Fact of the Week: A Small Business Innovation Research Grant Doubles an Energy-Technology Company's Chances of Later Receiving Venture Capital

Small companies often face financial constraints that hamper their ability to sustain research and development into innovative technologies. The federal Small Business Innovation Research (SBIR) program steps in to help companies overcome this constraint—and the results are impressive. Economist Sabrina Howell finds that by providing seed capital to small energy-technology companies, SBIR grants double the chances these companies will receive venture capital in the future.

This increase in likelihood of private investment arises for two reasons. First, as Howell explains in her recently published paper, “the [SBIR] funds proof-of-concept work that reduces investor uncertainty about the technology.” Second, a project that passes the SBIR’s robust project criteria and peer-review process serves as a good indicator of the project’s potential to private investors.