National Science Foundation
Small Business Innovation Research and Small Business Technology Transfer
1999 SBIR/STTR Phase I Program Solicitation and Phase II Instruction Guide

Chapter 10.0 Proposal Preparation Instructions and Requirements for SBIR Phase II Proposals

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10.1 Phase II Proposals
10.2 Phase II Proposal Contents
10.3 Phase IIB Option


NOTE - ALL PHASE II PROPOSALS MUST BE SUBMITTED THROUGH FASTLANE.


10.1 Phase II Proposals.

The objective of Phase II is to continue the R/R&D effort from Phase I. Only NSF Phase I awardees may compete for NSF Phase II projects. The SBIR Phase II proposals have fixed dates, reference the Table of Deadlines (Section 6.3).


10.2 Phase II Proposal Contents.

In general, Phase II proposals follow the format of Phase I proposals (reference Chapter 3.0 The Phase II proposal is limited to a total of 35 consecutively numbered pages (single- or doubled-spaced). Phase II proposals shall be addressed in the following "Part" order listed.

Part 1: Phase II Proposal Cover and Certification. ( Attachment F)

Reference Chapter 3.0, section 3.4.1 The performance period for Phase II cannot exceed 24 months. The Phase I award number shall be included on the cover page.

Part 2: Project Summary. (Attachment C)

Reference Chapter 3.0, section 3.4.2. The summary should begin as follows:

This Small Business Innovation Research Phase II project...

Information about Principal Investigator/Project Directors (NSF Form 1225). ( Attachment A) Reference Chapter 3.0, Section 3.4.3

Part 3. Table of Contents.

Part 4. Results of the Phase I Project.

Briefly describe how Phase I has proven the feasibility of the innovation, provided a rationale for both NSF and commercial applications, and demonstrated the ability of the proposer to conduct R/R&D.

Part 5. Phase II Technical Objectives, Approach, and Work Plan.

Define the specific technical objectives of the Phase II research and technical approach to meet these objectives; and provide a work plan defining specific tasks, performance schedules, milestones, and deliverables.

Part 6. Company Information.

Significant consideration is placed on a company's current technical and administrative posture and plans for future growth. As part of this section you are required to state the number of employees and the distribution into the following categories:

Indicate number of full time and part time employees.

For young or newly formed companies please address future staffing plans.

Please state company's financial record for the past year specifying income for each of the following areas:

Part 7. Management Team.

Identify the key personnel for the project, confirm their specific availability for Phase II, and discuss their qualifications in terms of education, work experience, and accomplishments that are relevant to the project. For any PI who is an employee of an academic or non-profit organization, provide a release statement as described in Chapter 1.0, Section 1.4.4 of this solicitation. Also reference Section 3.5, Part 6.

Part 8. Facilities and Equipment.

Discuss requirements for and the availability of equipment, instrumentation, and facilities required for Phase II. If a proposer proposes the use of unique or one-of-a-kind Government facilities, a statement, describing the uniqueness of the facility and its availability to the proposer at specified times, signed by the appropriate Government Official must be included with the proposal.

Part 9. Consultant and Subaward Agreements.

The proposing firm must perform a minimum of one-half of the research and/or analytical effort as determined by budget expenditures during Phase II. For further clarification reference Chapter 3.0, section 3.5, Part 7

Part 10. Equivalent or Overlapping Proposals to other Federal Agency.

Reference Chapter 3.0, Section 3.5, Part 9.

Part 11. Current and Pending Support of Principal Investigator and Senior Personnel.

Reference Chapter, 3.0, Section 3.5, Part 10.

Part 12. Summary Proposal Budget. ( Attachment D

The NSF Summary Proposal Budget page must be used for Phase II proposals and it must show information for the total project. Read the second page of the budget form. Also, provide the required explanation of budget items. The proposed costs indicated on the proposal budget should be consistent with the scope of the research effort and must be based on accurate, complete, and current cost or pricing data. SBIR Phase II awards are typically up to $400,000 and for up to 24 months. Reference Chapter 3.0, section 3.5, Part 11 for more information regarding proposal budget preparation. Some key components to pay close attention to when preparing the SBIR/STTR Phase II budget are as follows:

  1. Salaries and Wages.

    Research effort is to be estimated in calendar person-months.

  2. Principal Investigator.

    The commitment of the PI must be for at least 2 months per year. Enter the estimated number of NSF-funded person-months (not in hours) in the column headed by "CAL".

  3. Key Personnel.

    Enter the estimated number of NSF-funded person-months (not in hours) in the column headed by "CAL".

  4. Permanent Equipment.

    Reference Chapter 2.0, Section 2.9. Individual items must be justified in terms of their specific importance to the proposed research. List permanent equipment on line D of the budget form. Requests should not be made for routine equipment which a business in the field should be expected to have available.

  5. Consultants.

    Reference Chapter 2.0, Section 2.2. The proposal must include a signed statement from each consultant confirming availability and commitment, research role in the project, and agreed consulting rate. The number of days on the project may be specified in the consultant's statement or by referencing the proposal. Costs proposed for a consultant's services, excluding expenses, may not exceed the NSF maximum daily rate, which is currently $453 per day.

  6. Subawards (a.k.a. subcontracts).

    Reference Chapter 2.0, Section 2.18. For each subaward, a Summary Proposal Budget form ( Attachment D) is required. Provide details of subaward costs by cost category. An authorized subawardee company representative must sign the subaward budget form. The total amount of subawards should be shown on Line G.5 on the budget for the overall project.

    NOTE:

    a minimum of one-half of the research and/or analytical effort must be performed by the proposing small business concern.

    Purchases of routine analytical or other routine services from commercial sources are not regarded as reportable subcontract activity. No letter is required for such activity. Routine analytical or other routine services should be reported on the proposal budget under "Other Direct Costs/Other" (item G.6) and describe on the budget explanation page.

  7. Indirect Costs.

    Indirect costs may be requested. The amount proposed should be based on the application of substantiated indirect cost rates (see Chapter 5.0).

NOTE: PARTS 13-15 DO NOT COUNT TOWARD THE PAGE COUNT.

Part 13. Payment Schedule and Project Milestone Chart.

This section does not count towards the page limit.

A payment schedule and project milestone chart are required components for all Phase II proposals.

Based on the expected utilization of resources and expenditures of funds, if the standard payment schedule as described in the SBIR Phase II Grant General Conditions, Article 6, ( http://www.nsf.gov/cgi-bin/getpub?sbirii) is not appropriate, you must provide a list of the number of payments, the percentage amount of each payment, and a brief justification for the departure from the standard schedule (see Chapter 5.0). This request must be reviewed and approved by NSF.

The milestone (Gantt type) chart must show the duration and timing of major component tasks that are required to implement your research plan. Milestone (^) markings indicating the initiation and completion of tasks should appear clearly in the 24-month time line and in relation to other tasks.

In an attachment to the chart, briefly define each task in terms of how it contributes to the research plan, and describe each milestone event in terms of a concrete accomplishment that marks significant technical progress towards your proposed research objectives.

A sample of a Phase II Proposal milestone chart is shown below for purposes of illustration:

Task 1             ^_______________^ Task Name
Task 2             ^_____________________________^Task Name
Task 3                                                    ^______________________^Task Name
Task 4                                                                                                      ^_____________^Task Name
Months Effort:  (List by Name:)     6   12   18    24   Cumulative
Key Personnel                _______             _______             _______             _______             _______
Consultant(s)              _______             _______             _______             _______             _______
Subcontract(s)              _______             _______             _______             _______             _______
    Estimated Expenditures  (List by Name)
Key Personnel              _______             _______             _______             _______             _______
Consultant(s)             _______             _______             _______             _______             _______
Subcontract(s)              _______             _______             _______             _______             _______
Perm. Equip.             _______             _______             _______             _______             _______
Other              _______             _______             _______             _______             _______
Total             _______             _______             _______             _______             _______


Narrative: Attach brief description of each task; Other includes indirect costs, materials, travel, etc.
*Note, payments are tied to technical progress; see Section 5.3.2 Payment Schedules, Phase II Payment.

Semi-Annual Key Resource Expenditures.

For each 6-month period, enter certain key resource expenditures charged against the grant milestones. These resources are defined as follows:

  • Levels of effort (in person-months) by the PI and/or key personnel during a 6-month period.

  • Levels of effort by Consultants and/or Subawardees during a 6-month period.

  • Permanent equipment and/or major purchases of supplies during a 6-month period.

IMPORTANT TO REMEMBER:

  1. When each progress report is made, fill in milestone chart to show actual expenditures; always include a brief description of each task. Make each successive chart cumulative.

  2. By the end of the project, it will be possible to easily compare the full array of actual to expected expenditures.

Part 14. Commercialization Plan and Follow-On Funding Commitment(s).

This section does not count towards the page limit.

A Commercialization Plan must, and potential Follow-on Funding Commitment(s) should, be included in this section. The Commercialization Plan should provide information that directly relates to producing an innovative product, process, or device and getting it into commercial production and sales; such a plan is often useful in obtaining Phase II or Phase III follow-on funding commitments. Note: Comprehensive business plans (that are company rather than project-oriented) are not desired by NSF.

The Commercialization Plan should describe plans for commercialization in terms of each of the following areas:

  1. Company -

    Brief description of your company including its principal field(s) of interest, present size (annual sales level and number of employees), and any current products that have had significant sales.

  2. SBIR Project -

    A concise lay person's description of the proposed project and its key technology objectives.

  3. Commercial Applications -

    Potential commercial applications of the research results specifying customers and the specific needs which will be satisfied by the technology, particularly those applications with the greatest near term potential.

  4. Patent Status -

    Do you have or intend to file for one or more patents as a result of the SBIR project?

  5. Innovation -

    What is particularly innovative about the anticipated technology or products? (Innovation may be expressed in terms of applications, performance, technique efficiencies, or significantly reduced cost.)

  6. Competitive Advantages -

    What significant advantages in application, performance, technique, efficiency, or costs, do you anticipate your new technology will have over existing technology?

  7. Markets -

    What are the anticipated specific markets for the resulting technology, their estimated size, classes of customers, and your estimated market share five years after the Phase II project is completed and/or after the first sales?

  8. Competition -

    Who are the major competitors in these markets, present and/or anticipated?

  9. Production Plan -

    Briefly describe how you plan to produce your product. Do you intend to manufacture it yourself, subcontract the manufacturing, enter into a joint venture or manufacturing agreement, license the product, etc.? And when do you anticipate doing so? (With high technology products, early market entrance is often critical to success.)

  10. Non-Market Considerations -

    Briefly describe the potential societal, educational, and scientific benefits this project could provide.

  11. Marketing Plan -

    Briefly describe the approach and steps you plan to take in commercializing the research results from the end of Phase II to significant sales. Do you plan to market the product yourself, through dealers, contract sales, marketing agreements, a joint venture, sales representatives, foreign companies, etc.?

  12. Financing Plan -

    Briefly describe your plan to raise money to support your commercialization plan after Phase II.

    Follow-on Funding Commitment(s).

    At the end of the NSF SBIR Phase II funding, the firm will almost always need non-federal funding and will almost always be required to commercialize the results. In order to demonstrate a prior commitment to commercialization, the small business is encouraged to provide its own commitment or to obtain a commitment for follow-on Phase III funding from a third party. SBIR grantees are often able to interest potential partners in investing using their Phase I results, the identification of the innovation, and the prospective competitive advantage as shown in their Commercialization Plans.

    If a partner commits funds during the SBIR Phase II period, these funds can be targeted to expand the scope of the research, shorten the developmental cycle, conduct market research, formulate business plans, obtain intellectual property protection, seek strategic business partners, and follow other creative avenues as long as the connection to SBIR Phase II is clearly maintained. To document this support a separate signed budget detailing the planned expenditures of the non-federal SBIR funds should be provided. No minimum amount is stipulated to encourage this early risk sharing by non-federal partners. See Attachment H, Suggested Formats for Follow-On Funding Commitments, for sample commitment letters.

    The commitment agreement may be from any of a number of different sources. These sources include:

    • the SBIR firm itself
    • private investors or "angels"
    • venture capital firms
    • investment companies
    • joint ventures
    • R&D limited partnerships
    • strategic alliances
    • research contracts
    • sales of prototypes
    • a recent public offering
    • state finance programs
    • large, medium, or small industrial firms
    • existing investors
    • multiple smaller investors

    Phase III also may involve non SBIR-funded R&D or production commitments with another Federal agency for potential products or processes intended for use by the United States Government.

    If negotiations are underway, the small business concern and the potential third party should provide evidence of their potential collaboration. A letter of describing the negotiations and the intent to seek a final agreement for Follow-On Funding should be attached to the Phase II proposal. A few clearly defined and measurable key technical objectives should be stated in the commitment agreement including indication of the threshold level that would justify private investment, if those technical objectives were achieved in Phase II. The objectives do not have to be the same as those stated in the proposal, but they must be attainable within the scope of the proposed Government-funded research.

    The commitment agreement should set forth the specific amount of Phase III funds that will be made available to the small firm and indicate the dates the funds will be provided. The commitment may be contingent upon: (1) the receipt of a Phase II award; (2) Phase II achieving a few stated key technical objectives; (3) the resulting technology not being bypassed in the marketplace during Phase II; and (4) the technology appearing to be economically viable. If these objectives are met, the commitment should become exercisable and the Phase III funding should take place. The terms cannot be contingent upon the obtaining of a patent due to the length of time this process requires. If a commitment is obtained from a foreign source, it must state that production for the U.S. market will be carried out in the U.S. The commitment should be consistent with the terms outlined above, Chapter 4.0, Section 4.2.3 discusses the Evaluation of Follow-On Funding Commitment(s) and Commercialization Plan.

    Non-Federal Phase III Funding Support.

    As discussed in Chapter 3.0, Section, 3.5, Part 5 Commercial Potential,

    NSF recommends starting early in seeking non-federal funding. Browsing the World Wide Web (www) on the Internet could be one starting point. The Small Business Administration (SBA) is an excellent resource; their web address is: http://www.sbaonline.sba.gov. The SBA has an Internet service that matches entrepreneurs with "angel" investors. The Internet address is: https://ace-net.sr.unh.edu/.

    To acquire directories of venture capital companies, contact one or both of the following associations:

    National Venture Capital Association
    1655 N. Ft. Myer Drive,
    Arlington, VA 22209
    (703) 351-5269

    National Association of Small
    #700 Business Investment Companies

    1199 No. Fairfax Street, Suite 200
    Alexandria, VA 22314
    (703) 683-1601

    To obtain a list of large industrial companies that have indicated an interest in SBIR companies in specific areas, you may contact:

    Commercialization Matching System
    SBA-SBIR

    409 Third Street, S. W., 8th Floor
    Washington, DC 20416
    (202) 205-6450

    Information on state agencies and programs that provide assistance to SBIR companies is contained in the BMDO SBIR Outreach Notebook, Ballistic Missile Defense Organization, (updated annually); it may be obtained from BMDO by calling 1-800-937-3150. Some of the state economic development organizations that can be contacted are as follows: The Ben Franklin Partnership Program in Pennsylvania; Connecticut Innovations, Inc.; the Massachusetts Technology Development Corporation; and the Utah Technology Finance Corporation.

    Commercialization assistance can often be obtained from many sources, such as trade journals; conferences; consultants; venture capitalists; patent lawyers; some Small Business Development Centers (SBDCs); some Small Business Administration Service Core of Retired Executives (SBA SCORE) personnel; the Kaufman Foundation; and the various MIT Enterprise Forums.

Part 15. Company Commercialization History.

Reference Chapter 3.0, Section, 3.5, Part 12. If acompany has never received a SBIR/STTR Phase II award, under the heading state zero awards.


10.3 Phase IIB Option (Only applicable for SBIR Phase II grantees.)

The Phase IIB Option helps bridge the gap in funding between Phase II and Phase III. The Phase IIB Option will provide additional funds to Phase II grantees that obtain third party funds. The objective of the Phase IIB Option is to extend the R&D efforts beyond a current grant to meet the product/process/software requirements of a third party investor and to also accelerate the Phase II project to the commercialization stage. The Phase IIB Option extends the Phase II grant for only one year and the combined Phase II and IIB will not typically exceed 3 years in duration. Phase IIB proposals are due by February 1, 2000. A reminder invitation letter will be sent during the last six months of the Phase II grant.

Eligibility for Phase IIB is as follows:

  1. Phase II grants in the second year of the grant.

  2. Funding from a third party investor. (1)

The third party investor must commit a minimum of $100,000. NSF will match up to 50% of funds received, not to exceed $200,000. The additional federal funds can only be used for advancing the research-related elements of the project. The third party investor funds can be used for research or other business related efforts in order to accelerate the innovation to commercialization. Market research, advertising patent applications and refining of the business plan are good examples of uses for the third party investor funds.

A letter of commitment from the third party investor must specify the amount of the investment and the method in which the investor will provide the funding to the company. The third party funding can be cash, liquid assets, tangible financial instruments but not in-kind or other "intangible assets". A proposer may submit the original third party follow-on funding commitments submitted along with the Phase II proposal, provided new updated commitment letters were obtained. Self-funding does not qualify for the Phase IIB option.

Phase IIB Proposal Preparation

A proposal no longer than 15 pages is required. Three copies must be submitted. The proposal Package must contain:

The Phase IIB proposal must have a new Phase II Cover Page. The additional work proposed should be an expansion of the technical work being performed in the Phase II projects and must fall within the scope of the present project. The milestone chart must be updated reflecting the additional year of effort. A new budget for the portion of the funds requested from NSF for the Phase IIB project must be on a NSF Form 1030A ( Attachment D). A separate budget explanation page detailing each line item is required. All budget items must be allowable costs and a new certificate of cost or pricing data must also be completed ( Attachment G). A letter of commitment to match Phase IIB SBIR funding, signed by the third party investor, is required.

Review

All Phase IIB proposals will be reviewed in-house by a minimum of two NSF Program Officers. Each proposal will be reviewed based on the review criteria below.

Criterion 1. What is the intellectual merit of the proposed activity?

Potential considerations: Will the completion of the proposed activity lead to a solid foundation of the scientific and engineering knowledge and understanding base? Has the firm progressed satisfactorily in the Phase II activity to justify a Phase IIB activity? Is the proposed plan a sound approach for establishing technical feasibility that could lead to commercialization?

Criterion 2. What are the broader impacts of the proposed activity?

Potential considerations: Does the business plan summary in the proposed activity show a clear path to commercial and societal benefits? Does the proposed activity reflect changes to the Phase II commercialization plan that further improves the chances of conversion of research in order to provide societal benefits? What are the expectations of the third party and how effective will the third party funded activity lead to commercial and societal benefit? Evaluate the competitive advantage of this technology vs. alternate technologies that can meet the market needs.

Award Recommendation

A Phase IIB applicant will be notified within 60 days from receipt of the Phase IIB proposal. If a proposal is recommended for award, the company must submit proof of the bank transaction showing that the third party has exercised its commitment.

Payment and Release of Funding

The Final payment on the original Phase II (the fifth payment in a standard Phase II grant) will be made at the end of Phase IIB. Therefore, there is no payment corresponding to the "24th month" progress report for those selected for the Phase IIB option. NSF will release the Phase IIB payment only upon receipt of a letter that the entire amount of the funds from the outside investor has been transferred to the company; this letter must be signed by both the company and the third party investor. This letter must state that $________ in cash has been transferred to our company from the third party investor in accord with the SBIR Phase IIB procedures." The letter must be sent to the cognizant NSF SBIR Program Officer along with a letter from the bank certifying that the funds have been transferred to the company's account or a copy of the company's bank statement showing the funds have been deposited. The deadline for receipt of the letter is 30 days following notification of selection for award.

Reporting Requirements

In updating the milestone chart, the report due at the end of "24th month" will be treated as a progress report using the standard progress report format. The final reporting documents will now be required at the end of Phase IIB. Upon completion of the Phase IIB, the company is required to submit the normal Phase II completion documentation, including initial Phase II as well as Phase IIB supplemental activities:

  1. Combined Phase II and IIB Final Report

  2. Commercialization Report inclusive of updated Business Plan

  3. NSF Final Project Report (submitted electronically)

Packaging of Phase IIB Proposals

All Phase IIB Proposals should be mailed to:

SBIR Phase IIB Program
National Science Foundation
4201 Wilson Blvd., Suite 550
Arlington, VA 22230




(1) The investor must be a third party investor, which may include such entities as another company, a venture capital firm, an individual "angel" investor, state or local government, or any combinations of the above. It does not include owners of the small business, their family members, and/or "affiliates" of the small business, as defined in Title 13 of the Code of Federal Regulations (C.F.R.), Section 121.103. (Reference: http://frwebgate1.access.gpo.gov/cgi-bin/test-get-cfr.cgi)