Accepting a Helping Hand: How to Fund Your Business with Government Grants
They come with access to a wide network of resources like incubators, research organizations, and useful public information.
Funding isn't a one-size-fits-all process. Traditional routes for raising money — venture capitalists, angel investors or crowdfunding — aren't the only options, and for many entrepreneurs, they may be the wrong options. Often, founders forget that there is potential funding support right under their nose; funding that you don't have to pay back or sacrifice equity for.
Government grants offer more than money — they come with access to a wide network of resources like incubators, research organizations, and useful public information. For a startup in any industry, that access is invaluable for innovation and growth. Some founders have noted how R&D collaborations that were the result of a government grant, actually led to more disruptive inventions than those made by privately-funded businesses.
From knowing where to look, to knowing what to expect, here's how to tap into government grants to fund your business:
Start your search locally.
Across the U.S., the Economic Development Administration (EDA) has agencies that operate on a state, ZIP code, and town level. Sometimes referred to as “opportunity zones,” each pocket offers government grants and tax abatements for different kinds of new businesses. You can use this tool to search for EDA opportunities.
The size and criteria of the grants vary, but the general requirement is that you operate in a specific area. The EDA also places emphasis on underrepresented founders and businesses with a human focus. For example, it has announced a $25 million funding pool for regional companies addressing the economic, health, and safety risks caused by the Covid-19 pandemic.
If there aren't any financial offerings in your current location, Gabe Zichermann, chief executive of Failosophy, suggests moving your startup to the closest place that does provide grants, or at least creating a business address there to take advantage of the zone. Zichermann also notes that if the EDA can't support you with a grant, they might be able to help with tax exemptions that could amount to the equivalent of a grant in the long run.
In addition, the Small Business Administration (SBA) has offices throughout the U.S. and works with on-the-ground organizations to pair founders with grants. Nonprofits and educational startups are typically the most successful in attaining federal grants with SBA connections, but there are also grants aimed at veteran and disabled entrepreneurs. You can apply through the Grants website or visit your local SBA office to meet with a financial advisor and discuss the best options. For more information, check out this resource from startup support organization pre-seed accelerator Founder Institute.
Sign-up for government-backed competitions.
Entrepreneurs tend to assume that anything related to the government means lots of paperwork and waiting in line for hours. While this can be the case, government financing can also be found at startup competitions. Whatever your niche, it's likely that there's an event where you can win large sums for your product or service.
Challenge.gov has a comprehensive list of competitions taking place around the country, all with federal prizes that reach millions of dollars. Since 2010, the U.S. government has run close to 1,000 challenges in search of new ideas and concepts. Applicants range from students, small business owners, and academic researchers, and past winners include companies exploring self-driving cars, clean water solutions, and healthcare robots.
Accept that the paperwork is a necessary evil.
In comparison to other types of funding, government grants come with more bureaucracy — which means more paperwork. This is a big turnoff for founders, but if you spend half a day with a legal advisor walking you through the processes, the payoffs can be big. The time is also worthwhile because you need to be sure that your business is fully aligned to the funding program’s priorities, otherwise, your proposal will be ignored.
The material required for grant applications starts with a few standard items to get the ball rolling:
A presentation deck outlining your company
Financial statements detailing your 3-5 year projections
A personal video highlighting your idea, hook, and planned impact
A demo of your product or service
Proof of tax compliance and appropriate registration numbers
Reference numbers/logins for relevant platforms
Zichermann recommends bearing in mind that bureaucrats won't necessarily be able to tell if your business has legs in the same way that a seasoned investor would. It's important then, to emphasize in plain English exactly how your business will be able to make use of the grant. Especially if you are filling a community or environmental gap, play on this, as it will be your ticket to securing the money.
Be prepared for what's expected of you.
Sean Callagy, co-founder of UNBLINDED, points out that government grants are becoming increasingly competitive. “In a time of crisis, there is the desire to keep the economy flowing and keep things moving,” he says, and so more startups are searching for financial backing while governments hope to kickstart economic activity.
Although sometimes referred to as “free money,” government grants do have some conditions, and perhaps even stricter ones during the pandemic. Government grants tend to have a specific purpose aligned to the strategic national, state or regional priorities so you'll be held accountable for what you do with it.
Awarding bodies will often want to add your startup to the list of companies they fund to showcase the work they're doing, and ask to periodically visit your offices to document progress. If you're a minority entrepreneur, they may also want to profile your story on their website and press channels. But the level of pressure won't be anywhere near what VCs apply to their investment portfolio.
Always think about how you package yourself and your company when dealing with governments. Though you may be communicating with someone from a local office, you could find yourself catching the interest of a senator and being invited to a national event. It's about being ready for anything, and seizing the opportunity to present on a bigger platform.
Don't put all your eggs in one basket.
Government grants don't always offer the full amount startups need to extend their runway or develop new products. Likewise, government grants tend to have a social focus, prioritizing companies that champion positive impact for people and the planet. It's therefore wise to not rely solely on government grants to fund your business.
Callagy highlights that while there are challenges in accessing money as a startup, both the government and you as a founder, share a desire for solutions. You can therefore harness the government routes that match your purpose and build long-term ties, financial or otherwise.
Public Law 95-507 changed the way government contracts are planned and implemented by focusing on including small businesses that are economically and socially disadvantaged. That means governments are actively looking for more diversity in their supplier base, so if you're from an underserved community, agencies will give you preference.
Government grants are a significantly more flexible and accommodating funding option for startups. Governments are usually willing to take risks on early-stage businesses that investors or banks are more skeptical about, plus there is no limit to the number of grants you can apply for. The biggest advantage, though, is having the clout and stage of a national entity driving your project forward.
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