China is Winning the Tech Race, and Congress Just Cut America's Best R&D Fund

A Simple Guide to Understanding the INNOVATE Act,
SBIR Mills, and the Funding Fight in Washington

What's Happening

Since October first America's biggest and best "startup fund" has been shut down by partisan politics.
This fund, called “SBIR,” effectively pays tech companies to develop new tools that help our military, hospitals, and energy systems. So in theory, and for the most part in practice, it’s win-win. The government gets a solution to a problem they have, and the tech company gets paid to develop a solution that they can sell to whoever they want.

And it’s been amazingly successful. 23AndMe, iRobot, and Qualcomm all received early SBIR funding and became household names and thousands of other SBIR recipients have gone on to turn their early SBIR funding into venture scale businesses. So the government gets new weapons that keep soldiers safe, medicines that keep us healthy, and energy innovations that expand domestic production, and small businesses get a new funding path that doesn’t involve selling their soul to an investor.

So why did Congress shut it down?

The answer comes down to about 60 companies. Some people call them "SBIR Mills." Other people call them "Multiple Award Winners" (MAWs). Whatever you call them, Republicans basically want to block them from winning more SBIRs, and Democrats want to let them keep winning away.

And both sides feel so strongly about these 60 Mills that they have decided to pause the entire SBIR program, hurt literally thousands of other businesses, and deny the DoW, HHS, DHS, and the American serving in these agencies the solutions that they need.

So either these 60 companies are the devil, or politics is getting put ahead of good policy.

This post is to help you decide and then do something about it.

Want to help?

It might sound hokey but the best thing you can do is to send an email to your Senator and Congressman:

If you already know what Congress should do:

  1. Scroll down to the bottom of this page

  2. We’ve created template emails that lay out the most common recommendations (whether you are pro Mill or wanted them burnt to the ground there is an email template for you)

  3. Find your senators/congressmen' s email (list below)

  4. Give congress a piece of your mind (Believe it or not this actually works)

If you’re not sure how you feel about SBIR:

This post is our best effort to lay out all the facts and opinions about SBIR, SBIR Mills, and the different proposed changes that are out there so that you can decide what you believe, and then send an email!

What Are SBIR Mills

SBIR Mills provides R&D as a service. If you have dirty floors you hire a janitor, if you need a new kind of laser you hire an R&D services company.

And this whole debate kind of boils down to: Is “R&D as a service” a good idea:

Normal Startup

    • Invest in R&D to create a product

    • Then they sell that product  

    • So their business is to sell product, the R&D is just a cost they incur along the way

R&D as a service Co (SBIR Mill):

    • SBIR Mills on the other hand make money by doing R&D, not by selling the results

    • So for them R&D isn’t a cost, it’s a source of revenue

So what: Well this means that the Mills have structured their businesses to be very good at winning proposals to do doing R&D, but (their opponents claim that) they are terrible at doing anything with the technology produced by the R&D, which begs the question: Are they creating any value for the money they’re given?

The Mills by the Numbers

The INNOVATE Act: The New Rules Everyone's Fighting About

What Would the INNOVATE Act Do? Last summer, Republican senators on the Senate Small Business and Entrepreneurship Committee (the committee that regulates SBIR) proposed the INNOVATE Act:

No one is really worked up about Parts 2-4, but a few people are ready to die over Part 1

Why Republicans Want This (according to them)

    • New companies with fresh ideas can't compete against the Mills and their professional proposal writers which is keeping new businesses from taking advantage of SBIR

    • These 60 companies aren't creating real businesses - they're just surviving on government money

    • The Mills aren’t actually meeting the intent of the SBIR program: grow new businesses and create finished solutions that the government (and everyone else) can buy

    • Some of these companies might be sharing technology with China

Why Democrats Are Blocking It (according to them)

    • The Mills are winning fair and square (everyone competes for SBIR on an even playing field, the Mills are just really good)

    • They have special skills and equipment that new companies don't have

    • Blocking them will hurt thousands of jobs in their states

    • The government needs Mills’ expertise for difficult projects

 

The Political Fight

Here's where it gets interesting. So the core of the fight might be a good faith policy disagreement over the best way to spur American technology.

But there’s also a very real money and power aspect to what’s going on

Here are the members of the Senate Small Business and Entrepreneurship Committee:

And you’ll notice that there are very few SBIR mills in Republican states and there are a ton of Mills in Democratic states (especially Massachusetts, California, and Colorado).

So if the INNOVATE act passed, all those Mills in MA, CA, and CO would instantly go out of business, which would hurt jobs and tax dollars in MA, CA, and CO and other Mill States. something those democratic senators don’t want.

On the other hand, if Mills go away all the dollars they win today get redistributed to other companies in other states, like Indiana, West Virginia and Missouri and other non-Mill States which brings money and jobs helping the Republican senators get reelected.

So the two sides have directly opposing interests. Which one is in the right and who should you send angry emails to?

Should there be limits on SBIR Mills?

The case for the Mills and against the INNOVATE Act:

1: The Mills Are Winning Fair and Square. Why are we punishing people for being good at winning? The Mills say: "Look, anyone can apply for SBIR. We write better proposals. We are held to the same standard as anyone else. Why should we be punished for being good at what we do?"

2: The Mills are doing good R&D, otherwise they wouldn’t keep winning: If a company wins an SBIR and screws up they won't win again, so the fact that the mills have won thousands of R&D projects is strong evidence that they are good at what they do.

3: The Mills Have Special Skills Nobody Else Has: The Mills say that they have "capabilities and institutional knowledge that newer startups simply don't have (https://sbtc.org/new-paper-on-role-of-multiple-award-winners-at-dod-sbir/)

4: More than R&D: The Mills aren’t just R&D shops, they are turning that R&D into products: The Mills argue that they are in fact creating and selling products based on their SBIR awards but that the revenue is hidden because it comes through “third party revenue, licensing, spinoffs, and acquisitions.” (https://sbtc.org/new-paper-on-role-of-multiple-award-winners-at-dod-sbir/)

In 2017 the Small Business Technology Council, which is widely seen as a trade association that represents the interests of Mills published some startling statistics about Mills’ economic impact. The report focused on SBIR awards from the Navy and Air Force to Mills and they found that Mills had received $6.25B and they had produced:

And other less interested groups have found that Mills are delivering. The National Academies found that Mills had higher rates of sales from products derived from their SBIR funded R&D than other SBIR winners.

*https://sbtc.org/wp-content/uploads/2018/02/Impacts-of-the-SBIR-program.pdf

The Case For Limits

1. The Mills aren’t winning fair and square: Mills detractors point out that:

    1. The Mills each have a staff of professional proposal writers who know exactly what to write to win, so they might not have the best ideas or ability to deliver, they just know how to write to win

    2. They have deep libraries of old proposals that they can cannibalize, allowing them to create proposals far faster than anyone else allowing them to “spam” the SBIR program.

    3. There has been a long running allegation that Mills leverage their deep relationships with government decision makers to seed SBIR topics that they are uniquely positioned to win.

2: Just because the Mills aren’t blocked does not mean that they are doing good work: To get blocked from government contracts you have to REALLY screw up. So the Mills not being banned from bidding on SBIRs means that they’ve cleared an incredibly low bar rather than being an indicator that they are producing good R&D.

3: If special equipment and people are needed the government shouldn’t use SBIR: The government has dozens of R&D programs, most of which are tailored to large organizations. The SBIR program is one of the few out there that is specifically for small businesses. So if super specialized people and equipment are needed to do the R&D, maybe put that topic out via a BAA, CSO, Traditional FAR or OTA contract…

4: The Mills aren’t working on just “the hardest problems:” The hardest R&D problems presumably get the fewest proposals (e.g. the work is so hard and so niche that only a few companies can actually do it). So if Mills are focused on these “hardest problems” then we’d expect to see less competition for the awards they win. But that’s not what the data shows. Instead Mills seem to be winning low competition (hard problems) and high competition (easy problems) at roughly the same rate as everyone else.

5: Are the Mills actually converting R&D into solutions? There is no way to know without the Mills being a lot more transparent. However, we think we can approximate:

    • Their total revenue by using their total employment, average scientist/engineer salaries, and typical R&D company overhead rates

    • And revenue sources by analyzing all public awards that they have received

    • Assuming that any gap between their total revenue and federal revenue is made up by commercial customer revenue

Based on this analysis we find that Mills make vanishingly little money from selling products (presumably products derived from their SBIRs) to the government or commercial customers.

And our analysis has been backed up by numerous other (better) studies:

6: Mills aren’t actually “Small Businesses:” The SBIR program definition of a small business is any business with less than 500 people. Technically a multi-billion dollar company could win an SBIR so long as they have 499 people. As the chart shows most Mills are pretty sizable:

7. Mills are not owned by minority/disadvantaged people: The SBIR program has a specific goal to support minority and disadvantaged owners and by and large Mills have lower rates of woman, minority and other disadvantaged ownership than the average SBIR recipient. (https://www.congress.gov/crs-product/R43695)

8. Mills are not helping the government create jobs: While not an explicit goal we believe that job creation is an implicit goal for any federal economic support program, and Mills are not creating jobs.

9. Mills are not driving economic growth: While the SBIR program is not a financial investment the government, and us as taxpayers should expect that SBIR dollars are catalytic (for every SBIR dollar given, the company should create more than a dollar in economic activity). We have found no instances of a Mill becoming a highly successful standalone entity while many non-mill SBIR winners have gone on to become multimillion dollar successes.

We could only find a handful of Mills that have been acquired and none that have become unicorns.

10. The money would be better spent with non-Mills: By our analysis for every SBIR dollar given to a startup, that startup creates $6 in economic value (revenue, additional investment, etc.) while Mills have a negative return on that capital, generating $0.89 for every SBIR dollar received.
(https://blog.ventureradar.com/2019/05/10/top-10-companies-backed-by-sbir-grants/)

Highly Successful SBIR Winners:

    • Symantec
    • Ginkgo Bio Works
    • 23AndMe
    • iRobot
    • Qualcom
    • Descartes Labs

 

11. Mills are concentrated in places that already have great access to investors: Mills are disproportionately in Massachusetts & California which are all epicenters for the VC industry. If the ~$500 Mil they get each year was redistributed, hundreds of millions could be used to seed startups in the heartland and other finance deserts.

“If you look, disproportionately those SIBR mills/grantees are along the coastlines. You know, I’m from middle America. There’s a lot of great technologies being developed in middle America. A lot of great small businesses. This is one way, through those Phase 1A application processes, that they can be more involved in SIBR” (https://www.csis.org/analysis/reauthorizing-and-reforming-small-business-innovation-research-sbir-program-keynote-panel)

12. Giving awards to Mills does not expand the defense industrial base (DIB): One of the DoW’s primary challenges is consolidation and supplier monopolies. For example in the 80s there were 50 large defense Primes, today there are 5. The SBIR program is a soft bridge to get new blood into the industrial base. If the awards that Mills get today were pushed to new companies it could bring thousands of new entrants into the DIB.

13. Exposure to foreign influence: There have been a few high profile instances of Mills having exposure to foreign interests (principally China). We do not have data on non-Mill exposure so we can’t say whether the Mills create an outsized risk. But it is a common critique, and there has been at least two high profile cases:

  • The CEO of Triton Systems (Mill) resigned after his connections to a Chinese State Financial firm were revealed
  • TDA Research (Mill) was found to ​​a state-owned Chinese energy company

(https://www.sbc.senate.gov/public/index.cfm/2025/3/ernst-exposes-concerning-ties-to-china-in-critical-defense-program)

(https://www.sbc.senate.gov/public/index.cfm/2025/5/new-report-ernst-exposes-critical-tech-is-vulnerable-to-china)

(https://www.realcleardefense.com/articles/2025/05/19/fixing_the_department_of_defenses_sbir_commercialization_pipeline_1111025.html)

Approaches to Limiting the Mills

 

Here are all the approaches to limiting Mill access to SBIR we are aware of:

    1. $75 Mil Lifetime Limit: This is the INNOVATE act, if a company has gotten over $75M in SBIRs before, they can’t get any more

      1. Pros: It's easy. SBIR awards are public so it's easy to figure out who qualifies.

      2. Cons: This effectively kills the Mills. They can’t survive this revenue loss so they are going to do everything in their power to prevent it from happening (e.g. Lobbying the hell out of their elected leaders to make sure this proposal never becomes law). So, realistically this proposal means that the SBIR program is on pause indefinitely.

    2. Ratio of SBIR to non-SBIR dollars: The concept here is simple: for every SBIR dollar won the company has to demonstrate that they have gotten some number of non-SBIR dollars.

      1. Pros: It rewards success. If a company is winning a lot of SBIRs, but also making tons of money selling products from those SBIRs then this seems like a good thing. It also gives the SBIR mills a path to continue accessing the program so this might open the door to an agreement between Democrats and Republicans allowing the SBIR program to restart..

      2. Cons: Large businesses have complex financials and this kind of categorization will create some administrative overhead and an opportunity for “creative” accounting.

    3. Our recommendation: We believe that a variation of the Ratio model is best. Under our variant:

      1. Companies need to earn 3 non-SBIR dollars for every SBIR dollar to qualify

      2. Companies do not have to meet the ratio if they’ve received less than $50M in lifetime SBIRs

      3. The ratio is computed on a three year rolling basis which would give Mills three years to meet the target. It also means that a company might not qualify (not meet the ratio) in one year, but meet it the next as their financials change.

      4. Different types of revenue would be counted differently to give more weight to sales than say VC investments

      5. Pros: We think this has all the advantages of the ratio approach while making it even easier for commercially oriented startups to qualify and harder, but not impossible for Mills to qualify

      6. Con: Same as for the ratio approach above

    4. Every few years SBIR dollars can only be used for commercialization, not R&D: Under this approach every few years the SBIR budget would be re-assigned to support the commercialization of already funded SBIR technologies.

      1. Pros: For commercially oriented companies that want to turn their R&D into products and take those products to market this is a big win. For professional R&D companies these “commercialization” years create lumpy revenue encouraging them to re-orient their business models away from pure R&D and towards creating commercial solutions. While not directly SBIR related, this solution also helps solve the “valley of death.”

      2. Cons: The government will have to be vigilant in what gets funded during those “commercialization” years to ensure that new R&D isn’t sneaking in.

    5. Non-SBIR Dollars per award: Implemented in 2022 this is the current framework. Basically for every SBIR award the company has to show X dollars of non-SBIR revenue.

      1. Pros: Unclear, they don’t seem to have worked

      2. Cons: It doesn’t really do anything (effectively no companies missed the threshold)

    6. One proposal per company per cycle: (NSF suggested approach and recent proposal in the Senate) SBIRs come out in cycles, so under this model a company can only apply 1 time per cycle. Variants of this approach limit the total number of proposals per year

      1. Pros: It's easy

      2. Cons: This would effectively kill the Mills meaning that they will do everything in their power to oppose it ensuring that the SBIR program stalls further.

    7. Let agencies set their own limits: Allow each agency to set the limit they want, if HHS is cool with Mills then they can have no limits. If DoW hates Mills they can put harsh limits in place

      1. Pros: It empowers the agencies who manage their SBIR programs creating more alignment between funding, oversight and execution.

      2. Cons: Congress is supposed to have the power of the purse and to oversee the executive through this spending power. By pushing limit decisions to the agencies Congress is giving some of their power to the executive.

    8. Keep the program as is/take more time to study the problem: This is the position the Mills take.

      1. Pros: It's easy

      2. Cons: Republicans will almost certainly oppose it meaning that the SBIR program will continue to be paused. It means that ~16% of all SBIR dollars will continue to go to Mills.

(https://sbir.org/getting-started/sbir-award-limits-eligibility-rules/)
(https://www.congress.gov/crs-product/IF12874)
(https://www.gao.gov/products/gao-24-106398)

(https://www.congress.gov/crs-product/IF12874)

Ready to Write a Letter?

The SBIR program helped America become the technology leader it still is today, but which is now in peril. It has launched multiple billion dollar companies and products you use every day.

Right now, it's frozen because politicians can't agree about what should happen to 60companies.

Both sides have fair points. But while they argue, America falls behind.

What should happen? That's for you to decide. Read the arguments. Think about what makes sense. Then contact your senators and make your voice heard.

Because right now, the only winner is China - and they're not waiting for us to figure this out.

Email Template 1: Support the INNOVATE Act (Support the Cap)

Subject: Please Pass the INNOVATE Act - SBIR Program

Dear [Senator or Congressman] [NAME],

I'm writing to ask you to support the INNOVATE Act and reopen the SBIR program.

The SBIR program should help small startups create new technology and jobs. Right now, the same 61 companies take about $500 million every year. Most of them don't sell real products - they just win government grants.

I support the $75 million lifetime cap because:

- It gives new companies a fair chance to compete

- It ensures SBIR money goes to companies that create jobs

- It protects against companies that never grow into real businesses

Please work with your colleagues to pass the INNOVATE Act so America can keep leading in technology.

Thank you,

[YOUR NAME]

[YOUR CONTACT INFO]

Email Template 2: Our Recommended Approach

Subject: Please Support Ratio Based Reforms to the SBIR Program

Dear [Senator or Congressman] [NAME],

I'm writing to ask you to support Ratio requirements to participate in the SBIR program.

The SBIR program should help small startups create new technology and jobs. Right now, the same 61 companies take about $500 million every year. Most of them don't sell real products - they just win government grants.

I support the Federal Foundry 3:1 ratio of non-SBIR to SBIR revenue to participate in the SBIR program

- It gives new companies a fair chance to compete

- It ensures SBIR money goes to companies that create jobs

- It protects against companies that never grow into real businesses

For the full details please visit the Federal Foundry proposal HERE 

Please work with your colleagues to pass common sense reforms so America can keep leading in technology.

Thank you,

[YOUR NAME]

[YOUR CONTACT INFO]

 

Email Template 3: Oppose the INNOVATE Act (Oppose the Cap)

Subject: Please Reject the INNOVATE Act - Save SBIR Jobs

Dear [Senator or Congressman] [NAME],

I'm writing to ask you to oppose the $75 million cap in the INNOVATE Act.

The SBIR program works because it supports companies with proven track records. These established companies:

- Have specialized skills and equipment

- Deliver solutions the government needs

- Employ thousands of skilled workers

- Win in fair competition

Adding an arbitrary cap will:

- Put thousands of people out of work

- Remove expertise the government needs

- Hurt America's technology leadership

Please work toward a compromise that reopens SBIR without destroying successful companies.

Thank you,

[YOUR NAME]

[YOUR CONTACT INFO]

Who to Send it to:

Find your Senator: HERE

Find your Congressman: HERE

Want to learn more?

Blog posts are coming on:

  • Meet the Mills

  • Infographic: "SBIR Mills By The Numbers"

  • Video: "5 Minutes to Understand the SBIR Fight"

  • Deep Dive: "Who Are the Actual SBIR Mills?"

  • Map: "Where Does SBIR Money Go?"

Or check out our YouTube Channel where we have more on SBIR and Federal Startup Funding HERE