INNOVATE Act Extends Small Business R&D Grants to 2028, But Adds Major Security and 'Censorship' Restrictions

The Investing in National Next-Generation Opportunities for Venture Acceleration and Technological Excellence, or INNOVATE Act, is a massive overhaul of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. These are the government grants that help small, high-tech firms turn their research into commercial products. The big news for stability is that the bill extends authorization for both programs through 2028 (Sec. 504).

This bill is essentially trying to make it easier for newcomers to get in, while simultaneously making sure the wrong people—namely foreign adversaries—don't benefit. It creates a whole new funding path for breakthrough technology but also introduces some serious tripwires for applicants, especially around foreign ties and even what kind of business agreements they hold.

The New Front Door: Phase 1A

If you’re a small business or a startup founder who has always found the federal grant process too complex, Title II offers a potential lifeline. The bill creates a brand-new “Phase 1A” within the SBIR program, specifically designed for companies that have never received an SBIR or STTR award before (Sec. 201). Agencies must set aside 1.5 to 3 percent of their total SBIR funding for this. The best part? The application is capped at just five pages, and the award is a quick $40,000 max. Think of it as a low-stakes entry point to test if your innovative idea is government-contract ready before you commit to the full grant marathon. This is a smart move to bring in fresh talent and ideas.

Going Big: Breakthrough Funding and Fixed Prices

For agencies looking for truly transformative tech, Title I creates “Phase II strategic breakthrough funding.” Agencies with large SBIR budgets (over $100 million) can now give out massive awards—up to $30 million over 48 months—to small businesses working on high-priority national security needs (Sec. 102). The catch for the small business? You need prior Phase II experience, 100% matching funds from private sources, and a commitment from a high-ranking agency official that they plan to actually use your product. This is designed to bridge the infamous 'valley of death' between a successful prototype and actual government acquisition.

Meanwhile, Title I also slips in a change that affects every single awardee: SBIR and STTR funding agreements must now be firm fixed-price contracts by default (Sec. 104). This means the price is set upfront, and if your costs go up, you eat the difference. While this simplifies the government's budgeting, it shifts all the financial risk onto the small business. If you’re developing cutting-edge technology, where unexpected research delays or material costs are common, this lack of flexibility could be a major financial hazard.

The Security Tripwires: Foreign Risk and Censorship Bans

Title IV introduces sweeping changes to national security screening. The bill formally defines “foreign risk” as any connection your small business has had in the last 10 years with certain entities or people in a “foreign country of concern” (Sec. 401). Agencies must now check applicants against a laundry list of federal watchlists—from Homeland Security to the Department of Defense—and can deny an award based on foreign risk or “any other reason determined by the agency head to constitute a national security risk” (Sec. 402). For small businesses, this means the vetting process is about to get much deeper and could lead to denials based on past, perhaps minor, international collaborations.

But the most controversial part is tucked away in Title II. The bill prohibits any company from receiving an SBIR or STTR award if they have an agreement with organizations like NewsGuard, the Disinformation Index, Internews, or any entity whose main purpose is to “demonetize or rate the credibility of a domestic organization based on that organization’s lawful speech” (Sec. 203). This is a broad prohibition that goes beyond national security and effectively bans businesses from receiving federal R&D grants if they partner with certain media monitoring or research firms, raising questions about free association and who gets to define 'lawful speech.'

Who Gets Preference Now?

Title II also significantly alters the focus of program outreach and goals. Previously, the programs aimed to increase participation from businesses owned by women or “socially or economically disadvantaged individuals.” The INNOVATE Act largely replaces this language, shifting the focus to businesses owned by individuals who reside in rural areas or are “new entrants” (Sec. 202). While boosting rural participation is a clear benefit (and agencies must step up their rural outreach, Sec. 205), replacing established criteria for socially disadvantaged groups with a geographic one is a major policy change that could shift who benefits most from these federal funds.