I know government grant process can be very cumbersome but so is trying to raise VC money (especially outside of SV). And government money is non-dilutive.
I am noticing more startups (e.g. Palantir, Anduril) starting off of government opportunities, but they seem very rare.
Why isn't gov funding a more common way of starting a startup? Is it mostly because people don't know about these and/or don't know how to navigate the process?
The most successful program, Accelerating Commercialisation (or Commercialising Acceleration, or whatever this year's government is calling it) requires matching funding, only funds a specific project, and takes around 3-6 months to complete the application process. Very suitable for a existing small business trying to create a new product line, totally useless for a startup trying to iterate in a new market quickly.
The grant also comes with a case worker to follow progress, and the money is released in tranches according to achievement milestones. All sounds great on paper, but it completely ignores the fact that the original plan will definitely change in response to new information or market changes.
I've known a few people who've been through the process, and they all said that the money wasn't worth the hassle involved.
And that's the best, most successful government funding program. The others are worse, way worse.
The root cause is that the mindset needed to be a successful bureaucrat is so far away from the mindset needed to be a successful entrepreneur. There's no way any program that would actually be useful to entrepreneurs will be acceptable to the bureaucrats who administer it.
Also, the purpose of any funding program is complete the moment that a politician steps up to a TV camera to accept credit for creating it. Anything that happens after that is pointless/just a bonus. The point of all these programs is not to actually help new businesses, but to help political careers.
My advice to anyone looking to get government help for their business is to not bother, it's just a distraction from communicating with customers. And it'll be five times as time-consuming and painful as you expect, with one fifth the return you expect.
It's cool that you can get lots of money for essentially a wishlist on a piece of paper (though to actually get that money, your best bet is to hire someone specializing in writing EU grant proposals). However, the amount of paperwork couple years in, involved in verifying you spent the money appropriately, is so big you'll regret ever taking the grant.
(One could say that entrepreneurs are partially to blame for this one, though. I hear that initially, it was much easier to work with EU grants, but a lot of people wrote up bullshit proposals and stole the grant money.)
If you are a typical software startup pivioting from idea to idea then no they are not so good. Do look into the export marketing development grants as they are a much better fit and are almost like free money.
One of the best predictors for failure for Australian startups was if they had accessed a government service to help startups succeed. Of course, that might be selection bias.
The only exception to this (and actually was a predictor of success) was accessing the R&D tax concession.
Except, it's now getting slowly screwed up by large corporates claiming everything they possibly can on it, so the rules are getting altered and tightened up. Add in a few greased palms (sorry, "campaign contributions") and it'll be ruined, as usual.
This is the mechanism by which many decisions are made, be it in the government or in the Fortune 500 corporations.
I wish the theory and case studies of this mechanism were taught in high school or at least in college.
Perhaps it should be, but it's hard to squeeze everything useful in everyone's study program, and I'm not sure if compressing all these topics in e.g. a single short elective course designed for people majoring in other disciplines can be done reasonably well, it's a complicated topic.
This is my experience as well. These programs are designed very specifically to stimulate small business R&D spending. They're not for startups, they're to encourage established businesses to spend their cash.
Great for your second product, not so helpful for your first.
The best and brightest have so many strong reasons to leave, and many will not come back.
1. Government proposal selection is painstakingly tedious and slow. 2. There are actual politics involved with final selections and winners may be pre-selected to win through information back channels that exist outside of the official process. 2. Big contracting firms (GD, Boeing, British Aerospace, Leidos, etc.) with a lot of political muscle and connections pair with connected small companies and individuals to help them win these contracts. It's not only allowed that they do this - it's actually suggested. [1] In return they get consulting fees and free R&D for future product lines.
[1] https://www.sbir.gov/tutorials/preparing-proposal/tutorial-4
With that said, I've found SBIRs to be exceptionally useful for my business (I've won $750k in Phase I funding and administered $1M in Phase II funding). The proposal forced me to hone my idea and I received feedback fairly quickly (6 months) with a week or so of invested time. The product is built with minimal risk to my business and the Government can set up meetings with potential users (something that is exceptionally difficult if you aren't on contract). Lastly, with most SBIRs you can request up to $10-15k of additional funding for Commercialization Assistance which permits you to sit down with an adviser who can guide you on bringing your product to market. SBIRs are really an ideal method for Small Businesses to grow.
[1] https://www.sbir.gov/sites/default/files/SBIR-STTR_Policy_Di...
[2] https://www.acq.osd.mil/osbp/sbir/sb/resources/model-contrac...
Edit: fixed links, added statement about my involvement with SBIRs.
To offset this, Congress created a set of programs that basically shifted the cost of low-level R&D onto the taxpayer. It seems fully expected that the goal of these programs is to fund smaller businesses to do this research, but only until the point that those businesses can be acquired by the big defense contractors. There are even special partner days where STTR/SBIR recipients get matched up with the Beltway bandits, and there are official government agents there to hell make these partnerships and acquisitions happen. In many cases this is the only way a small firm can get access to the real money, so the big firms effectively get their R&D at taxpayer cost without taking any real risk at all.
I started my company over 18 years ago. We have a lot of fun doing really interesting work for interesting customers. We’re now a “commercial” company funding ourselves through commercial sales. However before we reached that point we had a few SBIR grants as well as some other US govt grants. Total was about 4M. I’d say that was helpful and valuable especially during the recession. Ironically we’ve sold more product to non-US governments than US.
We try to only apply to grants that are 95% focused on what we want to do anyway. We’ve also found that applying to grants we find out about from public solicitations is not worth the effort. To win these grants one needs to find a sponsor interested in your technology, then get them to write a solicitation that is focused on your unique sauce. It doesn’t gaurentee you winning the grant but does increase the chances of your being considered.
I am a little jaded on this topic. I feel that my team has really leveraged these findings into real products and, in turn, jobs. However I see TONS of companies that just charge through grants and never do anything greater with the funding. As a small business owner and tax payer (funder of these grants) that is not what I think is an ideal use of the money.
I have to agree with most everything said already.
You’ll starve before the contract gets funded - it can take years and you will likely be on a second generation of code by then.
It’s hugely political. We partnered with larger competitors and spent a lot of cash on legal fees and patent protections.
Net profit was just not worth it alone - but we had a few prestigious projects that helped us get on the GSA schedule, get FIPS and CC certified, and snag a few hard-earned customers.
Honestly I wouldn’t do it again unless it had a contingent long term contract.
Qualcomm was the result of SBIRs, for example.
Edit: I need to amend that to say majority-VC backed companies can’t be awarded SBIRs:
Source: https://www.fedscoop.com/sbir-dod-legislation-mac-thornberry...
This seems like it would be a rare case, especially early in a company's lifecycle. Any company that is majority owned by VCs is either very late stage, or suffered a down round. Nobody is raising Series A or B while giving away more than 50% of their company to investors.
On the demand side - many of the intended customers of SBIR grants (government agencies who need a specific technology solution) can get what they want faster, and with lower risk, through an existing contractor. You could gamble with a two person company funded by a few hundred thousand government dollars, or you could go to a Raytheon or a United Technologies and get the same thing made by a team of experts who will build you exactly what you want. In terms of deliverables, the risk profile is much lower (and the resulting upside to your mission is much higher) if you go with the big contractor. SBIR exists to fund some of the riskier technology efforts, but also to give the government some cover in terms of perceived equality. They can point to SBIR and say "Look, the little guys had a chance to bid too! We even gave them money!"
On the receiving side, I've met more than a few researchers who have gotten SBIR grants for their work, and effectively used them to pay for research/proof of concept that they have already done. I.E. the SBIR grant (Phase I) pays for work that they've done over the past year or so. Many of the folks who take Phase I grants that I've spoken to have no interest in commercializing and productizing their work. They are interested in basic science, not product development.
I'm not sure how to get over what seems like a pretty serious disconnect here.
We submitted our proposal, meeting all of the insanely meticulous format requirements, but as feared we never recieved a response. Instead, the award was given to an off the shelf product for an incremental upgrade. Clearly, the awardee was already identified by the PM before the SBIR solicitation was even written, so I essentially lost a month of my life by being mislead into thinking the solicitation was truly open. The SBIR was just another way to funnel R&D money to the existing product the PM manages.
Gov't PM's do this because government funding comes in "colors" that specify by law how the money can be used (e.g. Operation and Maintenance, Construction, R&D, etc.). However, for some programs it's hard to secure R&D dollars, so back channels, like working with your supplier to craft an SBIR solicitation you know you will be awarding to them, are needed to fund improvements.
I suspect the fear of this occurnace (wasted effort) is the primary reason startups avoid government funding, and I can tell you first hand it's a valid concern. If you think the U.S. doesn't have it's own backchannels of corruption and unfairness in the contracting community, and that such practices are limited to developing or non-ally nations, you are mistaken.
Ironically, I think one of the reasons this type of behavior has emerged is thanks to the push from our own citizens - largely due to the "fleecing of America's dollars" scare of the 1980's and 90's, which asked America why the government was buying a $100 hammer or a $200 toilet seat. The push for transparency and frugality has driven the government in many cases to a culture (or requirement) to use funding loopholes and side agreements to get work done and also award contracts to lowest bidders regardless of the quality of the offering.
There are good program managers out there, doing their civic duty and following all the rules to the best of there ability. However, to me, the chance of finding such honest brokers and opportunities isn't great. If you want to work with government, your best bet (IMO) is to go to a trade symposium in your specific area of interest and strike up conversations with PM's in attendance to discuss solutions to their problems.
This is creating a problem just as much solving one. The billions in grants that are given away every year by the EU are basically controlled by a cabal of private consultancy firms who will cherry pick companies to write grants with; and create tailor made proposals designed to fit the call perfectly. On the one hand this is good as it creates a ‘pre-filter’ to stop you from wasting your time writing a proposal; but on the other hand it puts the EU’s R&D budget into the hands of a small group of private companies.
Either way you look at it, it means that, unless you are ‘in’ with one of these consultants, getting the funding is extremely difficult (I write from experience from both sides of the coin!)
It also looks like the entire process could be streamlined. While there is a tutorial linked here: https://www.sbir.gov/tutorials/preparing-proposal/ , a simple wizard walking through the entire process would make me much more eager to go with it.
In the best case scenario, you apply as part of a round (filing out a ton of paperwork), wait 3-6 months to hear that you got it, and then have to receive the money in tranches (Which sometimes includes terms like net 30days). Often, you don’t get final payment till final deliverable.
How that played out for our company was for us to take out a loan against the award, just so we can get the work done.
So it helps, but as others have said as a small startup it is not easy to do. We had the advantage of folks on the team who had done this sort of thing multiple times, and knew how to navigate the process.
https://bbcetc.com/sbir-related/ann-arbor-company-is-an-engi...
To answer your question, it is a very common way to start a startup in big government contracting towns. I see that all the time around here (SE US). Government contracts have been spinning up new tech since I've been in the business. But there are high barriers to entry for new players, unfortunately. Most of them have already been discussed already.
Also, just like SV folks know the lingo and rules around VC investors, you need to get the grant or contract lingo and process.
You need to be wary of wasting your time. One government entity that I know of will happily have you spend lots on money on upfront compliance and insurance, and then offer minimal or trivial contract opportunities. On the other hand, I know another guy who literally got free mentoring and training for his folks as part of a program, and built a 250-person company that was initially seeded by a single contract.
Does anyone have any experience trying to bid on one of these contracts?
Yes, they technically must ask publicly as it's extremely difficult to justify sole source acquisition. However, in reality, for smaller contracts most PM's will all but ignore applicants they don't know personally. You have to engage face-to-face in some way (e.g. at a symposium, reaching them through your network, finding their phone # or email).
Some PM's are responsive and will entertain a discussion while others just want to keep their job by mimimizing risk and maintaining the status quo, and will simply blow you off. I don't have (and doubt there are) stats on this, but I suspect chances of winning a blind award (without a face-to-face meeting) are virtually zero.
I got laid off because the startup I was at was relying on a huge gov't grant to come in, the gov't dragged their feet then boom, the startup had to go more lean.
No clue if they've gotten it yet or just decided to abandon a possible huge payday in a few years (or decades, who knows.)
But even higher dollar outlays will not solve the problem of the "chasm". An invention made under laboratory conditions requires a lot of finesse before it becomes a mass market consumer product. And product design and go-to-market strategy are not skills found in your typical inventor's wheelhouse.
I'm curious to hear if anyone has had an experience with the "invention services" industry. The few insiders I've spoken to seem to be more interested in revenue generation via litigation, than actually ever developing a product! Seems like a service ripe for disruption...
