A major source of federal funding for life sciences and technology startups lapsed more than two months ago, and Maryland companies are taking a hit.
The Small Business Innovation Research and Small Business Technology Transfer (SBIR/STTR) programs, colloquially known as America’s Seed Fund, provide critical non-dilutive capital to support startups across the country. The awards add up to more than $4 billion annually, with Maryland securing $139.4 million in SBIR awards in 2024 alone, and often give businesses a financial boost they’re unable to secure in the private market.
“A lot of companies are just going to go bankrupt and shut down.”
Jeff Strovel, CEO of Irazu Oncology
Now, even if the program is re-funded, the damage to local innovation ecosystems may already be done. The backlog of proposals from months of inactivity will likely have lasting consequences, according to Mike Ravenscroft, managing director of the University System of Maryland’s technology investment fund.
“More and more companies are going to feel the pinch,” Ravenscroft told Technical.ly. “There’s going to be an inevitable recoil if the program does get reauthorized.”
Funding for the programs dried up Sept. 30. It remains unclear whether lawmakers will restore funding as they work to pass a spending package to keep the government running past the end of the month.
Lawmakers from both parties have attempted to extend the program. Notably, President Donald Trump did not include reauthorization provisions in the national defense funding bill passed in December, though many defense companies rely on SBIR/STTR support.
“SBIR has been the lifeblood for most, if not all, early-stage innovation,” Ravenscroft said.
Eleven federal agencies participate in SBIR, and five in STTR, which specifically requires small businesses to collaborate with a research institution. Together, these initiatives fund innovations in areas such as drug development, battery storage, robotics, cybersecurity tools and more.
For example, Baltimore-based Linshom Medical has earned three FDA clearances for its respiratory monitoring device, a milestone achieved after years of SBIR support, CEO Richard Hughen said.
In total, the company has received more than $2.7 million in SBIR funding from the National Institutes of Health (NIH) and the Department of War, according to the agency’s website.
The startup was counting on more cash from the program to fund its next wave of development. Linshom Medical was awaiting a decision on another SBIR proposal before the government shutdown and still hasn’t received an answer on how to proceed.
“It would affect us pretty dramatically,” Hughen told Technical.ly. “We would not be able to afford the large multicenter research work that the healthcare system requires.”
Tough VC landscape compounds funding struggles
SBIR/STTR funds are especially critical for life sciences startups, helping them prove out their technologies and secure regulatory clearances — which VCs often want to see before investing.
The median cost to bring a new drug to market is $708 million, according to a 2025 RAND Corporation study. Federal support often provides the first boost for drug research and development, while venture firms typically step in later to help with commercialization, Ravenscroft said.
“Most VCs don’t want to take the kind of risk that the government takes on scientific inquiry,” Ravenscroft said.
The biotech venture market is also facing a downturn, particularly for early-stage startups. It’s still rebounding from an inflated pandemic-era boom, Baltimore life sciences accelerator Blackbird Laboratories leader Eddie Cherok told Technical.ly in September.
“A lot of companies were funded that shouldn’t have,” Cherok said. “That put out the sentiment with a lot of investors that the bar is now higher to invest and deploy capital because so much had flooded the market years prior.”
Irazu Oncology, a cancer therapeutics company based at the University of Maryland BioPark in Baltimore, says it’s feeling this squeeze between a soft venture market and the SBIR funding freeze.
The startup is waiting to hear back on a Phase II proposal worth over $2 million, which CEO Jeff Strovel said would enable faster advancement of their lead product as they complete preclinical studies.
The funding outlook is bleak, not just for his own company, but across the industry, Strovel said.
“A lot of companies are just going to go bankrupt and shut down,” Strovel said.
Founded in 2022, Irazu has submitted multiple SBIR grant applications but has yet to receive an award, a common experience in the program. In 2024, only 10% of Phase I and 18% of Phase II applications submitted to the NIH were approved.
Strovel is looking for partnerships with larger American pharmaceutical companies to support the development of its product. He’s also considering turning to Chinese venture firms and pharma companies if funding continues to be tight.
“It’s not ideal,” Strovel said, “but you have to keep the company open.”
