The INNOVATE Act & SBIR/STTR Reauthorization: What Founders Need to Know (September 2025)
Breaking down the legislative landscape, competing bills, and what it means for startups as the SBIR/STTR reauthorization deadline approaches.
Written by Scout Editorial Team
As the September 30, 2025 expiration date for the SBIR and STTR programs approaches, Congress is actively debating how to extend and reshape these cornerstone sources of non-dilutive funding. Two leading bills—the INNOVATE Act and the SBIR/STTR Reauthorization Act—have gained traction, and each charts a very different path for the future of small business innovation funding.
In this update, we break down the current legislative landscape, explain why it matters for founders, and share what Scout is doing to help startups prepare for whichever reauthorization framework Congress adopts.
Reauthorization Deadline: September 30, 2025
The SBIR and STTR programs—which together have provided more than $70 billion in funding for small-business–led research and development—are set to expire on September 30, 2025, unless Congress passes new legislation. A lapse would create significant uncertainty for startups relying on these programs as a primary source of non-dilutive capital and commercialization support. (Source: MNSBIR Inc.)
Two Competing Legislative Paths
- The INNOVATE Act (House & Senate Versions)
Both versions of the INNOVATE Act share the same overarching goal: to reauthorize SBIR/STTR while introducing new program structures, compliance requirements, and funding tiers that could reshape how startups access federal non-dilutive capital.
Senate Version (S. 853): Introduced by Senator Joni Ernst in March 2025 (Small Business Committee).
House Version (H.R. 4777): Introduced by Representative Roger Williams in July 2025 (NSBA).
This bill proposes a three-year reauthorization (shorter than the permanent reauthorization being discussed in competing legislation) and includes several notable reforms:
| Key Provision | Description |
|---|---|
| **Phase 1A Pilot** | Grants ~\$40,000 to new applicants to ease entry into the SBIR/STTR process ([NSBA | Since 1937](https://www.nsbaadvocate.org/post/news-congress-continues-support-for-small-business-sbir-sttr-program-reauthorizations-and-grants?utm_source=chatgpt.com), [Congress.gov](https://www.congress.gov/bill/119th-congress/senate-bill/853/text?utm_source=chatgpt.com)) |
| **Foreign Risk Measures** | Prohibits awards to firms with foreign-risk connections (including affiliates) for a 10-year period; strengthens due diligence ([Congress.gov](https://www.congress.gov/bill/119th-congress/senate-bill/853/text?utm_source=chatgpt.com), [sbtc.org](https://sbtc.org/chair-williams-introduces-sbir-reauthorization-bill/?utm_source=chatgpt.com)) |
| **Caps on Repeat Awardees** | Limits revenue and the number of Phase II awards for successful applicants—designed to deter "SBIR mills" ([sbtc.org](https://sbtc.org/chair-williams-introduces-sbir-reauthorization-bill/?utm_source=chatgpt.com), [NC SBTDC](https://sbtdc.org/blog/sbir-sttr-program-2025-news-and-updates?utm_source=chatgpt.com)) |
| **Strategic Breakthrough Awards** | Redirects some STTR set-aside funds toward larger Phase III-style awards ([NSBA | Since 1937](https://www.nsbaadvocate.org/post/news-congress-continues-support-for-small-business-sbir-sttr-program-reauthorizations-and-grants?utm_source=chatgpt.com), [sbtc.org](https://sbtc.org/chair-williams-introduces-sbir-reauthorization-bill/?utm_source=chatgpt.com)) |
| **Rural & Outreach Enhancements** | Requires agencies to conduct outreach in rural communities and maintain at least one open-topic solicitation ([NSBA | Since 1937](https://www.nsbaadvocate.org/post/news-congress-continues-support-for-small-business-sbir-sttr-program-reauthorizations-and-grants?utm_source=chatgpt.com), [Congress.gov](https://www.congress.gov/bill/119th-congress/house-bill/4777/text/ih?format=txt&utm_source=chatgpt.com)) |
Criticisms
While the INNOVATE Act has gained bipartisan support, critics—including the Small Business Technology Council (SBTC)—argue that award caps could unintentionally penalize successful firms, discourage repeat innovation, and reduce commercialization success rates (SBTC).
- The SBIR/STTR Reauthorization Act of 2025 (Markey/Velázquez)
Introduced in May 2025 by Senator Edward Markey and Representative Nydia Velázquez (Ed Markey), this proposal takes a very different approach from the INNOVATE Act. Instead of short-term extensions, it calls for permanent reauthorization of SBIR and STTR—providing long-term stability for small-business innovators.
This bill also seeks to expand program funding and support structures in several key ways:
| Key Provision | Description |
|---|---|
| **Permanent Authorization** | Establishes SBIR and STTR as permanent programs, eliminating recurring sunset deadlines and ensuring continuity ([Ed Markey](https://www.markey.senate.gov/)). |
| **Increased Funding Levels** | Gradually raises set-aside requirements to **7% for SBIR** and **1% for STTR** of extramural R&D budgets, phased in over seven years ([Ed Markey](https://www.markey.senate.gov/)). |
| **No Award Caps** | Preserves **merit-based competition** and rejects limits on the number of awards per business, countering concerns about penalizing repeat innovators ([NC SBTDC](https://sbtdc.org/)). |
| **New Support Roles** | Requires agencies to appoint **Technology Commercialization Officials** to strengthen Phase III transitions and accelerate downstream adoption ([Senate Committee on Small Business](https://www.sbc.senate.gov/)). |
| **Extended Due Diligence** | Continues **foreign-influence safeguards** and due diligence requirements through 2030 ([MNSBIR Inc.](https://minnesotasbir.org/)). |
For founders, the Markey/Velázquez bill emphasizes stability and growth. By permanently authorizing SBIR/STTR, it would eliminate the uncertainty of short-term renewals. The proposed funding increases could expand the number of available awards, while avoiding caps keeps the door open for serial innovators to scale technologies across multiple phases and agencies.
Why It Matters
For Startups and Innovators:
Without reauthorization, funding disruptions could halt critical R&D pipelines.
Each proposal makes distinct changes to access, scale, compliance, and commercialization strategies.
Broader Implications:
The INNOVATE Act introduces tighter controls and safeguards, especially around foreign risk and repeat financing.
The Markey/Velázquez bill prioritizes expansion, permanence, and commercialization capacity building.
Defense Innovation Watch:
Analysts warn that delays in reauthorization could channel innovation dollars away from genuine defense innovators, particularly those tackling national security challenges (National Defense Magazine).
Scout’s Guidance for Founders Right Now
With Congress still debating between the INNOVATE Act and the SBIR/STTR Reauthorization Act of 2025, the future framework isn’t yet settled. Founders should be preparing now—so that whichever version (or compromise) emerges, your startup is positioned to compete.
Here’s what we recommend at Scout:
- Stay Informed – Closely track the legislative process and note whether the final bill leans toward a short-term INNOVATE model or a permanent expansion approach. Even small changes in language can reshape eligibility, workshare rules, or funding tiers.
- Plan Strategically – Map your funding strategy against potential reforms. For example, pilot awards like Phase IA or ownership/revenue caps could alter your timing for applications.
- Audit Your Foreign Risk Posture – Expect tighter reviews of ownership, affiliates, and IP agreements. Begin documenting your capitalization table, past awards, and licensing arrangements now to avoid surprises during due diligence.
- Emphasize Commercialization Rigor – Whether the next framework expands or caps participation, reviewability and adoption metrics will become even more important. Agencies and Congress alike want proof that SBIR/STTR dollars translate into real products, contracts, and impact.
At Scout, we’re advising founders to treat this transition period not as a pause, but as an opportunity to future-proof your funding strategy.
