Startup Business - Funding Alternatives to Venture Capital
Often the media portrays the best source of capital for a start-up company to be venture funding. Therefore, many people think that venture funding is the only source of start-up capital. Not only is this not true, but often at the earliest stages, an investment from a venture capital firm means a huge loss of equity. There are a significant number of other sources of funding that an early stage company can call upon, especially if the company is in the high-tech arena.
If you are doing basic or pre-product research, take the time to submit for grants. Although this is time consuming and certainly not the fastest way to raise money, the government and other grant funding agencies do not want ownership in your company. SBIRs provide a six month phase I grant for $100,000, followed by a significantly higher grant for Phase II, from $500,000 to $750,000. If you apply for and win two of these grants, you can get a good start towards funding your company.
If your company only needs a small infusion of cash, you can get a SBA loan, or if you have a good relationship with your bank, a line of credit. Also, a bank will lend against your receivables, if your customer base is reliable. Many people are afraid to tap into debt sources because they don’t want to be burdened with the debt if the enterprise fails. However, if you don’t believe in the company enough to place your own credit behind it, why should anyone else. Read more
Small Business Finance - SBIR Grants From the NSF
When we started our company in 2002, venture capital was scarce, so we sought alternative ways to finance the business. The Small Business Innovative Research (SBIR) program, specifically the one offered through the National Science Foundation (NSF), is high quality source of funding. I have personally worked on proposals that have won awards from the Department of Defense (DoD) and the NSF totaling over $2.1 million. I am also a business reviewer for Phase II proposals for the NSF. I have both been through the proposal process and the selection process.
The SBIR Program
The SBIR program was created in 1982 as part of the Small Business Innovation Development Act. Eleven Federal departments and agencies are required under this act to reserve a portion of their R&D funds to be awarded to small businesses each year.
To receive an award under this program, a company must be American-owned and independently operated, for-profit, and under 500 employees. Additionally, the principal researcher must be employed at least 51% of the time by the business. There is still some debate as to whether venture-backed companies qualify if the VCs own more than 50%. Speak with the program manager to determine your eligibility if you fall in this category. Each agency determines its own topics and amounts for the awards (within parameters). The websites for all the SBIR programs are listed on the DoD SBIR webpage.
The Latest NSF Solicitation
The NSF has a fairly comprehensive website that covers the submission guidelines. Read more