Founder: SBIR is an 'Unreliable Customer' for Scaling
Offering a counterpoint to SBIR success stories, entrepreneur Matt Parlmer argued that founders should skip the SBIR/STTR program if their goal is reliable scaling. He described the U.S. government as an "unreliable customer," a sentiment that resonates with some in the startup community facing program delays and funding uncertainty.
The gap between a Phase II award and a Phase III contract is often called the "valley of death," where promising technologies can wither before reaching a program of record. Bridging this requires integrating SBIR technologies into the overall technical roadmaps of the Department of Defense and its prime contractors. The Department of Defense has initiated several programs to address this transition challenge. The Army's SBIR CATALYST program, for example, awards larger, multi-phase contracts to facilitate prototype development and integration with Army programs. These initiatives aim to accelerate the fielding of technologies by providing a clearer path from innovation to implementation. However, delays in award timelines have been a persistent issue. While timeliness has improved since 2017, the Small Business Administration's policy directive recommends most awards be issued within 180 days of a solicitation closing. For fiscal year 2020, 82% of awards met this timeframe, but defense agencies have historically lagged behind their civilian counterparts in timely issuance. The SBIR/STTR programs require periodic reauthorization by Congress, creating uncertainty for businesses. The most recent extension, signed into law on September 30, 2022, was only for three years and included reforms such as stricter reporting for firms with foreign ties and for those that have won numerous awards. As of late 2025, the programs' authority had lapsed, halting new solicitations and awards. Congress is debating the future of the programs, with competing proposals like the INNOVATE Act, which suggests reforms such as lifetime award caps, and the SBIR/STTR Reauthorization Act, which aims to make the programs permanent and increase their funding set-asides. Some critics argue that a small number of companies, sometimes called "SBIR mills," have become dependent on the grants rather than focusing on commercialization. The INNOVATE Act's proposed reforms aim to shift the program's focus from what some see as a subsidy to a portfolio that seeds technologies with the potential to scale independently. Despite these challenges, the DoD reports a significant return on investment from the SBIR program. For small businesses, a Phase III award can be a game-changer, providing a sole-source contract with no limit on the number, dollar amount, or duration of the awards. The work for a Phase III award must extend from efforts under a prior SBIR/STTR agreement, but any federal agency can issue the award.
