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dlrush | 10 years ago

Every company doing hard tech should be considering federal funding for early stage R&D. The US gov't has been consistently providing more early stage capital than VC for several decades through the SBIR program. (About $2.5B each year). Capital through the program is NON-DILUTIVE, Phase 1 grants can be $225K, Phase 2 grants to $1.5MM, and you likely have government and private sector customers at the end of Phase 2.

Steve Blank's Innovation Corp initiative is now working with the NIH, NSF and Defense to help companies development product-market-fit once basic funding has been achieved as well.

Disclaimer: My company GrantIQ.com helps companies find federal funding opportunities & helps large companies identify breakthrough technologies being developed through these programs.

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jseliger|10 years ago

Every company doing hard tech should be considering federal funding for early stage R&D. The US gov't has been consistently providing more early stage capital than VC for several decades through the SBIR program.

This is generally good advice, but I'm a grant writer (see http://www.seliger.com if you're curious) and have worked on many SBIRs and STTRs. I'll add that there are downsides as well. One is simple timing: if the appropriate SBIR or STTR funding cycle just concluded for that year, you may have to wait another year to apply. Then another 1 – 3 months for a decision. Then longer for final authorization of the budget. The other day I talked to a guy whose best potential SBIR source had had a deadline the month prior.

Second, Phase 1 grants can just be too small for the amount of effort that goes into them.

Third, they don't come with the advice / community / expertise of good VCs.

Fourth, they take a lot of effort to prepare, and for first-time grant writers they can be quite hard. The alternative is to hire someone like my firm. While I'm biased towards doing that for obvious reasons, we also cost money.

While I don't want to talk anyone out of applying, I do want to note that the downsides are considerable too.

As a side note, I used to submit some SBIR and STTR RFPs to Hacker News (search for "seliger" here: https://news.ycombinator.com/from?site=nsf.gov), but I stopped after a while because no one upvotes the submissions.

iammaxus|10 years ago

These are some good warnings. The way I like to think about it is that the actual free cash available to spend from the grant is on the order of 1/3 of the sticker price when you fully account for the costs of getting the grant, administering it, and fulfilling the requirements which inevitablly do not line up exactly with your business goals.

Many companies get stuck in a kind of grant hamster wheel where they end up only producing enough from a grant to be able to get another grant, and not advance in commercializing their technology. I think there are few companies that make the transition from being primarily grant funded for a period into a high growth success.

Sometimes it's your only option for funding, but ideally, it makes up 0 to a fraction of your R&D funding so that it doesn't dilute your focus.

This advice is specific to companies that have a path to be VC-fundable, high growth, commercial success. There are many other (most) companies that can be funded by grants and build their technology incrementally over time.

mjn|10 years ago

> Third, they don't come with the advice / community / expertise of good VCs.

Definitely not business advice/community, but if a startup is doing significant R&D, it can be useful for the scientific and technical advice and community. Not guaranteed by any means, but I've seen it work out well, mainly in the case where a company submits an STTR jointly with a university research group. If the arrangement ends up working, the most valuable thing to the company in that case is sometimes not even the actual NSF grant money, but the connection to the research group it opens up. Having a joint STTR provides an excuse to get a company sort of attached to the research group as an external partner, with a forcing factor ensuring you end up on their schedule with regular project meetings, access to grad students, etc. Can also end up useless, of course, but when it works out well, it can provide value equivalent to something you'd have to pay a lot for if you were hiring technical consultants (especially in areas like machine learning).

mattzito|10 years ago

The last time I looked into these types of grants was admittedly years ago, but from what I recall, there's extensive reporting and research requirements that you have to fulfill. It seemed like an overly onerous burden compared to the resources available to an early stage startup. Is that accurate? Have things changed?

rebootthesystem|10 years ago

I attended the SBIR conference about twenty years ago with a genuine interest in getting involved. I left the conference with an image embedded in my head:

"SBIR = The PhD Club of America".

Perhaps things have changed. My impression leaving the conference was that it was a complete waste of time if you did not have a PhD in your team who had some connection with the PhD at SBIR in charge of reviewing applications.

In other words: Not a single Silicon Valley college dropout or "college-interruptus" need apply as the process seemed to exhibit favoritism towards members of the aforementioned club.

tclmeelmo|10 years ago

> My impression leaving the conference was that it was a complete waste of time if you did not have a PhD in your team who had some connection with the PhD at SBIR in charge of reviewing applications.

For the second part, it is standard advice from the granting organizations themselves to contact whomever is overseeing the solicitation (for DoD, they're the "topic author") to establish a good working relationship. Does someone who has a previous history have an advantage? Yes, in the same way that a SV startup founder with prior experience has an advantage seeking funding for a new venture.

For the first part, SBIR/STTR emphasize research, and a PhD (or equivalent degree) is the standard academic research qualification. Teams having technical members without PhDs but with significant domain experience are funded all the time. You're right that having research credentials is necessary, but it's not in itself sufficient. If I put together an application for an area in which I have no prior research experience and no preliminary data, I would expect my application to not be scored.

> In other words: Not a single Silicon Valley college dropout or "college-interruptus" need apply as the process seemed to exhibit favoritism towards members of the aforementioned club.

I don't see it as favoritism, I see it as a mismatch in experience and expectations. My "research currency" (PhD, publication record, patents, grantsmanship experience) isn't worth much if I were wanting to work at a SV startup because I don't have a GitHub account (or so I am led to believe). The kind of currency that an SBIR/STTR values naturally tends to be held by people with PhDs (or equivalent).

It's also important to remember that SBIR/STTRs are highly competitive. A few years ago, I applied to an SBIR from the NCI that ended up funding 1% of applicants that cycle!