Imagine two doors. Behind both: millions in non-dilutive federal R&D funding, a path to government customers, and the credibility that comes with a federal research award. The signs on the doors read SBIR and STTR. Most founders stare at both, guess, and walk through whichever one they heard about first.

That's not a strategy. Let's fix it.

The 30-Second Version

Both SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer) fund small companies to develop innovative technology that serves a federal need. Same agencies, same application process, same three-phase structure. The critical difference is one word: partnership.

• SBIR: Your company does the work. You can subcontract, but you must perform at least 2/3 of the research in Phase I and at least 1/2 in Phase II.
• STTR: You must formally partner with a U.S. research institution (university, federal lab, or nonprofit research organization). The research institution must perform at least 30% of the work in Phase I and at least 40% in Phase II.

That's it. That's the structural difference. Everything else flows from there.

What Both Programs Share

Before we get into the differences, it's worth understanding how much these programs have in common — because the similarities are more important than the differences for most companies.

Funding structure (both programs):

• Phase I: Feasibility study. Typically $50K-$275K over 6-12 months. Prove your concept works.
• Phase II: Full R&D. Typically $500K-$1.75M over 2 years. Build and test a prototype.
• Phase III: Commercialization. No SBIR/STTR funding — but this is where the real money is. Phase III contracts can be worth tens of millions and are funded from the agency's regular procurement budget. (We wrote about the $4B Phase III opportunity that most companies miss.)

Eligibility (both programs):

• U.S.-owned and independently operated small business
• Fewer than 500 employees
• For-profit (sorry, nonprofits — but you can be an STTR research partner)
• Principal Investigator must be primarily employed by the small business at time of award (SBIR) or by the small business or research institution (STTR)

Participating agencies: Eleven federal agencies participate in SBIR. Five of those also participate in STTR: DoD, NIH, DOE, NASA, and NSF. If your target agency isn't one of those five, STTR isn't an option — SBIR is your only door.

When SBIR Is the Better Choice

Choose SBIR when your company has the internal capability to execute the research. This is the right path if:

• Your team can do the technical work. You have the engineers, scientists, or researchers on staff (or plan to hire them) to execute the project. SBIR's higher minimum work percentage (67% in Phase I) means the bulk of the effort stays in-house.
• You want maximum control. No mandatory partner means no negotiating IP splits, no coordinating timelines across institutions, no managing a university's overhead rates.
• Your target agency only does SBIR. Agencies like DHS, USDA, EPA, Education, and the DOT offer SBIR but not STTR. If your technology fits their mission, SBIR is your only option.
• Speed matters. SBIR proposals are simpler to put together because you're not documenting a formal partnership, negotiating a subcontract with a research institution, or coordinating IP agreements.

A biotech founder once told me: "I chose SBIR because I didn't want to spend my Phase I timeline negotiating an IP agreement with a university. I needed to move fast." Six months later, she had a working prototype. Sometimes the best partnership is the one you don't need.

When STTR Is the Better Choice

Choose STTR when a research partnership isn't just acceptable — it's an advantage. This is the right path if:

• Your technology comes from academic research. If your product is built on research from a university lab, STTR is designed for exactly this situation. The researcher can continue contributing through a formal subcontract, and the technology transfer is baked into the program's DNA.
• You need capabilities you don't have. Maybe you're a software company and the project requires wet-lab biology. Or you're a hardware startup that needs access to a national lab's testing facilities. STTR's mandatory partnership brings resources you'd otherwise have to build from scratch.
• The PI is at a research institution. In STTR, the Principal Investigator can be employed by either the small business or the research partner. If your lead researcher is a professor who isn't ready to leave academia, STTR lets them stay where they are while still leading the project.
• You want the credibility of a research partner. Reviewers know that a strong university or federal lab partner signals technical depth. For early-stage companies without extensive past performance, an STTR partnership can strengthen the proposal.

The IP Question

This is where founders get nervous, and rightly so.

In both SBIR and STTR, the small business retains IP rights to inventions made under the award — this is protected by the SBIR/STTR Policy Directive and the Bayh-Dole Act. The government gets a royalty-free license to use the technology for government purposes, but you own the commercial rights.

The wrinkle with STTR: you and your research partner must negotiate an IP agreement before you submit the proposal. This is called the "Allocation of Rights" agreement, and it defines who owns what comes out of the research.

This negotiation can be straightforward or painful, depending on the institution. Some universities have technology transfer offices that move quickly; others have processes that feel designed to outlast your funding runway. Start this conversation early — months before the solicitation deadline, not weeks.

A Decision Framework

Ask yourself three questions:

1. Can my team execute at least 67% of the Phase I work internally? If yes, SBIR keeps things simple. If no, STTR's 40% minimum for the small business gives you more room to leverage a partner.
2. Does my technology require capabilities I don't have and can't hire for? If yes, STTR's mandatory partnership turns a weakness into a structural advantage.
3. Does my target agency offer STTR? If they only offer SBIR, the decision is made for you.

If none of these point clearly to one program, default to SBIR. It's simpler, faster, and gives you more control. You can always bring in subcontractors for specialized work — you just don't have the mandatory 30% research institution requirement.

One More Thing: You Can Apply to Both

Nothing stops you from submitting an SBIR proposal to one agency and an STTR proposal to another — as long as the projects are sufficiently different. Some companies run parallel tracks, targeting SBIR for projects they can execute internally and STTR for projects that genuinely benefit from a research partnership.

The key is matching the program to the project, not the other way around. Don't force-fit a research partnership just because STTR exists, and don't avoid one just because SBIR feels simpler.