Rethinking Innovation: A Data-Driven Analysis of the SBIR Program
The Small Business Innovation Research (SBIR) program has long been celebrated as America's premier innovation engine, funneling over $17.4 billion in federal defense R&D dollars to small businesses over the past decade. But does it actually deliver on its promise to "foster and encourage participation by emerging and undercapitalized small business concerns in technological innovation"?
Given the ongoing debate surrounding the management of the SBIR program, HighGround conducted a comprehensive, point-by-point analysis of federal datasets to evaluate the program’s performance against its stated objectives from August 2015 through July 2025. What we found raises serious questions about whether the program is serving its intended purpose.
The Bottom Line
A small group of repeat recipients dominates SBIR funding, creating massive barriers to entry for new innovators and failing to demonstrate meaningful technology commercialization beyond the SBIR program itself.
The Concentration Problem
Our analysis of all SBIR contracts from August 2015 to July 2025 revealed a stark concentration of awards among a small group of repeat winners:
- 84.1% of all Phase 1 awards go to companies with ≥2 previous Phase 1 awards
- 87.7% of all Phase 2 awards go to companies with ≥2 previous Phase 2 awards
Award Distribution Analysis
Phase 1 Awards:
- Top 1% of firms capture 22.1% of all awards
- Top 5% capture 41.6% of awards
- Top 10% capture 53.4% of awards and 62.7% of total dollar value
- Top 20% capture 66.7% of awards
Phase 2 Awards:
- Top 1% of firms capture 19.0% of all awards
- Top 5% capture 39.2% of awards
- Top 10% capture 51.9% of awards and 52.4% of total dollar value
- Top 20% capture 66.1% of awards
Key Insight: The overlap between Phase 1 and Phase 2 top performers is striking. 71.2% of Phase 1 Top 10% recipients are also Phase 2 Top 10% recipients (410 companies), and 77.2% of Phase 1 Top 1% recipients are also Phase 2 Top 1% recipients (44 companies).
Methodology: After performing multilinear regression across more than 300 variables for each SBIR recipient, the greatest predictor for receiving a SBIR award was having a previous SBIR award. Generally, the more previous SBIR awards a company has, the higher the likelihood of future awards.
The Dominant Players: A Closer Look
The concentration becomes even more striking when examining specific recipients. Physical Sciences, Inc. (Andover, MA) leads all Phase 2 awardees with $183.0 million across 162 contracts. CREARE LLC (Hanover, NH) captured $150.6 million in Phase 2 funding through 163 contracts, while Triton Systems, Inc. (Chelmsford, MA) secured $144.4 million across 123 Phase 2 awards.
In Phase 1, Triton Systems also dominates with $46.3 million across 244 contracts, followed by Physical Sciences with $37.9 million through 194 contracts and Lynntech Incorporated (College Station, TX) with $29.7 million across 148 contracts.
The overlap between Phase 1 and Phase 2 leaders reinforces the self-perpetuating nature of the program. 7 of the Top 10 Phase 1 recipients also appear among the top 10 Phase 2 recipients.
Geographic Concentration: The Boston-California Dominance
The geographic distribution of SBIR funding reveals another concerning trend. Despite the program's goal to support innovation nationwide, funding is heavily concentrated in two regions:
- California: $3.7 billion (33% of all SBIR funding)
- Massachusetts: $1.8 billion (16% of all SBIR funding)
Together, these two states account for nearly half of all SBIR funding, even though innovative capabilities are found across the nation. While these states boast exceptional builders, equally talented innovators can be found in every corner of the country.
The "SBIR Mill" Problem: Innovation Without Commercialization
Perhaps the most troubling finding from our analysis is what happens after companies receive SBIR funding. We examined all SBIR recipients' full contract portfolios to understand whether SBIRs serve as a launchpad to broader federal contracting success:
Segment Analysis: How Companies Use SBIR Funding
SBIR-Dependent Companies (17.7% of recipients):
- Capture 35% of all SBIR obligations ($6.1 billion)
- Derive 74% of their prime contract revenue from SBIRs
- Show minimal transition to non-SBIR work
Significantly SBIR-Dependent Companies (36.9% of recipients):
- Capture 40.2% of SBIR obligations ($9 billion)
- Derive 43.5% of revenue from SBIRs on average
- Limited diversification into non-SBIR work
Launchpad to Graduation (6.4% of recipients):
- Only 6% of SBIR participants successfully use the program as intended
- These companies start with high SBIR dependency (≥50% in first 2 years)
- Successfully transition to non-SBIR revenue (<20% SBIR in last 2 years)
- Represent the program's success stories but are vastly outnumbered
Critical Finding: The top 25% of SBIR awardees receive approximately 83.7% of all SBIR obligations, yet most fail to convert SBIR-funded innovation into non-SBIR revenue. This indicates that SBIRs are self-perpetuating rather than serving as pathways for operationalizing technologies.
Assessing Performance Against Statutory Objectives
The SBIR program's statutory purposes, as defined by the Small Business Administration, are to:
- Stimulate technological innovation
- Use small business to meet Federal R&D needs
- Foster and encourage participation by emerging and undercapitalized small business concerns in technological innovation
- Increase private sector commercialization of innovations derived from Federal R&D
While the success of objectives 1 and 2 are highly subjective, our strongest findings suggest the program is falling short on objectives 3 and 4:
Objective 3: Fostering Emerging and Undercapitalized Businesses
The heavy concentration of awards among repeat winners directly contradicts this objective. New entrants face massive barriers to entry, as established "SBIR mills" have developed sophisticated proposal systems and deep relationships with program managers.
Objective 4: Increasing Private Sector Commercialization
With only 6% of participants successfully transitioning from SBIR-dependent to commercialized technologies with broader federal adoption, the program appears to fund innovation for innovation's sake rather than driving meaningful technology transfer and commercialization.
Recommendations for Reform
Based on our analysis and our team’s experience bringing new technologies into the government, HighGround recommends the following reforms to better align the SBIR program with its statutory objectives:
1. Enhance Traceability and Accountability
Establish robust tracking between SBIR contracts and subsequent non-SBIR contracts resulting from SBIR-funded technologies. Capture lessons learned from all SBIR efforts, including those that don't operationalize. This data is just as valuable as success stories.
2. Revisit Core Program Purpose
The primary mandate to "stimulate technological innovation" lacks a defined purpose, end state, or measurable return on investment. As "America's Seed Fund," the program should have clear commercialization metrics and graduation pathways. Repeat SBIRs with no follow-on contracts represent innovation for innovation's sake rather than mission-driven problem-solving.
3. Refocus on Problem Owners and Rapid Prototyping
Necessity breeds innovation. Consider creating a new class of SBIR that requires solution development and testing within 30/60/90 days, directly connected to operational end-users. Start research by focusing on the problem and problem owner rather than abstract technology development.
4. Address Geographic Disparities
Examine SBIR-underserved geographic regions and implement measures to ensure nationwide participation. Innovation capacity exists throughout America, and the program should actively work to discover and support it beyond traditional technology hubs.
5. Implement Award Diversity Measures
Consider mechanisms to ensure new entrants have realistic opportunities to compete, such as set-asides for first-time awardees or limits on consecutive awards to the same companies without demonstrated commercialization success.
The Path Forward
The SBIR program represents a significant federal investment in innovation with tremendous potential to drive technological advancement and economic growth. However, our analysis suggests that without meaningful reform, the program risks becoming a self-perpetuating ecosystem that benefits a small number of repeat players rather than fostering the broad-based innovation ecosystem it was designed to create.
The concentration statistics speak for themselves. When the top 10% of recipients capture more than 60% of total funding, and approximately 85% of awards go to companies with multiple prior wins, the program has clearly drifted from its mission to support “emerging and undercapitalized” businesses.
More concerning is the lack of meaningful commercialization outcomes. A program that successfully stimulates innovation should show clear pathways from SBIR funding to operational implementation and private sector adoption. Yet only 6% of participants demonstrate this trajectory, while the majority remain dependent on continued SBIR funding with minimal diversification.
Reform is both necessary and achievable. By implementing better tracking mechanisms, redefining success metrics around commercialization rather than just award volume, and actively working to broaden participation geographically and among new entrants, the SBIR program can fulfill its original promise as a true engine of American innovation.
If you're interested in additional data-driven insights, schedule a demo with HighGround.