Internet Creator Gives Millions to Small Businesses

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WASHINGTON (TheStreet) -- The Defense Advanced Research Projects Agency birthed the Internet and funds whiz-bang flying-object projects such as the Northrop Grumman (Stock Quote: NOC) Switchblade and the Boeing (Stock Quote: BA) X-37.

But DARPA, as the Department of Defense unit is known, also supports entrepreneurs and small businesses through its Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. (STTR involves cooperative projects involving both a small business and a research institution, such as a university or a federally funded organization like the Lockheed Martin Energy Research Corp.)

For 2009, DARPA set aside $70 million for SBIR and $8 million for STTR programs, and funding for next year is expected to be about the same. DARPA defines an eligible small business as "a business having no more than 500 employees (including all affiliates), which is operated in the United States, and at least 51 percent-owned by a U.S. citizen or permanent resident alien."

There are three SBIR and two STTR opportunities posted annually, each comprising a series of topics for small businesses to tackle, in the form of a Broad Agency Announcement (BAA). A BAA differs from requests for proposals (RFPs), which large companies often post. While an RFP usually invites suppliers to submit proposals for a specific product or service, a BAA asks small businesses to present proposals with a general objective.

The most recent DARPA BAA, which closed in September, included a call for applicants to "develop and demonstrate novel approaches for inoculating Warfighters against psychological stress injuries resulting from exposure to military combat operations." That is, pre-traumatic inoculation against post-traumatic stress disorder.

While the agency's goal is to serve the Department of Defense, "sometimes military technology has a dual-use application and can go out to the commercial sector," says Susan Nichols, program director for the Small Business Programs Office at DARPA. For instance, recent businesses funded through SBIR and STTR projects have included AFrame Digital , which develops mobile systems that monitor patient health via secured wireless networks; VCom3D, which makes avatar-based educational software; and SkyBitz, a manufacturer of encrypted geographic location systems applicable to both military and commercial vehicles.

Projects funded through the small-business office go through three phases. Under Phase I, DARPA provides up to $99,000 for a six- to 12-month kick-the-tires period to test the feasibility of the idea. If Phase I proves successful, DARPA may invite the company to submit a Phase II Proposal, which affords the business two years and up to $750,000 to further develop the concept and actually build something. The ultimate goal of both programs is to reach Phase III, in which companies must obtain funding outside of DARPA to transform the concept into a marketable product, process or service. Think of DARPA as an angel investor.

Businesses are always welcome to send unsolicited ideas to DARPA -- it's a free country -- but, "we always recommend that they look for a Broad Agency Announcement that's already out there," Nichols says.

The next DARPA BAA, the first of fiscal 2010, will be posted Nov. 12.

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