WASHINGTON—A small Salt Lake City horticultural firm thought it had a marketable idea when it found strains of a fungus that significantly improves the ability of plants to absorb water and nutrients. But Native Plants Inc. didn't have enough money to conduct the necessary research, and venture capital companies weren't interested in an unknown company.

Enter the Small Business Innovation Research (SBIR) program, an attempt to share a small part of the federal R&D budget with small, high-technology firms. The company, which is now called NPI, used a $30,000 grant from the National Science Foundation to hire a scientist to develop the concept. One year later, in 1982, NSF gave the company $177,000 for further development. Today NPI employs 400 people and is a $20 million-a-year leader in plant biotechnology.

“It's a fantastic program,” said Cyrus McKell, the company's vice president for research. “It gives small firms an outlet...

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