INNOVATE Act 2025: Major SBIR Program Changes

For years, America’s top startups have relied on SBIR funding to transform early ideas into breakthrough technologies. Now, the SBIR landscape faces dramatic change. Senator Joni Ernst’s proposed INNOVATE Act of 2025 promises a complete overhaul; introducing stricter commercialization benchmarks, new funding pathways for first-timers, and tougher rules for repeat winners.

Here’s what every innovator, entrepreneur, and small business needs to know about the changes coming to the SBIR program and how they might reshape the future of American innovation:

The bill increases SBIR’s budget share from 3.2% to 3.5% of federal R&D spending, potentially adding millions in funding at agencies like NIH and DOE. However, it cuts the STTR program’s share nearly in half, forcing university research collaborations to adapt or downsize.

A standout feature is “Phase 1A”, a simplified pathway for first-time SBIR participants. Inspired by AFWERX, it offers streamlined two-page applications and seed grants up to $40,000, lowering barriers for newcomers. Meanwhile, established firms face aggressive restrictions: $75 million lifetime SBIR funding caps, annual revenue ceilings, and stricter proposal limits to prevent market domination.

The Act pushes harder toward commercialization. Firms with extensive SBIR histories must achieve higher Phase I-to-II transition rates and demonstrate substantial private-sector revenue matching federal grants. NIH-dependent biotech startups must emphasize market-ready technologies, while DOE energy-tech firms need concrete real-world applications earlier.

The Act removes race, gender, and ethnicity considerations from awards, refocusing purely on technical and commercial merit. Outreach instead targets geographic diversity in underrepresented states.

For defense startups, DoD gains authority to issue “Strategic Breakthrough” awards up to $30 million, matched by external investors, potentially transforming defense commercialization but requiring strong private partnerships.

Amid foreign technology theft concerns, the Act establishes rigorous safeguards, explicitly barring funding to firms with problematic foreign ties—particularly China—tightening security across federal innovation programs.

Currently awaiting Senate approval, the INNOVATE Act faces a ticking authorization deadline. Small businesses must understand these sweeping changes, prepare for tighter commercialization benchmarks, and seize new first-timer opportunities. If enacted, these reforms will create a leaner, more commercially focused SBIR ecosystem that could define America’s innovation future.