SBIR Phase I vs Phase II: Requirements, Timelines, and Strategy

The SBIR program is structured around a progression from proof of concept to full development. Phase I tests whether your idea is feasible. Phase II funds the engineering, prototyping, and testing that turns a feasible idea into a working technology. The two phases serve fundamentally different purposes, and the proposals you write for each one must reflect that difference.

This guide breaks down the specific requirements, funding levels, timelines, and strategic considerations for each phase across the major SBIR agencies. If you are preparing a Phase I proposal and want to understand what comes next, or if you have completed Phase I and are planning your Phase II submission, this is the reference you need.

The Core Difference: Feasibility vs. Development

Phase I answers one question: can this work? You are proposing a technical approach and demonstrating through preliminary research, experimentation, or analysis that the concept is scientifically and technically sound. The deliverable is typically a feasibility report with supporting data.

Phase II answers a different question: can you build it? You are taking the validated concept from Phase I and executing a full research and development program. The deliverable is usually a working prototype, a demonstrated system, or a technology that has been tested in a relevant environment.

This distinction drives every difference between the two phases -- the scope of the proposal, the size of the budget, the depth of the commercialization plan, the level of preliminary data expected, and the criteria reviewers use to evaluate your work.

Funding Amounts by Agency

Phase I and Phase II award amounts vary significantly across the 11 participating SBIR agencies. Here are the current figures for the major funders:

Phase I Award Amounts

Phase II Award Amounts

The jump from Phase I to Phase II funding is substantial -- typically a 4x to 8x increase. This reflects the expanded scope of work, the need for additional personnel and equipment, and the expectation that Phase II will produce a technology with demonstrable real-world capability.

Proposal Structure: What Changes Between Phases

Phase I Proposal Structure

A Phase I proposal is relatively concise. Most agencies limit the technical volume to 15-25 pages. The emphasis is on the innovation and your plan to test its feasibility.

Key sections of a Phase I proposal include:

Specific Aims / Technical Objectives. What will you prove in Phase I? Define 2-4 technical objectives that, if achieved, will demonstrate feasibility. These should be concrete and testable -- not aspirational statements, but milestones you will reach within the Phase I period.

Background and Significance. What is the problem, and why does your approach represent a meaningful advance over existing solutions? Keep this focused. Reviewers do not need an exhaustive literature review; they need to understand why your innovation matters.

Research Plan / Technical Approach. This is the heart of the Phase I proposal. Describe the experiments, analyses, or development activities you will perform. For each objective, explain the methodology, the expected results, and the criteria you will use to determine success or failure. Address potential risks and alternative approaches.

Preliminary Data. Phase I does not always require preliminary data, but having it dramatically strengthens your proposal. Even a small proof-of-principle experiment or computational analysis that supports the feasibility of your approach gives reviewers confidence that you are not starting from zero.

Commercialization Plan. At Phase I, this is typically 2-3 pages. Identify the target market, the value proposition, the competitive landscape, and the path from R&D to revenue. You do not need a detailed business plan, but you do need to demonstrate that you have thought about who will use this technology and how you will reach them.

Budget. Phase I budgets are straightforward. The most common categories are senior personnel time, subcontractor costs (if partnering with a university or research lab), materials and supplies, and a small allocation for travel. At this stage, most of the budget goes to labor.

Phase II Proposal Structure

A Phase II proposal is substantially more detailed. The technical volume expands to 30-50 pages at most agencies, and every section carries more weight.

Phase I Results and Feasibility Demonstration. This section does not exist in the Phase I proposal, and it is one of the most important parts of the Phase II submission. You must present the data and findings from your Phase I work that demonstrate the concept is feasible. Reviewers need to see that you accomplished what you proposed and that the results justify a larger investment.

Do not simply summarize your Phase I final report. Highlight the key findings, present the most compelling data, and be honest about what worked and what required modification. If you pivoted from your original approach during Phase I, explain why -- this shows adaptability, not failure.

Research and Development Plan. The Phase II technical plan must be comprehensive. You are no longer proving a concept; you are building a technology. Describe the full development program: design specifications, engineering milestones, testing protocols, performance targets, and the criteria for determining that the technology is ready for commercialization or transition.

Break the plan into discrete tasks with timelines, deliverables, and dependencies. Reviewers expect a Phase II work plan that demonstrates project management sophistication, not just scientific insight.

Commercialization Plan. This is where Phase II proposals succeed or fail. At Phase I, a general market analysis was acceptable. At Phase II, reviewers expect evidence of market validation:

• Letters of intent or commitment from potential customers
• Partnerships with manufacturers, distributors, or system integrators
• Market sizing based on primary research, not just desk research
• Intellectual property strategy (patents filed, freedom-to-operate analysis)
• Revenue projections with stated assumptions
• A realistic timeline from Phase II completion to first revenue

The commercialization plan for a Phase II proposal should be 6-10 pages, and it should read like the executive summary of a business plan, not a speculative essay.

Staffing and Team Expansion. Phase II typically requires a larger team than Phase I. The PI's effort commitment increases (from one-third minimum in Phase I to one-half minimum in Phase II at most agencies). You may need to hire engineers, technicians, or business development staff. Describe the roles, qualifications, and recruitment plan for any new hires.

Budget. Phase II budgets are more complex. In addition to the labor and materials that dominated Phase I, you may now include equipment purchases, prototype fabrication costs, testing and certification fees, subcontracts with manufacturing partners, and travel for customer meetings or conferences. Every cost must be directly tied to the development plan.

Evaluation Criteria: How Reviewers Score Each Phase

Phase I Evaluation

Most agencies evaluate Phase I proposals on three primary criteria:

1. Technical Merit and Innovation (typically 40-50% of the score) -- Is the proposed approach novel? Is the research plan well-designed? Are the objectives achievable within the Phase I timeframe?

2. Qualifications of the Team (typically 20-30%) -- Does the PI have the technical expertise to execute the plan? Does the team have the necessary skills and facilities?

3. Commercial Potential (typically 20-30%) -- Is there a plausible market for this technology? Has the applicant identified potential customers and a path to revenue?

At NIH, the standard review criteria apply: Significance, Investigator(s), Innovation, Approach, and Environment, each scored on a 1-9 scale. At DOD, topic responsiveness is an additional critical factor -- your proposal must address the specific problem described in the topic.

Phase II Evaluation

Phase II evaluation shifts the emphasis. Technical merit remains important, but the weight of commercialization increases substantially, and reviewers now have Phase I results to evaluate.

1. Phase I Results (typically 20-30%) -- Did the applicant achieve their Phase I objectives? Do the results support the feasibility of the proposed technology?

2. Technical Merit of the Phase II Plan (typically 30-40%) -- Is the development plan comprehensive and well-structured? Are the performance targets realistic? Are risks adequately addressed?

3. Commercial Potential and Transition Plan (typically 25-35%) -- This is where the increase in commercialization weight is most evident. Reviewers want to see customer validation, partnership commitments, and a credible revenue timeline.

4. Team and Resources (typically 10-15%) -- Has the team been expanded appropriately? Does the company have the facilities and equipment to execute Phase II?

The single biggest reason technically strong Phase II proposals fail is a weak commercialization plan. Reviewers at every agency report that applicants consistently underinvest in market validation during Phase I, leaving them unable to present compelling commercial evidence in their Phase II proposal.

Timeline: The Phase I to Phase II Transition

Understanding the timeline between phases is critical for strategic planning.

Typical Phase I Timeline

• Month 0: Submit Phase I proposal
• Months 3-9: Review and award decision (varies by agency)
• Months 9-21: Execute Phase I research (6-12 months of performance)
• Month 15-21: Submit Phase I final report

The Gap Between Phases

The transition from Phase I to Phase II is not seamless. At most agencies, there is a gap between Phase I completion and Phase II award. This gap can range from 3 months (DOD, which has the fastest transition) to 12 months or more (NIH, where Phase II proposals go through full peer review).

During this gap, your company has no SBIR funding for this project. This is a strategic vulnerability that you need to plan for. Options include:

• Bridge funding from the agency. Some agencies offer administrative supplements or bridge awards to maintain continuity between phases.
• Non-SBIR revenue. If your company has other contracts or revenue sources, these can sustain operations during the gap.
• DOD Phase II enhancements. If a DOD customer commits matching funds, your Phase II can be augmented with additional funding, but you need an active Phase II award first.
• NSF supplemental funding. NSF offers SBIR supplements for commercialization activities and I-Corps participation.

Phase II Submission Timing

Each agency handles the Phase I to Phase II transition differently:

DOD: Phase II proposals are typically invited from successful Phase I awardees. The invitation comes during the Phase I period, and you submit the Phase II proposal before Phase I ends. DOD has the tightest integration between phases.

NIH: Phase II proposals are submitted through the standard omnibus solicitation on one of three annual receipt dates (January 5, April 5, September 5). There is no automatic invitation -- you must submit a competitive proposal that goes through full peer review. You can submit your Phase II proposal while Phase I is still active, as long as you have sufficient preliminary results.

NSF: NSF invites Phase I awardees to submit Phase II proposals. The invitation includes a timeline for submission, typically 6-12 months after Phase I completion.

DOE: Phase II solicitations are issued separately, and successful Phase I performers are eligible to apply. The timeline varies by program office.

Strategic Considerations

Planning Phase II During Phase I

The most important strategic insight about SBIR is this: you should be planning your Phase II proposal from the day you start Phase I. Every experiment you run, every customer conversation you have, and every data point you collect during Phase I is potential content for your Phase II submission.

Specifically, during Phase I you should:

Collect commercialization evidence. Schedule customer discovery meetings. Attend industry conferences. Request letters of intent from potential users. By the time you write your Phase II proposal, you need concrete evidence that someone wants to buy what you are building.

Document everything. Keep detailed lab notebooks, meeting notes, and data records. Your Phase I results section in the Phase II proposal must be compelling, and that requires well-organized data.

Build relationships with program managers. At DOD, your topic author is your champion. At NIH, your program officer can provide guidance on which institute is the best fit for Phase II. These relationships matter more at Phase II than Phase I.

Identify Phase II team members. If your Phase II plan requires expertise you do not currently have, start recruiting during Phase I. Letters of commitment from key personnel strengthen your Phase II proposal.

Direct to Phase II

Several agencies, most notably DOD, offer a Direct to Phase II pathway for companies that can demonstrate they have already completed the equivalent of Phase I using non-SBIR funding. This is an attractive option if your company has bootstrapped initial R&D or has relevant results from another project.

To qualify for Direct to Phase II, you must provide:

• Evidence of feasibility equivalent to Phase I results
• Documentation of the work performed and funding sources used
• A clear explanation of why the Direct to Phase II pathway is appropriate

The bar is high. Reviewers compare your feasibility evidence against what a funded Phase I awardee would produce. If your data is thin, you are better off submitting a Phase I proposal.

Sequential Awards and Phase II Enhancements

A single Phase I and Phase II award is not necessarily the end of the SBIR road. Several mechanisms extend funding:

Sequential Phase II awards. At NIH and some other agencies, you can receive a second Phase II award (often called a competing renewal or Phase IIB) to continue development. NIH Phase IIB awards can provide an additional $2,000,000.

Phase II enhancements (DOD). If a DOD customer commits matching funds from non-SBIR sources, your Phase II award can be increased by a matching amount, up to $1,000,000 in additional SBIR funds for every $1 of customer funding.

Supplemental funding. NSF offers supplemental awards for commercialization activities, I-Corps participation, and SBIR-specific supplements. NIH offers administrative supplements for specific purposes.

Phase III. Phase III is not an SBIR award -- it is the commercialization stage where your technology transitions to the market through sales, licensing, or government procurement using non-SBIR funds. Federal agencies are required to give SBIR Phase III preference when procuring the technology developed under an SBIR award.

Common Mistakes at Each Phase

Phase I Mistakes

Over-scoping the proposal. Phase I is a feasibility study, not a full development program. If your proposal reads like you are trying to build the complete technology in six months on $250,000, reviewers will question your judgment. Focus on the critical experiments that prove the concept works.

Ignoring the commercialization plan. Even though commercialization is weighted less heavily at Phase I, a missing or perfunctory commercialization section signals that you are a researcher who does not think about markets. Every agency has increased the weight of commercial potential over the past decade.

Not contacting the program manager. At DOD, the topic author can tell you whether your approach aligns with their need. At NIH, the program officer can steer you toward the right institute. A five-minute conversation before you start writing can save weeks of wasted effort.

Phase II Mistakes

Weak Phase I results section. If your Phase I results are ambiguous, incomplete, or poorly presented, your Phase II proposal will struggle regardless of the quality of your development plan. Invest serious effort in presenting Phase I data clearly and compellingly.

Generic commercialization plan. At Phase II, "the global market for this technology is $X billion" is not a commercialization plan. Reviewers want specific customers, specific partnerships, and specific revenue milestones. If you did not conduct customer discovery during Phase I, you are at a significant disadvantage.

Underestimating Phase II scope. Phase II is a full development program. If your proposal does not include rigorous engineering milestones, testing protocols, and risk mitigation strategies, reviewers will doubt that you can deliver a working technology.

Misaligned budget and work plan. If your Phase II budget requests $1.5 million but your work plan describes six months of effort, the disconnect will hurt your score. The budget and technical plan must tell a consistent story about the scale and intensity of the development effort.

The Big Picture: Phase I as an Investment

Phase I is a $150,000 to $300,000 bet that your idea might work. Phase II is a $750,000 to $2,000,000 commitment to turning a validated concept into a real technology. The progression is intentional -- the SBIR program uses staged funding to reduce risk for both the government and the company.

Approximately 30-50% of Phase I awardees go on to receive Phase II funding, depending on the agency. The companies that transition successfully are the ones that treat Phase I not as a standalone research project but as the first act of a multi-year development story. They collect commercialization evidence during Phase I. They build relationships with program managers and potential customers. They plan their Phase II proposal from the beginning.

If you are working on an SBIR proposal at either phase, Granted AI can help you analyze the solicitation requirements, structure your proposal, and ensure your draft addresses the evaluation criteria that determine funding decisions.

Keep Reading

• SBIR Grant Guide 2026: Everything You Need to Know Before Applying
• Tips for Writing a Successful SBIR Proposal
• From Phase I to Phase II: A Guide to Advancing Your NIH SBIR Research and Development Efforts
• See how Granted AI works for SBIR proposals

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