How to fund your startup through grants?
This article is based on the conversation we had with Sedale Trubovsky. For the uninitiated Sedale Trubovsky is a serial entrepreneur, who is currently the founder and CEO of Open Grants. Sedale’s interest and proclivities for grants stems from his previous job of management consultant helping companies raise grant funding. Additionally, in his first startup he raised about half a million dollars in grants from the state of California. Sedales’ experiences in public funding and working with the government, spurred him to start Open Grants. Open Grants aims to make it simpler for startups to obtain grant funding. They are attempting to do this by streamlining the process and removing the barriers to entry, so founders can access non dilutive capital. Open Grants works by helping founders find grants, apply to them, and manage them. Specifically, they allow users to use their database for free so they can search and apply for grants. Moreover, they also offer modules that assist companies in managing their grants.
Useful Open Grants Features:
Open Grants also matches founders to curated grant writers. Additionally, they offer a partner program in which if a company is accepted Open Grants will cover the company's cost upfront and help manage the grant for free. Which means companies won’t have to pay the grant writer cost until they are awarded the funding. Also, they will set up a 12 month payment plan so companies won’t have to pay back the whole chunk of money at once.
Limitations of grants:
Sedale advises that grants have limitations and that they are not a fundraising panacea.
Specifically, he states that grant funding is appropriate for accomplishing certain things, but it is not an expedient process and can distract a company. In fact, Sedale notes that the process for obtaining a grant takes about 3-6 months. Moreover, he also suggests that grant money should be paired with other forms of capital, either revenue or angel investment. Indeed, he states that grants are really specific and can only be used for certain things. For example, you cannot get a grant for machine learning and use it for marketing. Also Turbovsky disclosed that sometimes preparing for a grant can cost upwards of 20k depending on who a company hires to help prepare the application.
Common Pitfalls:
Turbovsky reveals that one of the most common pitfalls in applying for a grant is not following the directions correctly and not reading the requirements carefully enough. In fact, some grant applications will be disqualified and discarded, simply because they did not have the right font and margin or because a resume is not in the specified format. Another frequent mistake Sedale observes is founders not reading the contract carefully enough and missing the fact that a lot of state/federal contracts require very detailed time tracking of employees and sometimes companies simply do not have that mechanism in place. The third pitfall he often sees happen is founders getting a grant, simply because they are chasing money and that grant does not necessarily align to what they are doing. So they turn into a company that is working on this grant and it distracts them from their original mission and product. As a result of these mistakes companies sometimes get audited or have to give the money back. This is why Turbovsky implores founders to have someone double check their applications and to have their attorney’s review the contracts and paperwork.
Major pitfalls:
- Missing small parts of the contract. An issue as small as a wrong font might disqualify you.
- Missing requirements of the grant requirements, such as detailed time tracking of employees.
- Grants can distract you from your major goal. Instead of focusing on sales you might focus on tech development just because you received a grant. That might put you behind the competition.
Who should apply for grants:
Sedale believes that any company focusing on deep tech, such as AI, renewable energy, machine learning, and biotech should definitely apply. This is because the government has set aside large amounts of money to fund companies trying to solve problems in these sectors. For instance, Sedale states that there are currently a plethora of grants available for companies working on CoronaVirus solutions. In fact, because of the Coronavirus pandemic the federal grant giving process has been expedited, for certain companies.
More Advice on Grants:
Turbovsky also urges founders to work with the grant giving agency, because the grant giving agency wants to help you succeed. This is because if a company they give money to does not do well it reflects poorly on them. So they have a vested interest in a company's success and are more than willing to help.
Major benefits of grants:
- non-dilutive source of capital
- in some cases easier to obtain than any other form of capital
- you can get additional support from grant issuer
Major downsides of grants:
- receiving a grant might take 3-6 months
- grants can be used only for very specific tasks (like development of a particular technology)
- you have to report the fund usage to the grant issuer
- preparing for a grant can cost upwards of $20,000
If you would like to listen to the podcast as well: https://www.fundraisingradio.com/grants-101-sedale-turbovsky-on-how-to-fundraise-through-grants-and-is-it-a-good-source-of-funding-during-the-crisis/
Sedale’s Twitter: https://twitter.com/STurbovsky?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor
Open Grants website: https://app.opengrants.io/signup
Article Written by : Luis Bravo
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