Policy makers are becoming increasingly aware of the fact that R&D intensive SMEs play a pivotal role in providing sustainable economic growth by maintaining a high rate of innovation. To compensate for their financial vulnerability, these SMEs increasingly conduct innovation in alliances. This paper aims to explore the impact of different alliance characteristics on the performance of Dutch biotechnology SMEs. The conceptual model was tested using a sample of 18 biotech SMEs reporting about 40 alliances. The main findings indicate that alliance performance is positively related to the level of complementarity, the cognitive distance and tacit knowledge transfer by the human resources exchanges. Policy makers are recommended to support innovation alliances by providing the infrastructure in which alliances can flourish, e.g. through stimulating the foundation of cluster organizations that can function as innovation brokers. These cluster organizations can provide network formation, demand articulation, internationalization and innovation process support to their member companies and can act as a go-between among alliance partners. As part of the innovation process support activities, they can organize special workshops for biotech SMEs on how to successfully behave in an innovation alliance.