The House passed legislation Tuesday reauthorizing two “critical” federal grant programs that could funnel hundreds of millions of dollars into San Diego’s innovation economy.

The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs — often called America’s largest “seed funds” — incentivize high-risk, high-reward R&D. The programs lapsed five months ago. The bipartisan bill, now heading to President Donald Trump’s desk, would fund them through Sept. 30, 2031.

While startups await the president’s signature and agencies anticipate the bill’s new provisions, researchers are trying to stay afloat, some furloughing scientists until the funding becomes available.

“San Diego gets approximately $100 million in SBIR or STTR funding each year,” said Tim Scott, president of Biocom, California’s life science trade group. “This has a multiplier effect of two to four times, meaning that it not only affects scientists and engineers but also service providers and the ecosystem. And for an area like San Diego that punches above its weight in federal R&D funding, that is a big deal for our economy.”

While the move by Congress was reassuring, experts say that the funding freeze has already had an outsized impact.

“For every thousand device or drug ideas, maybe one to five actually become a product — and that development timeline is five to 10 years,” said Martin T. Spang, grant writer at Yale Ventures. “If you’re killing things at the source, you won’t see the ramifications for a decade. There could be a real drop-off in technologies ever reaching the market.”

STTR and SBIR in effect

The two programs are nearly identical, with one key distinction: STTR requires a formal partnership with a university or nonprofit research institution, while SBIR does not.

Losing both programs at the same time was a “double-whammy,” said Scott. “The innovation spark starts in the academic and research labs and is stoked with small company SBIR grants once it’s been licensed.”

San Diego has many of the top academic and research institutions in the world, including UC San Diego, Scripps Research Institute, Salk Institute, La Jolla Institute and Sanford Burnham Prebys.

”More than $1 billion of funding was threatened last year,” Scott said in reference to National Institutes of Health grants and National Science Foundation funding. “And then SBIR was not reauthorized in September. Those are two very critical funding sources for San Diego’s innovation economy.”

Grants on the ground

In 2025, 11 federal agencies — including the Department of Defense, Department of Commerce and National Institutes of Health — awarded grants to 138 San Diego applicants. Recipients received either a Phase I grant ($150,000 to $300,000 for six to 12 months of proof-of-concept work) or a Phase II award (up to $1 million to $2 million over two years for full R&D development).

Industry insiders call it the “SBIR stamp” — a mark of credibility that signals a company has cleared a rigorous federal review. “SBIR success rates run 10 to 20 percent. It’s a competitive process, and it gives investors a reason to come in,” said Spang.

Not everyone agrees the government should be in the business of bankrolling early-stage firms. Critics argue that taxpayers absorb the risk while the financial upside flows primarily to private companies and their investors.

The new legislation attempts to address some of those concerns.

Key provisions

A new “Strategic Breakthrough Awards” category aims to direct funding toward the most promising technologies by requiring matching funds and agency buy-in. The bill also strengthens data collection and commercialization readiness requirements to improve accountability.

Foreign influence was another key change. The legislation now requires federal agencies to screen applicants for ties to countries of concern — China, Russia, Iran and North Korea — with mandatory disclosure of foreign affiliations, pre-award screening, and post-award reporting.

While the bill awaits Trump’s signature and agencies prepare to implement the new provisions, startups remain in limbo.

“It is not easy being an entrepreneur right now,” said Scott. “Many of these company founders aren’t all young, single people. They have families and mortgages and car payments. We’ve been telling our small biotech members that these are some of the toughest headwinds that we’ve ever faced as an industry, but they need to stay focused on doing good science.”