In last week's blog post, we explored the broader landscape of the SBIR program—how it serves as a catalyst for small businesses to innovate with federal support. Today, we’re going deeper into the specific structure of the program, examining each phase and understanding how they collectively guide an idea from concept to commercialization.
This is foundational, but also helpful in understanding the structure of different programs. I’ll speak specifically to TACFI/STRATFI in this article, but know that all SBIR and STTR programs are rooted in the same program structure. While exact dollar values and specific rules may vary, the structure will still follow this pattern, and each execution will tie to this process. This includes programs like AFVentures and Army xTech.
Phase I: Feasibility Study
Purpose: Phase I is designed to assess the technical feasibility and commercial potential of your proposed innovation. The common focus is on establishing whether your idea can move from concept to reality, ensuring that there’s a solid foundation before further development.
The program also allows for applied feasibility, and the common phrasing in many defense programs is, “Is it technically feasible for military utility?” While this interpretation was part of the original program doctrine, it has been lost across many programs that often focus this phase on bench science. In recent years, programs like xTech, AFVentures, and others focused on commercial technology adoption have reemphasized that point to leverage the program as a market entry point for already successful commercial firms.
The AFVentures program has completely rewritten this Phase I concept to focus fully on the feasibility of utility and has modified Phase I execution to be a paid phase of customer discovery for commercial technology companies.
Timeline: This phase typically spans 6 to 12 months, allowing time to conduct initial research and testing to validate your concept. The AFVentures program has a 3-month contract.
Funding: Phase I awards generally range from $50,000 to $250,000, depending on the specific agency and the nature of the project. This funding is intended to support the early stages of research and development, covering the costs of feasibility studies, customer discovery, and preliminary experiments.
Phase II: Research and Development
Purpose: After successfully demonstrating feasibility in Phase I, Phase II is focused on development, prototyping, and demonstration. More mature technologies generally go straight to demonstration and prototyping with some relevant modification or minor development work in play. The more nascent technologies coming off a true technology feasibility Phase I are generally more focused on development. This phase involves refining the technology, developing a prototype, and conducting more in-depth research. The goal is to advance the project closer to commercialization.
Timeline: Phase II can have a period of performance of 12-24 months. Most commonly, they are 2-year contracts. This extended period allows for comprehensive development and testing, ensuring that the innovation is ready for the next steps in its lifecycle.
It is also designed to enable the alignment of internal resources by government sponsors. The financial allocation and programming process can take 2-3 years to complete. The intention was for this funding to bridge the gap to allow for that action. The reality is that most technologies or solutions aren’t mature enough at this point to drive that behavior. The Sequential Phase II fills that gap.
Funding: Awards in Phase II range from $500,000 to $2 million. This funding supports the development of a working prototype, further testing, and potentially the beginning stages of scaling the innovation for broader application.
Direct to Phase II SBIR
Before we reexamined the reasonable interpretations of “technical feasibility,” another means of partnering more rapidly with more mature technologies was established via the Direct to Phase II SBIR pilot program. The FY2012 National Defense Authorization Act (NDAA) was the first to include a provision for the SBIR (Small Business Innovation Research) Direct to Phase II. Specifically, the Direct to Phase II pilot program was authorized under the SBIR/STTR Reauthorization Act of 2011, which was part of the NDAA for Fiscal Year 2012 (Public Law 112-81, Section 5107). This allowed small businesses to bypass Phase I if they could demonstrate the feasibility of their technology through prior work.
As for the current active section regarding the SBIR Direct to Phase II, it is typically reauthorized with each NDAA. The most recent NDAA, FY2024, has continued to support this pathway. The exact section in the NDAA can vary each year as it gets reauthorized or updated, but as of FY2024, Direct to Phase II remains an active and supported part of the SBIR program under the current legislative framework.
If you’re working within the AFVentures program and are targeting a Direct to Phase II under the open topic, I always recommend you apply for a Phase I as well. Should the Phase II not make the funding cut, this gives you a backup option to get there a little bit faster.
What is a Sequential Phase II SBIR?
Purpose: A Sequential Phase II SBIR award is an extension of the original Phase II award, designed to provide additional funding and time to projects that require further development before they are ready for commercialization. This could include more advanced testing, refinement of prototypes, or additional research needed to overcome technical challenges.
It’s also a useful tool for program teams that do want to transition your technology into a program for military utility but need more time to align funding. TACFI and STRATFI are Sequential Phase II SBIR awards focused on making “bigger bets” on commercial solutions we’d like to transition.
Funding and Timeline: Typical sequential awards can provide up to $1 million in additional funding and can extend the project timeline by another year or more, depending on the specific needs of the project. Programs like STRATFI and TACFI were designed by the Air Force in partnership with the Small Business Administration to push that boundary to much higher dollar figures. The risk of this investment is reduced with the use of matched funding.
Not all projects are eligible for a Sequential Phase II award. Typically, the decision to grant this additional funding is based on the project's progress, potential for commercialization, and strategic importance to the funding agency.
The Role of TACFI and STRATFI in Sequential Phase II
For those engaged in SBIR projects with the Air Force, the TACFI (Tactical Financing) and STRATFI (Strategic Financing) programs represent unique iterations of the Sequential Phase II SBIR. These programs are specifically designed to help bridge the gap between Phase II and full-scale commercialization, particularly in areas that are critical to national defense.
They were also designed to incentivize commercial spending toward dual-use technologies, including investment spending. The matched funding concept reduces the risk for all parties involved by bringing non-dilutive capital to private investments, demonstrating commitment from key stakeholders with signed endorsements and program funds, and showing commercial potential by bringing in venture-backed or well-funded commercial R&D efforts.
The program was launched under the Strategic Funding Increase (STRATFI) banner, but the approval process was split based on authorities. All contract awards under $3M could be approved by the Air Force, and all higher dollar awards needed to be routed and approved by SBA Program oversight. The program has since been split into two parts based on the “tactical” and “strategic” nature of the approval process.
This nomenclature has been used to describe the technology and purpose of the program below, as iterated below. While the descriptions often prove true, the type of award is dependent on the dollar value of the effort, not the tactical or strategic implications of the solution.
TACFI (Tactical Financing): This program is intended for projects that require additional funding to complete final development and testing, preparing them for tactical deployment. TACFI funding is targeted at initiatives that are closer to deployment and need a push to cross the finish line.
STRATFI (Strategic Financing): STRATFI, on the other hand, focuses on projects with broader strategic implications. This program provides substantial funding to help scale innovations that have the potential to impact large-scale defense operations. STRATFI projects are typically aligned with long-term strategic goals and require more extensive resources to bring them to fruition.
Exclusive Nature: It’s important to note that because TACFI and STRATFI are both designed as Sequential Phase II awards, a project can only receive funding from one of these programs, not both. This exclusivity ensures that the right type of funding is matched with the project's specific needs.
I get regular questions on how these programs are structured and why the decisions were made, and a lot of it comes down to the core rules/guidelines of the program as expressed by the SBA. I hope an understanding of that basic structure helps to make sense of program rules and decisions.
If you have questions about specific programs or detailed nuances of execution, feel free to reach out!
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