Funding Your Startup with SBIR Grants
The following article appeared in the February 2010 issue of the Flathead Business Journal, but is no longer available online.
Federal grant money is free! No need for entrepreneurs to pay these monies back to a lender or give up ownership, as in an equity investment. Who doesn’t like free? Well…I do exaggerate. All grants have some deliverables to the grantor and some are actually contracts. Furthermore, federal accounting requirements tend to be far more onerous than most people expect. So…perhaps not free, but inexpensive.
Before we get into the nuts and bolts of soliciting SBIR (and other) grants, a couple of words of caution:
- We entrepreneurs are opportunistic, often chasing too many opportunities. To build a successful and valuable business, entrepreneurs must stay focused. Make sure the grants you pursue will advance your business towards providing the desired product or service to your customers at a profit.
- Avoid the tendency of some entrepreneurs to feed indefinitely at the Federal grants’ trough. Investors, in particular, appreciate the value of grants to startup businesses but will not invest in companies that seem to chase one grant after another. Chasing grants is not the end game; grants should be viewed solely as a short term funding source for the commercialization of specific technology.
The SBIR (Small Business Innovation Research) program provides more than $2 billion annually from 11 Federal agencies to small businesses for new technology and product development. SBIRs are highly competitive, with about one in ten small business applicants winning Phase I awards, typically up to $100K for six months, to prove their concept feasibility. Only Phase I winners may compete for Phase II grants, with about 1/3 going on to win Phase II awards of up to $750K over two years for prototype development. The goal of the program is commercialization of technology in the US.
Participating Federal agencies publish SBIR solicitations at least once per year, specifying their technology interests, and exactly how the proposals must be structured. There are two types of agencies awarding SBIRs. Since each agency/SBIR program is different, your first objective is familiarization with the program. Granting agencies, such as the National Institute of Health (NIH) or the United States Department of Agriculture (USDA), seek proposals that support their general mission (such as medical technologies for NIH), but it’s up to you to prove that there’s a legitimate public need and a real market for the product; and that you have the resources lined up to start and grow the business. Granting agencies almost never buy the resulting product, and they usually send proposals out to university scientists for review.
On the other hand, contracting agencies, such as the Department of Defense (DoD) and NASA, are looking for very specific technologies to meet one of their internal needs (e.g. a new material for a missile radome). The contracting agency will be the ultimate customer, and will review the proposals internally, but they also want the technology to have other markets (“dual use”), so that your future is not solely dependent on one government market. DoD has the largest SBIR program, with over $1 billion annual funding, and you’ll find valuable guidance for developing a DoD SBIR proposal at www.techlinkcenter.org/sbir.
Once you’ve found an SBIR solicitation topic that aligns with your business goals, first define your addressable market and pathway to that market. Then, the makeup of your team becomes the critical focus for developing a winning strategy. While you may have the innovative ideas required for an SBIR, few small businesses have the research capabilities and laboratory facilities for the “R” of SBIR. That’s why the single biggest factor in winning an SBIR is having a university scientist on your team. But you really need to start with your commercialization strategy first, since that must be the focus of your entire proposal. Other team members might include qualified consultants, manufacturers, or distributers. Prime Contractors may be important partners, especially if your end product would go into a military system. Some of these team responsibilities can be outsourced to subcontractors, while other team members might just provide a letter of support. You may subcontract up to 1/3 of the work in Phase I proposals and up to ½ in Phase II proposals, although all work must be performed in the U.S.
SBIR opportunities cover the spectrum of technologies and interests. About ¼ of the winners are first-timers, and nearly 40% are companies with less than 10 employees. To get started in SBIRs, go to www.sbir.gov, or www.zyn.com/sbir, and plan to attend some conferences and workshops. Pacific Northwest National Laboratory (PNNL) has an excellent SBIR Alerting Service newsletter (see http://www.pnl.gov/edo/opportunities/sbir.stm) with program updates, links, and proposal writing tips (see http://g-jgreenwood.home.att.net/sbir_proposal_writing_articles.htm) from Greenwood Consulting Group. If you want to look at other funding opportunities, check out www.grants.gov.
For some of the services offered by TechLink at Montana State University to companies seeking SBIR funding or working with DoD on new technology development, see TechLink Services at http://www.techlinkcenter.org/cgi-bin/techlink/our_services.html.
This column was co-written with Ray Friesenhahn, Technology Scout for TechLink at Montana State University (www.techlinkcenter.org) which provides specialized support for qualified companies pursuing DoD SBIR or STTR program funding in the region. Ray can be reached at firstname.lastname@example.org or (406) 994-7726.