Summary: Grants are not new or sexy but startups get billions of dollars every year from them. But before you blindly fill out an application take the time to build the relationships that will give you the best chance to get funded.
This post is response to this week’s Startup Edition topic: “How did you raise money for your startup?”
I’ve spent most of my career working in Silicon Valley and Washington DC and have been involved in almost every way a startup can get funded. Getting money from any source – bootstrapping, Angels, Venture Capital, crowdsourcing, government & private grants – has pros and cons1.
A number of startups have asked for my advice on winning grants – here is the advice I usually share with them.
I’ve Been on Both Sides of the Grant Table – a Table with a Huge Pile of Money on It
The US Government and private sector foundations spend billions of dollars every year funding projects. I’ve served as an advisor to federal programs like the National Science Foundation’s SBIR program, served on non-profit boards like the SENS Foundation, and helped advise “prize” programs like the Mprize. I’ve also funded two previous startups in transportation and health care with hundreds of thousands of dollars I received in grant money.
Grants have a couple of advantages over other funding sources:
- They can be used to fund higher-risk initiatives2.
- The money is “free” in that it isn’t a loan or exchanged for equity.
- Winning grants serves as a stamp of credibility.
Grant funding is also very competitive, slow, and can take a lot of time and paperwork. If you need money quickly or your project doesn’t align well with a specific mission it probably isn’t a great option.
Winning Grants – Like Any Fundraising – Take Relationships, Time, and Work
A few years ago I met a startup in Silicon Valley that was asking me for advice on winning government grants. Talented and smart doesn’t begin to describe these guys – genius is probably a better term. They had been funded by Angels & VCs but were confused why they couldn’t win grant money longer-term, riskier projects. Here is a snapshot of the discussion:
Startup: We spent weeks filling out a bunch of forms and didn’t win any grants. What should we do?
Me: Ok. So which programs did you apply for?
Startup: Umm… I think it was Department of Energy SBIR.
Me: Why did you pick them?
Startup: I did a Google Search and found they were accepting grant applications. We think our project will have use in the energy sector.
Me: Uh…ok. Who do you know there?
Startup: We don’t know anyone.
Me: Did you talk to anyone who won a grant from DOE before?
Me: Ok. So when you went to raise Venture Capital did you blindly fill out a form on a VC’s web site?
Startup: Hell no! We networked liked crazy, went to all kinds of conferences, had lots of meetings…
Unfortunately this is too common – entrepreneurs who otherwise work like crazy to get funding from Angels and VCs expect more money with less work from grant sources. I’m sorry to tell you that it just doesn’t work like that. No funding is free, easy or right for everyone.
Why Starting With the Grant Application is Bad Idea – And Likely a Huge Waste of Your Time
So you’ve been tinkering in your garage for a few years and suddenly have an idea for a renewable clean energy source. You talked to a few investors but nobody is interested in funding your idea – most of them don’t even understand it. But a few suggest starting with government grants to get the technology a bit more mature.
After a few hours of searching…. Jackpot! You found the perfect small business program at the National Science Foundation. Unfortunately the grant application is due in 2 weeks and the next opportunity to apply is 6 months away.
While you may be tempted to spend every evening and weekend typing away for the next 2 weeks, your odds of getting funded are really low. Blindly filling out grant forms is a great way to waste a huge amount of time.
If you want to fund your startup with grants plan on at least 12 months – and more realistically 18 – before you have the funding. Commit yourself to a deliberate process that gives you the best odds of success and helps you build valuable relationships even you never get the money.
First Target 3-5 Funding Sources Aligned with Your Mission
Start by spending time researching private and public organizations whose mission and values align with yours. The US Government is hugely complex and many different agencies fund related projects. Both the MacArthur Foundation and Theil Foundation fund projects but couldn’t be more different.
Take a look at what they are funding, their process, their mission and values. Find companies in your space and research who funded them. Then develop your list of 3-5 top choices.
Next Build Relationships With the Funding Organizations
To put yourself in the best position to win grants you have to know how the organizations actually work, who makes decisions and why. Better still you have to get them to know you, respect your work.
This isn’t easy – the people who work at and for these organizations are overwhelmed with inbound requests. I’ve been in this position myself and received dozens of blind emails every week that I never had time to answer. You won’t get a response from a blind email and I’ve had 0 success using LinkedIn to make these connections.
Instead, you’ll have to start hustling and networking to get introductions and build relationships. Attend conferences, do volunteer work – whatever it takes to become known as a friend and supporter of the organization. Find people who have served on grant panels and buy them lunch. Most government granting programs will have relationships with Universities worldwide. Find new programs like USASBE Launch and volunteer to help them. Since you’ve already picked organizations that share your values all of this time will be worthwhile.
Don’t waste your time chasing people making lots of noise or those with fancy titles – find the people doing the f#####g work.3. I have no idea whether Startup America can fund your company but it has a lot better name recognition among startups than the $2.5B SBIR program – you won’t find many grant officers presenting at SXSW.
Ask Advice from Others Who Have Won Grant Money
Seek advice from other companies who won grants from these organizations. Ask for some candid feedback to avoid pitfalls. Some tips:
- Don’t contact people before you’ve done some of your own research. People won’t respect you or want to help you if they think you’re being lazy.
- Don’t ask people for copies of their grant proposal. These usually contain personal information and sometimes IP. Ask them for advice on writing it and they may send you specific sections.
- Do ask for intros to others who can give advice.
And Finally – Once You’ve Built Relationships – Apply for Grants
Hopefully you’ll see a key theme in the steps above – having the right relationships gives you the best chance of success. In fact, it is quite common for granting agencies to invite people they know and respect to apply.4
By this point you’ll know the programs and will have a network of people who can write recommendations. And you’ll have built new relationships with potential customers, partners and employees.
Want to Do Something Innovative that Matters to You? Take Another Look at Grants.
Grants are not nearly as new and sexy as crowdfunding, Accelerators, and AngelList. They can be tedious, slow, and frustrating when you’re dealing with organizations that are not start-up friendly. And if you want to create the next hot iPhone game or social media site grants are a bad option.
But hopefully some of you reading this have decided to work on something with a higher degree of technical risk or for a social cause that matters to you. Perhaps like my friends at Refactored Materials team you’ve decided to try something truly crazy like producing spider silk at high quantities. Or make your own space station. Or create new cities on the sea.
If so, don’t put your dreams on hold just because your passion isn’t the latest hot topic on TechCrunch. Take another look at grants and you might be surprised to find people who share your passion and who are interested in paying you to work on it.
Questions? I’m Hear to Help
- I have a lot of readers from outside the US and in most of my writing I try to address a worldwide audience. Unfortunately almost all of my experience involves US-based grants. If you have experiences from other countries please feel free to share them here. ↩
- There is a common misperception that Angels and VCs fund “high-risk” projects. This is true relative to other funding sources like private equity and public markets, but Angels and VCs make selective bets on risks they understand and can control. This usually means minimizing technology risk. ↩
- Incidentally, ‘CTO’ is Washington code word for “guy with a snazzy title and no budget”. If you really want to waste a lot of time, find the guy at the top of the chart with the CTO title and spend your time trying to get his or her attention. ↩
- Sadly enough, many people interpret this situation as one where cronyism and “who-you-know” matter more than the intrinsic value of work. That has not been my experience. I’ve actually found most granting programs to be very fair and objective. The people who have relationships with the granting organization simply write better grant proposals because they know what the programs are looking for. ↩