Should start-ups seek Small Business Innovation Research (SBIR) grants?

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?In response to Sam Altman’s great post “Hard tech is back,” someone on Hacker News pointed out that hard tech companies should apply for Small Business Innovation Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants (both programs provide funding to small companies that are commercializing research). There are excellent reasons to apply, which we’ll recapitulate: most Federal agencies are required to make SBIR/STTR funds available; grants for Phase I go up to $225,000, and Phase II grants go up to $2 million; a large amount of money is available (most years see SBIR/STTR budget allocations in the billions); unlike venture capital (VC) funding, federal money doesn’t require giving up shares in return for funding; and, finally, the feds may fund ideas VCs won’t. The “feds may fund ideas VCs won’t” is particularly but not exclusively true of hard tech projects.

So far, so good. But while the upsides are real, and we’re incentivized to emphasize them, the downsides are too. One is simple timing: if the appropriate SBIR / STTR funding cycle just concluded for that year, your startup may have to wait another year to apply.* Then another 2 – 3 months for a decision. Then longer for final budget approval and contract execution. A year is a very long time for a startup. The other day a potential client called whose best potential SBIR source had had a deadline the month prior.

Second, Phase 1 grants can just be too small for the amount of effort that goes into them.

Third, SBIRs/STTRs don’t come with the advice, community, or expertise of good VCs. Applicants may still get to meet some professors in their field or other experts, but those connections seem to be weaker than the connections good VCs generate.

Fourth, applications take a lot of effort to prepare, and for first-time grant writers they can be quite hard. The alternative is to hire someone like us. While I’m biased towards doing that for obvious reasons, we also cost money. I can’t say whether our fees are low, high, or just right—as discussed at the link, we get all three reactions—but our fees are real and no qualified grant writer will ever work for contingent fees.**

Just finding the appropriate SBIR/STTR program and RFP can be hard, since different Federal departments publish RFPs at different times and focus areas typically differ in each competition. Reading the RFP is hard for the uninitiated, for the same reason that reading legal documents is hard for the uninitiated. Most of us who don’t know Python would find Python source code hard to understand.

Fifth, I can’t think of any major companies that got started through SBIRs/STIRs. I did do some searching, and the NIH website gives us some examples, like Genzyme, MARTEX, Sonicare and Abbot Medical Optics. There must be others, and if you know of them I’d love to hear more. In contrast to SBIR/STTR-funded companies, the number of VC- and Y Combinator-backed startups is too long a list to bother reciting, especially since it includes almost every large tech company.

While I don’t want to talk anyone out of applying for a SBIR/STIR, I do want to emphasize that the downsides are considerable. For many if not most startups, applying to Y Combinator is going to be more efficient than seeking SBIRs/STTRs. Still, it’s possible to do both, and for some hard tech companies “both” may be a more interesting answer than either one on its own.

EDIT: A few readers (and some callers) are incredulous that we can write scientific and technical grants; this explains how we do it, as well as some of our strengths and limitations. We’re not experts in any scientific engineering, or technical disciplines, but we are very good at integrating material from a particular discipline for a particular project and we’re also good at asking questions, listening to the answers, and using those answers.

* We’re using the word “startup” as VCs and founders themselves use it—as a term that denotes a small company that plans to grow fast and become a big company, usually via technology and technological innovation / deployment. In this sense most small businesses are not startups: They’re restaurants and consulting practices and nail salons and so on.

** One time I talked to a Y Combinator-backed nonprofit that wanted us to work for contingent fees, and my contact person didn’t grok why grant writers won’t work that way.