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Manufacturing Innovation Blog
Powered by the Manufacturing Extension Partnership
Over 45 percent of the manufacturing companies that the MEP National NetworkTM serves identify product development as one of their top three challenges over the next three to five years, while many say financing is also an issue. One product development funding source to consider is the federal Small Business Innovation Research (SBIR) program. (Another option is SBIR’s sister program, the Small Business Technology Transfer program (STTR), which requires participation with a non-profit research institution.)
The SBIR program has been around since 1982, and last year the participating agencies awarded $2.4 billion in funding for high risk technical projects. While the specific level of funding varies depending upon the agency, SBIR is best suited for projects two to three years in length and needing at least $1 to $2 million in funding support — it’s not a source of short-term working capital.
Below is a chart that shows how this funding opportunity compares to other forms of unsecured or debt capital.
|
|
Amount Invested1 |
Average Deal Size |
Investment in Manufacturing2 |
|
Angel Investing (2016) |
$21.3 Billion |
$330,000 |
$6.8 Billion |
|
Venture Capital (’16-4 – ’17-3) |
$65.2 Billion |
$13,000,000 |
$10.5 Billion |
|
7a Loans (SBA) (2017) |
$25.4 Billion |
$407,000 |
|
|
SBIR/STTR Funding (2014) |
$2.4 Billion |
$436,364 |
$1.0 Billion |
1 University of New Hampshire Center for Venture Research, PricewaterhouseCoopers Moneytree ™ Report, U.S. Small Business Administration
2 Identified as the estimated percentages reported for commitments to retail, biotech and industrial technology investments, SBIR estimate based on prior research for projects likely to lead to a manufactured product.
If one looks at the expected rate of return in strictly cash terms, companies that receive a Phase I award could see a 19 percent rate of return. If a company then moves onto Phase II, it could easily see a financial return of over 100 percent with a competitive proposal. This is before any future product sales are factored in. Those are decent rates of return today, plus you own the intellectual property, give up no equity and take on no debt.
Different agencies offer different opportunities. Some are looking for specific technical solutions they want incorporated into their regular, on-going missions. Kennon Products, of Sheridan, Wyoming, is a client of Manufacturing-Works (that state’s MEP Center) and is an example of one manufacturer that benefited from this type of opportunity.
Founded in 1984, Kennon Products manufactures protective covers and accessories for aircraft. Through seven SBIR awards, Kennon is commercializing new acoustic and thermal insulation systems for military aircraft.
Other agencies simply identify a need, looking to fund creative technical solutions as proposed by the applicant — allowing the proposer a chance to expand their own product line. This suited the needs of Maine MEP’s client FHC, Inc.
FHC, Maine MEP Manufacturer of the Year in 2012, was founded in 1970 and is located in Bowdoin. The company has used seven SBIR awards from the National Institutes of Health to help support research and development efforts in new products for neuroscientists, neurologists, and neurosurgeons.
The application process does include complying with federal rules and regulations, and the product must meet a federal agency need. Though this may seem like a daunting task, the trade-offs may be well worth it.
Almost 10 percent of the SBIR Phase II awardees have been MEP Center clients, and several Centers have been able to help SBIR applicants complete the manufacturing strategies and plans required for their proposals, as well as technical work funded under the awards.
If you are interested in learning how you can participate in SBIR, contact your local MEP Center for help or a referral to a local state resource for further guidance and assistance.
