Last month, I was hired to consult with a start-up company. This company was targeting both the use of renewable energy and manufacturing, with a sole funding strategy: utilize government funds (i.e., grants). The company was applying for a grant to a state agency for economic stimulus funds, so that they could accelerate from essentially garage inventor/hobbyist level to full-scale manufacturing. The proposal included all facilities (a substantially large building to be renovated and converted to renewable fuels), all production equipment, employee wages and salaries (yet to be hired), and all of the day-to-day expenses need to start and run a business.

Phases and Sources of Funding

That was Phase I. Phase II was to go back to the government (actually simultaneously) to request government funds to “develop” technology and pay for the labor, materials and all the other items necessary to begin operation. Phase III (i.e., the pot of money) focused on obtaining additional grants for the remaining costs of running the business for a couple of years … at least two, and maybe three “until we have a product and can manufacture it.”

The funding strategy was government-dependent at every step, with one exception. The clients needed external assistance in obtaining those funds. They needed project proposals written, and it wasn’t as easy as they assumed. If a company is unfamiliar with submitting for grants for for-profit, start-up entities, doesn’t have facilities and resources already in place, and doesn’t have technical expertise in the field in which it wishes to develop technology, the proposal process is intensive, to say the least. It often takes 60 to 120 hours for experienced grant writers who are intimately familiar with the technology, the company and the intended research to prepare a fundable submission. In addition the company must provide budgets, indirect rates, and all of the financial details of its business, accompanied by an explanation of how the product will be sold, market potential, sales/distribution channels, and an identification of the key resources it has and needs to obtain.

For a start-up company with little information in these areas and responses of “the needed technical expertise is still be identified” and “the costs: materials, labor, consultants, etc. are still be developed,” writing the physical grant would be the easiest part of the process. The difficult part is acquiring the information that will be submitted, including the development of budgets and staffing, facility costs and equipment needs. Assembling “the numbers” is a big job alone without having to develop a research plan with deliverables, explanations of the technology, timelines, and expected outcomes/specific aims to be achieved. Further, developing a go-to-market strategy with competitive analysis and customer identification is an even heavier load.

How much time do you think it would take: 10 hours, 10 days or several hundred hours to do the work? (It’s definitely not 10 hours.)

Fundable Start-ups versus Misrepresented Information

Let’s look at it from another point of view. If you were a potential investor reviewing proposals, what would be the minimum required pieces of information in order to make a decision? First and foremost, you would want the information to be accurately representative of the company’s capabilities and resources. So if the company states that it has manufacturing operations, you would in fact expect to find a physical building, equipment, people and materials for the process, right? If the proposal states that the company has those elements in place, but in reality does not, what would you think of the claim? The Federal government calls this a “false claim” and it is a prosecutable offense, litigated as a civil suit or a criminal action.

False Claims

The essence of a false claim is making a statement to the government in your communications that misrepresents the actual status, activity, actions or financial aspects of an entity. It can be as “simple” as billing the government for more hours than worked or using a higher rate to charge the government than the actual cost. It can also be including misleading information in proposals. It can be billing the government for the same work twice or presenting a single “deliverable” like a technical report as the same “deliverable” for two projects with different research required.

False claims in a proposal are particularly difficult. A company wants the funds and feels (or believes) it will have in place the facilities, equipment and people when it presents the proposal. For the company I mentioned the beginning of this article, its proposal is written to say that its manufacturing operations are fueled from renewable energy sources and that its products are “cruelty-free without animal testing” in the development process. Remember the company’s strategy: Phase I, obtain a grant to fund the facilities, etc. Phase II of funding: acquire funds to develop technology to create a product.

Do you see the problem? There are no facilities at the time of proposal!

Presenting the Information—Honestly

When the proposal is submitted to obtain funding for Phase II and Phase III, the company is virtually a Bunsen burner in a garage lab. The company, should it win the award, has done so by misrepresenting—claiming—to have operations it doesn’t yet have.

It’s not all bad news; there are companies that do receive funding while they are still building and obtaining facilities. But those companies make accurate statements like,

“Our company is currently in the funding stage to put in place a full-scale manufacturing facility. In the event that this project gets funded, but the facilities project has not been funded or is still in process of conversion, the company will use contract facilities to execute this projects scope of work. We have investigated and obtained quotes for the alternative contract facilities and find that the costs and rate structure for either alternative can be fully funded by the company, its investors, and through this award bearing its share of common facility costs.”

There’s no false claim. It’s a reasonable plan, and no one has to worry about horizontal pinstriped suits or if orange is the “in” color this year for jumpsuits.

 

 

First-time Grant Proposals: Avoid Overstating Your Capabilities

If you are a company thinking about pursuing government funds through grants, contracts, or other funding instruments and sources, please don’t trip over the narrow line between being an aggressive salesperson making a pitch and making a false claim that could cost you your business, or much worse—your freedom.

Author: Lea A. Strickland, MBA CMA CFM GMC

Copyright ©2009 F.O.C.U.S. Resource, Inc.

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