The prototype worked. The end user wanted it. The company still died waiting for money that was never in the budget.
The default outcome, unless you engineer against it
Budget latency built it
The gap between a demonstrated prototype and a production contract is a funding-mechanics problem before it is a product problem. Production funding is programmed through PPBE well before it is spent. By the time your prototype matures, the budget that could carry it may already be set. Companies that treat transition as a sales problem discover the mechanics too late.
Build the operator record
A program office moves on documented evidence: exercise outcomes, operator assessments, sustainment data from real use. Enthusiastic end users without documentation move nothing. Every demo, exercise slot, and deployment should produce artifacts a PM can put into a budget justification; that record is what converts operator interest into a budget line.
Transition needs a home
Production needs an acquisition program, a budget line, and a sponsor with authority to carry the transition. Your capability can land in an existing program, enter through a new start (rare and slow), or remain a demo. Identify the program whose gaps you fill, learn its funding lines and transition risks, and shape your roadmap to its milestones. A prototype with a named, funded destination reads as a transition plan. One without it reads as a science project.
Use the sole-source lineage
Work that derives from, extends, or completes prior SBIR/STTR effort and uses non-SBIR funding is Phase III. A federal agency may award that work without another competition, including for production, services, or further development; the appropriation still must be legally available for the work. Keep the lineage and data-rights record clean from day one. Phase III is one of the widest legal bridges across the valley, and most founders invoke it too late.
Bridge revenue is oxygen
Plan for 18 to 36 months of runway, because even a clean transition can be measured in budget cycles rather than quarters. Companies cross on bridge revenue: follow-on SBIRs, OTA prototype extensions, prime subcontracts, and commercial dual-use sales that keep the team alive while the budget catches up. Plan the bridge before you need it. Raising capital against an open valley reads as distress, and it prices like it.
SBA SBIR/STTR Policy Directive for the definition, competition treatment, and scope of Phase III; DoD Financial Management Regulation, Volume 3, Chapter 13 for appropriation availability and budget execution.
Merge Combinator co-founds defense ventures with champions who own the problem, structured for transition from day one, with the evidence record, POR mapping, and bridge revenue planned before the valley opens.