40 



II evaluation process. Specifically, the following four factors 

 were to be evaluated: (1) the small business concern's record of 

 commercializing SBIR or other research, (2) the existence of 

 Phase II funding commitments from private sector or non-SBIR 

 funding sources, (3) the existence of Phase III follow-on funding 

 commitments for the subject of the research, and (4) the presence 

 of other indicators of commercial potential of the idea. The 

 Department's SBIR program has developed a system to evaluate each 

 of these four factors. As a result, commercial potential of 

 Phase II proposals has been an important factor in the evaluation 

 process for the past two years. 



CONTINUITY OF FUNDING BETWEEN PHASES I AND II 



In planning the awards of Phase II grants, attention was paid to 

 the potential cash flow problem that a small business would 

 experience if it were to suffer a hiatus in funding between 

 Phases I and II. Such a gap in funding is most difficult for 

 businesses that are either new or very small. In our first year 

 of Phase II awards (1984) , a system was devised and implemented 

 that allowed Phase I awardees to submit their Phase II proposals 

 before their Phase I grants ended, if they felt they were ready 

 to do so. For each of the twelve years in which Phase II awards 

 have been made, such grantees who were chosen for Phase II 

 funding were able to begin their projects without interruption in 

 funding. Since 1984, about 35 percent of our Phase II awardees 



