America's Seed Fund: Up to $1.5M for Zero Equity
seedfund.nsf.gov
seedfund.nsf.gov
My company (zeroK NanoTech) probably wouldn't exist if it where not for this program.
NSF SBIR can aid in the translation of technology that sits in the no-mans land between basic research and commercial technology. In my case the basic potential for our tech had been developed when I was a postdoc, but the federal lab where I worked (NIST) wasn’t going to be able to translate it. At the same time, there was not a great chance to obtain venture or similar funding because the market was a bit too small.
Building off the results of our SBIR-funded research we were able to obtain additional investment from a larger company interested in our technology.
The Phase I program is competitive, I recall about 15% of applications are accepted, but the application here isn’t so onerous, btu the funding amount isn’t very large; this is just for ‘proof of concept ‘ work. The odds of matriculating to Phase II and a much larger pot of money are better, about 40%. There is a decently long gap between your decision to apply and beginning of the project, but I know the NSF is working on this. The NSF is also unique in that you can apply with just about any kind of technology; most other SBIRs are not anything like this.
I’ve also served on review panels for these grants. While it is the case that some applications come from largish companies who seems to subsist on SBIRs, the NSF makes a big effort to invest in 1st time applicants if they have a solid plan. My ‘company’ in our first application was just myself and my cofounder and very little other resources and we won our award. Once you are an awardee, I found the program officers to be very helpful.
Maybe a big initiative from another country would light a fire under them.
On top of that, this is early stage funding and most of these companies will fail paying back little to nothing.
PS: Corporate taxes are down to 9% of the federal budget. They really don’t pay much in the way of taxes vs the services they benifit from.
There's also the opportunity cost of the investment; the yield has to be compared to things like food stamps, education, basic research etc. There's a lot of low hanging fruit a well run government could be picking.
I would also tend towards the view that if the government invests like a VC it should take equity. If these companies genuinely have no other option, I don't see why this would be a deal killer. If they have VC they could take instead, the government shouldn't be offering free money.
The financial goals of this program shouldn’t be profit — or even break even. Any profit expectations will undermine the the way this program is evaluated.
If government wants an equity stake, they’d be better off investing in a fund of VC funds - like what the BC Renaissance fund does in British Columbia. They stuffed $100M (pocket change, I know) into a fund of funds and let the VC manage all of it.
Compared to the IRS? National security & intelligence? Social services? Monetary policy?
It's just not setup for making a profit.
Nike, Ben&Jerry's, FedEx, and Chipotle got SBA loans.
Google's search algorithm was funded by National Science Foundation.
Apple, Google, Facebook and Amazon receive billions from American states in data tax breaks.
Tesla and Space X are heavily subsidized too.
These are just a few famous examples.
The American economy would likely be a lot smaller were it not for public subsidies of various types. Fanatic capitalism is based on a myth, or at least a massive exaggeration, of what private initiative achieves on its own.
Sure, if you have easy access to VC, your life would probably be simpler. The process is not easy or quick, and if you think you'll win on your first try, keep dreaming. Each proposal cycle is like the Olympics. And spoiler, even if you win dealing with government compliance is a huge pain, and it could easily take 9-12 months to see the first dollar.
We're not insiders (some but not all topics have a recipient in mind), and beyond the NSF there's heavy bias against young, small startups. But if you're a subject matter expert and can clearly communicate a realizable benefit to the warfighter (again, DOD), it is possible.
Doing hard tech out in the Midwest and having funding (VC is a myth here) is an awesome thing. Without it, I'd long since be back on the job market.
It's great, for example, for professors not fully committing to a venture, but wanting to run it on the side over a prolonged time. Likewise, for a contractor shop cranking these out every year, or a stable non-startup wanting to get an R&D engineer covered. If you are indeed coming from inside the system, it can be a great supplement!
But for most startup folks here, your effort would go out of business before the successive funding rounds materialized, and there is too much risk that they don't happen to rely on them. You can read between the lines on the success stories reported even here. Your limited time is better spent on non-SBIR investors & customers.
Most startup land-friendly funding mechanisms aren't well suited for that.
"The catch" Application process takes several months
Similar to an RFP, by the time a SIBR request is written, the preferred vendor has already been chosen.
Government agency usually gets perpetual use license of your product.
Pros: Received an actual written response (months later) with detailed rejection reasons. Something a VC would never do.
For DoD projects and vendors with TS clearances, a SIBR contract can be parlayed into 5-10 year deals.
I've seen these programs used by existing businesses to secure funding to work on research-y stuff which would be hard to justify for a small business. My impression of it is that its a pretty amazing program for the right audience.
I just submitted another SBIR application. Not a really happy about would I delivered in the application, but in the end, to use the words of two of my friends who got an SBIR I +II "It is not an open race". Unfortunately. So the other option is to get funded for the project is China. They shit you with money there if you bring tech.
Anyway, a better wording may be "vendors in specific geographies with specialized skills".
The process is not as open as it appears. There is a strong bias for specialization.
Has, including its affiliates, not more than 500 employees and meets the other regulatory requirements found in 13 CFR 121.
That's from a DOE SBIR/STTR Phase I application.
Yes, this may be indeed helpful. But many reviewers browse your application only. Let me phrase it this way: An idiot and google is a very dangerous combination. He gave an argument about costs and was basically two magnitudes off. And I explicitly wrote that is mass produced (10k units) this item would not cost 50k but 300-500 US$ per Unit. But yes, he googled it and found that a single unit with many features would cost 50k US$.
The time involved and bureaucracy is true.
Government agency usually gets perpetual use license of your product.
Is that true for non-STTR applications? I'm doing some command-f through some old SBIR RFPs and am not finding the language (could be there). I am finding language like this:
Copyrights—The grantee may copyright and publish (consistent with appropriate national security considerations, if any) material developed with DOE support. DOE receives a royalty-free license for the Federal government and requires that each publication contain an appropriate acknowledgment and disclaimer statement.
But that's for a copyright to a publication.
Also, this applies to patents, not to the product itself:
Patents—Grantee may retain the principal worldwide patent rights to any invention developed with Federal support. The government receives a royalty-free license for Federal use, reserves the right to require the patent holder to license others in certain circumstances, and requires that anyone exclusively licensed to sell must normally manufacture it domestically. Information regarding patent rights in inventions supported by Federal funding can be found in the Code of Federal Regulations, 37 CFR 401.
As I said, I'm not sure that you're correct, but the statement does not jibe with my immediate memory.
For the particular SBIR I applied for 15 years ago, I recall having to accept a perpetual licensing outcome that capped the license profit margins to 10%-20% actual costs. Maybe that's changed.
It seemed like a fair deal. The gov funds the R&D, they of course want returns.
This is misinformation. SBIR funding is the #1 source of early-stage funding for certain industries. Any startup developing a life-saving medicine or medical device is using SBIR for things like clinical trials. "The preferred vendor has already been chosen" is utter nonsense; it's like saying the government has already decided which drug is going to work.
To be effective at applying for SBIR grants you do need a good program officer. They will let you know whether it's worth spending the time to apply.
Misleading. The agency, in this case NSF, obtains march in rights for patents (not data) developed using funds received from them. They will only exercise that right in the most extraordinary circumstance. Basically, if you develop a cure to cancer and then decide not to commercialize it or make it publicly available, they may exercise march in rights and take it over. No agency, not even the DoD, has ever exercised it, to my knowledge.
I know in Champaign, IL (where I live) there are resources to help you submit an SBIR grant. I opted to go down a different path after completing a training regarding how to submit one. However, if I was working on implementing anything bio-tech related, I'd definitely submit an SBIR grant.
A big problem with this program was that the funds distributed were disproportionately allocated to coastal cities. As a result, places like silicon valley, north east (Boston) and NY. The goal of the project revision was to help make sure more money was going to less recognized universities and research entities.
This is definitely worth pursuing if there are areas of research that you or your company are exploring that have potential to go to market with a infusion of capital.
The drawbacks, like any type of investment, are mainly the distribution cycles of the funds. Unlike private equity, you may need to wait longer than a quick VC seedfund to get money. If you are already burning capital, then this is likely not the ideal investment for you.
The result is that much of the funding goes to SBIR shops -- organizations with no business model aside from operating from government grants. They write proposals, and use those to fund operations. They keep going for many years with products tailored to the SBIR process rather than to real markets.
If you want to play, my advice would be to talk to someone who has done it, and have them review your submission. My other piece of advice is talk to the program officer. Their job is, in part, to help you navigated the sometimes-byzantine process.
All that said, I don't feel bad having my taxes spent there. Despite the mismanagement, it seems to have a positive ROI for the world.
There are many issues, not the least of which are the very long lead times. From submission to decision/notifications can be 6+ months.
Another issue is the Phase I/II gap. Sure, you can get more money, but there is another (at least) 6 month interval for that. And there is no guarantee that you will get the Phase II. You have to show very specific positive forward motion in Phase I to get Phase II. And Phase III, commercialization, is similar in that you need to show a nascent market.
Back when I was looking into and applying for these, the VCs I spoke with suggested that they were a signal, albeit not a strong signal, that there was "something there". Not enough on its own to pull them off the couch to write a check, but enough to keep them interested if others did.
This said, having participated in my fair share of government sponsored small business innovation programs, and seeing the most politically connected applicants get funded for fairly poor ideas, I'm kind of jaded about these programs. As bad as they are VCs have the right incentive (profit) albeit in the wrong structure IMO, to invest. The government is all about box checking to show their effectiveness.
(Having said that, the application process is pretty onerous and so are the bookkeeping/timetracking requirements.)
"But the government gives tons of handouts to existing companies" isn't a good answer, either. Two wrongs etc.
Moreover, a lot of this money (maybe even most) is going to the military industrial complex.
Plus, many areas of the country have limited access to capital. This helps alleviate that.
https://www.govinfo.gov/content/pkg/CHRG-111hhrg48735/pdf/CH...
The private sector's way to handle risky businesses is just to not fund them at all, or else to fund them in exchange for a huge percentage of equity. Both of those result in a net loss for society, so I don't really see how this is something the private sector even addresses let alone well.
- VC funding is a thing only in SV and a few other cities. Most cities do not have a vibrant ecosystem that is accessible to Small Businesses
- VC's only invest in ideas that have both a high likelihood of success and a large payout. SBIR focuses on ideas that have a high likelihood of success without a large payout a.k.a the vast majority of small businesses in America
> I would much rather this money be granted for research that then becomes public domain.
Y not both?
> Why should our taxes be handed out for risky business endeavors with no direct public benefit, when the private sector already has the means to handle this?
- its not risky
- private VC cannot be relied on to fund certain kinds of businesses. American Bank loans are decidedly low-risk too (and can't be swapped for equity)
> "But the government gives tons of handouts to existing companies" isn't a good answer, either. Two wrongs etc.
That is not the answer. If that was, I agree it wouldn't be a good one.
In general, grants of Capital to small ventures that have good foundations is not a "waste of taxpayer money". The success of those businesses creates jobs, that pay taxes, support the local economy etc. They're a waste only if you think giving grants is literally burning a pile of money, which it is not.
If the premise is that inefficient markets and long time horizons inhibit investments that provide a net-return, then why does it need continued taxpayer funding?
Haven't you answered your own question? Or perhaps I'm not understanding your statement.
Inefficient markets and long term horizons _do_ inhibit investments by private sector entities which are more focused on short term plans. This _is_ why it requires taxpayer funding.
Private Capital can’t reap such benefits, which also tend to be longer term investments, and thus is not interested.
Of course it is wonderful in theory. In practice, my own opinion is that it's a really bad idea.
It is super risky and we had this discussion before on HN. SBIR grants are often given for "blue sky" projects. You could say that is the definition of "risk".
A guy who agreed with me: https://news.ycombinator.com/item?id=17997184
Matthew Weinberg, former Special Advisor to the SBA's Office of Investment and Innovation, disagrees with you. With respect to the SBIR program, he said:
"It’s fundamentally astounding that the federal government—not private venture capital firms or banks—is the entity backing these moonshot investments that end up changing the world[1]."
> If your small business focuses on developing scientific or technological breakthroughs, we’ll tell you exactly how to get the SBIR funds you need to change the world.
Given that, I would assume Matthew Weinberg agrees with GP, and means "astounding" with a positive connotation.
In my experience, venture capitalists are often willing to invest in ideas with a low likelihood of success as well.
That's not how it works though
https://en.wikipedia.org/wiki/Bayh%E2%80%93Dole_Act
Research from publicly funcded universities gets patented then turned around to fuck you and make you pay for it twice all the time
Aside from that, there are entire industries that VCs don't touch until after SBIR, such as life sciences startups, where you're looking at 10 years of R&D and regulatory approval processes before you can launch on the market. That's way too long for VCs.
I empathize with your general sentiment, but non-profits and governments exist to fill in gaps that the free market cannot.
SBIR/STTR money is primarily used for R&D work for high risk technology. The risk being that it might not work, or might not solve the problem you're trying to solve. You don't spend the money on marketing and sales. It's meant for technologies precisely in the stage that the private sector is not good at handling, for similar reasons that the private sector isn't good at funding basic research. This stage is referred to as the funding gap or the valley of death[0][1].
But such funding is also quite low risk for governments: even when the funded companies fail it serves to build talent pools, and a substantial proportion of every dollar comes back to the government in taxes because they get spent on things like salaries, and the remainder gets spent on products and services where a further proportion ends up paid in tax.
And when they succeed, the economic activity has a massive ongoing value both in taxes, reductions in benefits payments due to increased overall employment and indirect economic boosts (the successful companies increase other economic activity by buying products and services).
It's not either/or - there are many types of projects that are not suitable for VC funding for various reasons that can still have long term beneficial effects to society.
Is there some lack of private venture capital that this is overcoming? - VC has some very specific requirements, and often has some expectations that many of the things funded through SBIR won't meet. VC money is not the be-all, end-all of small business finance.
I would much rather this money be granted for research that then becomes public domain. - A bunch of my research is in the public domain. But there's a leap from basic (or even highly applied) research to an actually commercially available product in the world.
Effectively it provides capital when vcs aren’t willing to either because you’re too early from rev numbers or they just lack the alignment on vision/market or some other reason
They are a shotgun while you, at best, are a rifle. Success probabilities are corresponding.
Every US government research program must provide 3% of its R&D to small businesses, with the goal of seeding American innovation outside of major conglomerates.
Personally, I view results driven government seed money as a viable answer to many questions the US faces — but it requires we pull together behind a vision of free people engaged in small commerce, something the US left wing seems to vehemently oppose.
I’m a capitalist, though: I believe the best way to cause human flourishing is expansive commerce coupled with individual freedoms, and suggest anyone disputing the social value of that show me a system that’s uplifted as many minorities out of poverty as, say, McDonalds franchising.
I appreciate your overall message, but I believe that one would need to have non-poverty level assets to even be considered to open a McDonald's franchise. Odd example.