Saturday, October 4, 2008

So what about grant funding?

SBIR or Grant funding can be a valid way to finance software proof-of-concept or demo costs. SBIR stands for Small Business Innovative Research grant. Each year the government earmarks almost 2 billion dollars towards SBIR and STTR (Small Business Technology Transfer) grant funding. This money is given (with very few strings attached) to businesses with an idea that meets the requirements of one of the government funding agents. This means that SBIR money may not be available for you if you're not doing something truly innovative and research oriented in the field your application addresses.

For instance, it would probably be difficult to find grant money to create an MLM-based affiliate advertising program - it's just not innovative enough, nor would it be likely one of the agencies would have a similar requirement. On the other hand, if you have a great idea and want to build a proof of concept and the requirements DO fit the ask - then you have a great possiblity on your hands.

Not every grant application gets funded however. Grant writing is a precise science. Most grant requests that don't meet the rules are simply tossed. For instance if they ask for a grant with 1.5" margins of no more than 200 pages including appendices an you write one with one inch margins or that is 201 pages - they don't even read it. In this case it's a very good idea to hire a grant consultant to help you write (or write for you) the grant application. A good consultant will also look at your idea and help you find the right agency to approach and introduce you to the right people.

If you're doing STTR funding, then the best approach is to use your college connections (The STTR program is primarily targetted at commercializing college based research projects). Most colleges have full time grant writers on staff and this sort of thing would be right up their alley.

So for a software developers - what are the advantages and disadvantages of applying for and using SBIR/STTR grant funding for your development:

  • Grant money is the cheapest money out there. You don't have to pay it back, worry about your relatives, pay interest, or give up equity.
  • Grant money allows you to pay yourself. We all like to eat. You can pay yourself out of the grant money so you make at least a nominal living.
  • Once you get the grant, as long as you meet the grant requirements the money should flow fairly quickly into your coffers after invoicing, and allow you to pay yourself, your subcontractors, and your employees.


  • There are limitations for how much of your grant dollars may be spent with independent contractors, and on what specific activities.
  • You have to build a grant that has achievements you can actually create within the budget specified. You need to periodically report to the government what your progress has been, and your payment is held accountable to how well you perform to the grant requirements.
  • Each grant costs application requires a reasonable investment in grant-writing which you may not recover as part of the grant payments. There is no particular guarantee a grant will be accepted and you may have to wait several months until you find out.
  • Grant funding comes in dribs and drabs, released by your grant liason. As such it's difficult to use it for things like ongoing salaries or pre-pays, unless you have a cash stash that you're just replenishing from the grant.
  • The government expects you to give them pretty detailed reports on your progress, and on how their money was spent. Grant accounting and writing up results is essential to getting the second round of grant funding, which is usually the ultimate targets as it can be in the hundreds of thousands or millions range (rather than in the tens of thousands range).

Once you've succesfully written and delivered a first stage grant, it's an easier process to apply for a second stage grant - especially if you did a bang-up job on the first one. In addition, once you've received approval for any grant, you can reference your work when you apply for additional funding or grants. Successfully completing SBIR funding can be a plus when talking to other funding sources - it shows you've put work into building out the funding yourself without resorting to capital investments.

Here are some good links to get you started: