Firm reliance on SBIR funding and its relation to the generation of spin-off firms and patenting

Abstract Recent policy discussions have focused attention on what some refer to as Small Business Innovation Research (SBIR) “mills.” One characterization of an SBIR mill focuses on firms as multiple award winners (MAWs). A second emphasizes reliance on SBIR awards for a large portion of a firm’s revenue. This last characterization is the focus of this paper. The analysis relates the percentage of a firm’s revenue comprised by SBIR awards to four outcomes: the generation of at least one spin-off firm, the number of spin-off firms generated, the receipt of at least one patent, and the number of patents received. The results suggest that the marginal effect of an increase of one percentage point of revenue from the SBIR program, evaluated at each firm’s observed percentage of revenue, is positively related to each of the four outcomes. However, when considering predictions across the entire range of reliance on SBIR funding, the results are more mixed. Notably, the predicted number of patents peaks at 70 percent of revenue and declines thereafter. Comparisons of predictions from multivariate models to simple descriptive statistics suggest that some of the apparent negative relationship at high percentages of SBIR revenue seen in comparisons of means may be due to uncontrolled differences in other firm characteristics.