Take It for Granted Need cash to develop your latest high-tech product? There's probably an SBIR grant for you.

Every TV police drama has one-a lab full of expensive equipmentto analyze mysterious powders or fibers from a crime scene. Lookshigh-tech, right? Not compared to a new device developed byDeltaNu ofLaramie, Wyoming. The company's new hand-held device, calledInspector Raman, sniffs out substances from cocaine to anthraxfaster than you can say CSI: Miami.

How did a tiny company in Wyoming develop this breakthroughtechnology? Dr. Keith Carron, a chemistry professor and co-founderof DeltaNu, says the R&D funds came from the government'sSmall Business Innovative Research (SBIR) grants. Along the way,DeltaNu used these same grants to develop a string of other labmachines now sold to police departments, universities and othercustomers worldwide.

In addition to sparking nearly a million dollars in productsales, these grants have turned DeltaNu into a multimillion-dollarcompany. "All in all, we've received over $3.7 million [ingrants] over six years," says Carron, 46.

"The SBIR is a combination of grants and contracts. It allequates to the same thing: funding for the small-business[person]," says Rick Shindell, president of Zyn Systems inSequim, Washington, which helps both entrepreneurs and governmentagencies get the most out of SBIR programs.

"There are 11 agencies involved, none of which takeunsolicited proposals," says Shindell. "You have torespond to a particular open solicitation." But don't letthat discourage you. What Shindell calls a solicitation is reallyjust a statement of need-a problem that the government hasidentified and for which it is seeking a solution.

The largest SBIR granting agency, the Department of Defense(DOD), often posts very specific needs, such as developing a laserguidance system for a fighter plane. On the other hand, theNational Institutes of Health (NIH) issues grants for very generalresearch. "They may simply be looking for a broad topic, likenew ways to detect breast cancer-that's very different than theDOD," says Shindell.

Either way, SBIR programs are split into two phases. Accordingto Shindell, Phase I is generally to study the feasibility of a newtechnology or idea, and the award amounts are limited to $75,000 to$100,000. Phase II grants are meant to encourage commercializationof a particular technology and can go up to $750,000. The programhas grown so large since its inception in 1982 that there are nowvarious state and federal programs providing pre- and post-awardopportunities. So-called "Phase Zero" grants, forexample, are offered by some state governments to pay forprofessional SBIR grant-writing assistance.

Planning to Succeed

To get started on the SBIR process, you should have a clearunderstanding of who you are and where you are going, advisesShindell. "Entrepreneurs need to know what they want theircompanies to be," he says. That generally means identifyingthe best industries and government agencies for your company'sproducts or technologies, as well as choosing whether your primaryfocus will be on scientific research or commercial productdevelopment.

ImpactTechnologies LLC, an equipment monitoring system andengineering software development firm in State College,Pennsylvania, is dedicated almost exclusively to research."SBIRs now account for about 80 percent of our revenue,"says Impact Technologies' partner Carl S. Byington, who'salso founder of the State College office. "We have over 15Phase II programs, and at least 10 Phase I [programs] going onright now."

Such intense research has helped Impact grow rapidly since itsinception in 1999. But relying too heavily on governmentprograms-especially research grants-may not be a safe long-termstrategy, says Shindell. Companies that subsist solely on SBIRgrants are known as "prop mills" for the large number ofSBIR proposals that they submit. "That's what I wouldconsider the dark side," says Shindell. "And, indeed,there has been talk of making companies that are subsisting on SBIRgrants ineligible [for future awards]."

To temper this risk, Impact Technologies is moving away frompure research and toward more commercialization efforts. Byington,38, says the company is headed for a transition. "What weenvision for the company is 40 percent of our revenue in productsales in the next five years at least," he says. With morethan 50 employees and 2004 revenue (including grant awards) of $7.5million, Impact Technologies will have to grow product salesquickly if it is to diminish its reliance on grants.

Fortunately, the DOD-Impact's largest SBIR source-has a goodtrack record of extending purchase orders to companies that havecompleted a Phase II SBIR grant program. "Last year, wereceived a $25 million 'indefinite quantify, indefinitedelivery' contract from the Naval Air Systems Command,"says Byington. "That means that any government agency can buyour technology directly. So if we develop something for the JointStrike Fighter, the F-18 team can come along and write us a taskorder directly, without going out on bid."

A Passion for Products

Carron at DeltaNu has taken a radically different course throughthe SBIR process. Although he, too, relied heavily on the grantsfor early financing, the R&D work the grants paid for wasalways product-oriented.

DeltaNu's Inspector Raman product was developed with a PhaseII SBIR grant from the NIH. The grant paid for research on thebroad topic of how to detect illicit drugs. "In the process,we realized that even our bench-top model was too big," saysCarron. "We needed something to be carried by police in thefield."

The end result, a wireless, battery-operated system, has usesfar beyond what the NIH ever imagined. The device has applicationsin law enforcement, hazardous materials management and homelandsecurity, to name just a few. "It can be used to look forexplosives, hazardous materials, weapons of mass destruction, oreven to analyze artwork," says Carron. "It'snondestructive, so you could analyze a rare piece of art and nevereven have to take it off the wall."

With such broad applications, Carron estimates that InspectorRaman will generate revenue of $2 million or more per year for thecompany. Combined with other product sales, that's a nicereturn on the company's SBIR awards.

Street Cred

Whether you end up developing a blockbuster product or not,completing an SBIR grant means more than just money. Says Shindell,"Once you have become an SBIR award winner, you've gainedan incredible amount of credibility for your company."

is an investment banker and author of the e-book Finding Funding.