to own, and because the University offers lower indirect costs to companies who conduct SBIR/STTR Phase I research work in UMN facilities.
"We often recommend that UMN entrepreneurs who found startup companies work with MNSBIR, Inc. to get started on the SBIR/STTR funding pathway, which usually requires multiple conversations and engagements to be successful within SBIR/STTR’s processes," said Venture Center Associate Director Chris Ghere. "Their Catalyst Program helps companies successfully navigate the proposal process and then the program’s different phases in order to secure funding and advance the technology to make it more attractive for commercial investment. By securing this non-dilutive capital, companies effectively de-risk their early-stage development, making the technology and the venture significantly more attractive for follow-on commercial investment. "
From Lab to Market: Startup Success Stories
Darcy Solutions
Darcy Solutions spun out of the University's Earth and Environmental Science Department in the College of Science and Engineering in 2018 to develop a groundwater-enhanced geothermal heating and cooling system for commercial and industrial buildings. MNSBIR recommended and the company implemented a multi-agency, multi-project SBIR strategy that resulted in them receiving over $3 million in total awards from the NSF, DOE, and USDA to fund early staffing and technology acceleration.
"SBIR was a critical part of our initial funding—that non-dilutive funding was key to developing our technology early on, including testing our heat exchangers at the University's Saint Anthony Falls Laboratory," said Dan King, chief technology officer at Darcy. "Last October we reached a milestone of installing 100 wells with downhole heat exchangers, and today we are a growing company with more than 40 employees."
Adialante
For Efraín Torres, Ph.D., CEO and Cofounder of Adialante, a University of Minnesota Medical School startup that wants to bring mobile MRIs for cancer screening to underserved patients and communities, SBIR support meant momentum and credibility with potential investors.
"When we received SBIR funding from NSF, it was a big feather in our cap," Torres said. "We were able to use it to fundraise from angel investors to compound our funding in order to grow our team. We were fortunate to have MNSBIR's expertise and guidance through the minutia of applying for SBIR support. I know that some of our peers who are trying to build their companies are a little bit jealous of that leg up that we had."
Adialante was awarded a Phase II grant from NSF SBIR last June for $1.18 million, which they are using to develop a preclinical MRI prototype to demonstrate that their technology, which uses physics and software tools to create new, less costly MRIs, is worthy of additional investment. Their initial target market is prostate cancer screening.
"Research-based clinical guidelines increasingly recommend that urology patients have an MRI before they have a prostate biopsy—over a million men a year need one," said Torres, "but almost no urology clinic has access to MRIs, so we seek to bring prostate MRIs to clinics across the country."
Bolder Flight Systems
For Bolder Flight Systems, a UMN startup founded in 2016 that grew out of the Uninhabited Aerial Vehicle (UAV) Lab in the Department of Aerospace Engineering and Mechanics, SBIR funding has helped the company as it has developed different products: first a drone flight control system, and then a flight data acquisition system that can be used in both manned and unmanned vehicles. Bolder has used SBIR contracts from NASA and then from the Air Force to develop its hardware and software products. The company's commercial aviation and defense customers include aerobatic pilots in the Air Force Thunderbirds and the Navy Blue Angels, the International Test Pilot School in Canada, and for a company testing new drone-based communications systems for wildfire fighting crews in the American West.
"With defense SBIR contracts, most of the calls for proposals come in two different types. You'll have open topic calls and then calls against specific topics, which I have come to prefer because you know what you're proposing against and you can find topics that your tech is well aligned with," said Brian Taylor, Bolder Flight Systems CEO. "The challenge is finding a customer within the Department of War who will sign onto a Phase II SBIR contract, which we were able to do with the Air Force."
Expanding Horizons: The Defense Opportunity
MNSBIR's Dillon says that University of Minnesota researchers who found a startup or who could work with a small business often overlook the possibilities for SBIR/STTR funding through national security agencies, because they assume that their work is not relevant to national security needs or opportunities.
"But the reality is that defense and national security agencies are actively interested in addressing a wide range of challenges, including medical needs, remediation of 'forever chemicals,' and the development of new materials with significant dual-use potential for both military and civilian applications," said Dillon. "I strongly encourage researchers developing new products or services to look closely at the priorities and funding opportunities offered by defense and national security agencies.”