Funds awarded through the federal Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs support research and development (R&D) and technological innovation in companies with 500 or fewer employees. This indicator represents the extent to which small business firms in a state are pursuing research projects that meet federal R&D needs and attract federal support.

Phase I awards support small business efforts to establish the technical merit, feasibility, and commercial potential of a proposed research effort. SBIR and STTR Phase I awards normally do not exceed $150,000 in total costs for 6 months. Phase II awards support businesses to further their R&D toward commercialization. Generally, only Phase I awardees are eligible for a Phase II award. SBIR and STTR Phase II awards normally do not exceed $1,000,000 in total costs for 2 years. The total award dollars include both Phase I and Phase II SBIR and STTR awards.

Because of year-to-year fluctuations, this indicator is calculated using 3-year moving averages. The 3-year average annual SBIR and STTR award dollars won by small businesses in a state are divided by the 3-year average annual gross domestic product (GDP) for the same period.

The amount of SBIR and STTR funding that states receive relative to the size of their economies varies greatly across states, with states in the highest quartile often measuring more than an order of magnitude greater than those in the lowest quartile. Total federal SBIR and STTR award funding has remained relatively flat since the late 2000s; as GDP has increased, the value of this indicator has decreased nationally and for most states.

Data sources: Small Business Administration, Office of Technology, Small Business Technology Transfer program and Small Business Innovation Research program statistics; Bureau of Economic Analysis, gross domestic product data; Government of Puerto Rico, Office of the Governor, gross domestic product data.