Why Startups Should Be More Serious About Applying For Grants?
“No, I’m not interested in grants, I need to raise money from VCs.”
I’ve heard this phrase from several founders who right of the gecko have been rejected even the idea to discuss the grant opportunities for their startup.
While I’m trying to take their position understandably, most of them have limited knowledge of what grants are really.
Grants are an equity-free financial aid or award provided by the government, corporations, and foundations to carry out a specific project.
To see the broader picture of why actually those startup founders so negative towards grants, I run my own poll on LinkedIn. The lack of awareness about grants is the biggest problem for many founders who refuse to consider grant writing as a part of their fundraising strategy.
When grants came around a century ago, it was all about to bring social justice to communities and reduce poverty. To help the most vulnerable layers of societies, the Government has started to provide financial awareness to nonprofit organizations with the ultimate mission to bring social justice and improvement to those segments of society. As years went by the Government that was the main provider of grants, expanded its interests including areas like the environment, transportation, healthcare, etc.
Later, many big corporations, such as Microsoft, Toyota, Cisco, Dell, and many others join the government creating their own foundations and charities.
Today, grants are the third largest portion of government spending.
In 2019FY alone, the U.S. federal government provided over $750 billion in grants from social justice, the human right to healthcare, workforce development, renewable energy, training, education, and on.
With the rise of social entrepreneurship and technology advancement, many startups have been more mission-driven than profit hunters.
In today’s technology-led world, startups not only are a powerhouse of technology advancement and economic growth but also they are driving force behind social change, environmental trends, healthy living, etc.
Let’s take a close look at why you should consider grants as part of your fundraising strategy.
Here are 5 arguments to change your mind about grants:
Get equity-free cash: The time when investors write a check, they get ownership over your business. Moreover, they get some time “pound” voice in the decision-making process.
In contrast, when a government or foundation awards you a grant, they do not own anything. You don’t give any ownership up to anyone. You don’t pay interest rates to anyone.
The only responsibility that comes with the grant is your commitment to finish the project in time.
Prototype Development- Many startups are struggling to find initial capital to develop a product prototype. Not many investors are ready to write a check for thousands of dollars without even seeing a product.
Any idea is better accepted when you physically can see or touch the product. For example, the U.S. Government SBIR and STTR programs ($4 billion competitive grant/contract program) fund a diverse portfolio of startups and small businesses across technology areas and markets to stimulate technological innovation and meet the government's research and development (R&D) needs. From the concept of proof to commercialization, startups have a chance to compete for that money without even giving up any ownership.
For example, 2006, a small Wyoming manufacturing company specializing in aircraft covers applied for a $5,000 Phase Zero Small Business Innovation Research (SBIR) grant from the state of Wyoming. Ten years and several federal SBIR contract awards later, that company — Kennon Products — designed, manufactured, and installed a state-of-the-art cabin liner system for use in the Presidential V-22 helicopter fleet. Today, Kennon products are digitally designed and produced with state-of-the-art materials. The company employs 41 people in its R&D and manufacturing facilities in Sheridan, Wyoming, a town of about 20,000 people.
Build solid partnerships - To building a nurturing and complementary partnership can be difficult. Many startups don’t want to get into a partnership due to a lack of transparency and integrity.
Applying for a grant obligates you to build a partnership with different stakeholders such as community organizations, academic institutions, experts, government agencies, and on.
Through the mission-based collaboration, your startups get an opportunity to connect to experts and opinion leaders from local communities, academic institutions, and governments who are driven by mission.
Additional investments - Every startup’s goal is to raise a good amount of money to sustain. Grant is a “secret door” that can open to new investments from other stakeholders.
Initial capital received from grantees can help you to move from concept to prototype to product. Having a prototype in your pitch deck already puts you on a competitive edge over your competitors and gives an opportunity to easily incentivize investors.
When in 2009, Georgia-based Guided Therapeutics got its first grant from SBIR, they could not event imaging that with this grant they would be successful to move from concept to prototype to product but also was able to reduce the risks and incentivized investors to contribute an additional $5.5 million. SBIR
Build a brand reputation in the market. Every startup needs brand exposure and recognition in their niche market. Grants can help early-stage startups to unlock their long-term brand value through awareness and marketing activities.
Engaging with diverse community stakeholders, academic institutions, and the government can increase your marketing power without spending a dollar. Associating your business with a well-known University, for example, can be a game-changer for your company’s brand reputation in the industry.
It can contribute to building your credibility and trust among customers and create interest in your product.
Narine Emdjian is a funding specialist who helps startups and tech nonprofits to diversify their fundraising strategy through private and federal grants. She is the Host of the HyeTech Podcast that features successful and inspiring founders and entrepreneurs around the globe. She holds Masters Degrees in Strategic Marketing and Political Science.
