Why Federal and University Technologies Plateau at TRL 3 - 4: The Structural Gap Between Discovery and Deployment

Author: Justin Mahan, Head of Technology Partnerships at FedTech

The United States invests over $140 billion annually in defense research, development, test, and evaluation alone, with billions more flowing through civilian agencies and university research programs. Yet a persistent pattern emerges across every sector: promising technologies stall between Technology Readiness Levels 3 and 6 - a gap so well-documented it hasearned the name the valley of death. This is not a failure ofimagination or talent. It is a structural feature of how the U.S. innovation system is designed, funded, and incentivized.

Research Mandates End Where Commercialization Begins

Federal laboratories and universities are chartered and funded primarily for basic and applied research. Their budgets, drawn from appropriations tied to discovery rather than production, are optimized to generate new knowledge - not to manufacture products or validate markets. As the Congressional Research Service has documented, the Department of Defense structures its RDT&E budget across distinct activity codes: Codes 6.1 through 6.3 fund the science and technology base, while Codes 6.4 and above fund advanced development and prototyping efforts that move toward acquisition. These categories operate under separate authorities, planning cycles, and risk tolerances.

The practical result is that most federally funded research reaches TRL 3 or 4 - a validated proof ofconcept in a laboratory environment - and then encounters a wall. Advancing further requires systems engineering, integration testing, pilot production, and field validation, activities that are operationally intensive andexpensive, typically costing between $2 million and $10 million per technology. These activities fall outside the mission and budget authority of research organizations. Universities face the same constraint: technology transfer offices typically file patents and license intellectual property at TRL 3 to 4, when proof-of-concept data exists and publishable results are available. Holding IP longer and maturing it further would require prototyping capital, dedicated development teams, and business infrastructure that universities are not built to provide.

Incentives Are Aligned to Discovery, Not Deployment

The incentive structures within research institutions reinforce this pattern. Academic researchers are evaluated and promoted based on publications, grants, and scientific novelty. Federal laboratory scientists operate under similar frameworks. None of these reward systems prioritize manufacturing readiness, regulatory clearance, supply chain validation, or market adoption - the exact capabilities required to advance a technology from TRL 4 to TRL 6 and beyond. As the Government Accountability Office has repeatedly found, the gap between development and acquisition communities within DoD impedes technology transition, with the acquisition community often requiring higher levels of technology maturity than research organizations are resourced to deliver.

Budget Architecture Creates Structural Friction

In defense contexts, Research, Development, Test, and Evaluation dollars fund early-stage technology work, while Procurement dollars fund production. These appropriations flow through different accounts, are planned years in advance, and cannot be easily transferred between purposes. The DoD manages over 1,700 RDT&E and Procurement budget accounts, and reprogramming funds between them requires a cumbersome process involving OSD, OMB, and the consent of all four congressional defense committees. Program managers often hesitate to sponsor technologies at TRL 5 or 6 unless a program of record exists, requirements are locked, and a funding line has been identified. Without that alignment, promising technologies stall regardless of their technical merit.

The SBIR program illustrates the challenge at a smaller scale. Phase I awards of approximately $150,000 to $275,000 fund feasibility studies that align well with TRL 3 to 4 work. Phase II awards of roughly $1 million require evidence of a commercialization strategy and a transition pathway. Phase III - the stage at which technologies are supposed to reach operational use - has no dedicated federal funding at all. The company must independently secure a contract or customer. Congress has responded to persistent commercialization shortfalls by establishing transition rate benchmarks and commercialization benchmarks for SBIR recipients, but even the SBA has acknowledged challenges in collecting and verifying the data needed to enforce them.

The Missing Middle: Transition Capital and Ownership

The core bottleneck is not any single program or funding mechanism. It is the absence of a stakeholder who owns the transition from research to product. Laboratories generate scientific options. Entrepreneurs generate products. But the capital, expertise, and operational focus needed to bridge that gap - customer discovery, market validation, transition pathway development, and capital strategy - must comefrom somewhere. Federal research grants are not structured to cover this middle layer at scale. Venture capital typically does not engage until TRL 7 or above, when technology risk has been substantially retired. The result is a persistent gap that requires deliberate intermediation.

Recent institutional responses reflect growing recognition of this problem. The DoD established the Office of Strategic Capital in 2023, with congressional authority to issue loans of $10 million to $150 million in critical technology areas. The Defense Innovation Board’s 2023 report, Terraforming the Valley of Death, concluded that the problem is not the level of investment but how investment dollars are deployed. These efforts acknowledge what practitioners in the technology transfer space have long understood: the system requires a function that it does not natively produce.

Implications for the Innovation Ecosystem

The TRL 3 - 4 plateau is not a bug in the American innovation system. It is an emergent property of how research funding, institutional incentives, and procurement authorities are structured. Technologies that stall at this stage often have strong technical merit, filed patents, and published validation data. What they lack is a defined buyer, field validation, and an operator committed to commercialization. Addressing this gap requires inserting customer discovery, market validation, transition planning, and capital strategy at the point where leverage is highest - precisely at TRL 3 to 4, before institutional momentum dissipates and before the window for competitive commercialization closes.

‍

Sources

1.  Congressional Research Service, “Department of Defense Research, Development, Test, and Evaluation (RDT&E): Appropriations Structure,” CRS Report R44711.

2.  Congressional Research Service, “Defense Primer: Research, Development, Test, and Evaluation,” CRS In Focus IF10553, updated 2025.

3.  Congressional Research Service, “Small Business Research Programs: SBIR and STTR,” CRS Report R43695.

4.  U.S. Government Accountability Office, “Directed Energy Weapons: DOD Should Focus on Transition Planning,”GAO-23-105868, April 2023.

5.  U.S. Government Accountability Office,“Defense Innovation Unit: Actions Needed to Assess Progress and Further Enhance,” GAO-25-106856, February 2025.

6.  Defense Innovation Board, “Terraforming the Valley of Death,” Report on Strategic Capital, July 2023.

7.  George Mason University Baroni Center for Government Contracting, “PPBE Impact on Technology Development,” September2024.

8.  National Science Foundation, Science and Engineering Indicators 2024, “Invention, Knowledge Transfer, and Innovation,” February 2024.

9.  Small Business Administration, SBIR/STTR Annual Report, Fiscal Year 2021.

10.  Defense Acquisition Substack, “New Defense Budget Structure,” February 2025.

11.  Sandia National Laboratories, “On the Practical Application of Technology Readiness Levels,” SAND2007-4692C.

‍