Venture and Grant Funding

The role of venture funding in SBIR companies is an important one.  Small venture capital firms (those that meet Small Business Administration standards of 500 employees or fewer, including subsidiaries and owned by individuals) can make investments in SBIR companies.  Those are much needed capital investments and play make or break roles in the commercialization of technologies and companies.  Understanding the role of venture capital and SBIR funding in the development of technology and small business is critical to everyone involved in the commercialization process.

Every company involved in developing funding strategy and participating in SBIR programs need to understand the eligibility rules.  Size determinations and funding/capital structures are unique to each organization – so in each round of funding the who, what and how of eligibility for SBIR and other programs may differ, based on how the company doing the funding or the company being funded is comprised and the relationships which exist.  The particular venture funds, the changes in ownerships, and a host of factors go into eligibility and size determinations.

What is most important to understand is that a company needs to be proactive in understanding the eligibility impact of various venture and institutional sources on grant eligibility.  Once the eligibility impact is understood, the company can look for alternative capital for the grant revenues.

Venture, institutional, and other investment in small business is allowable and encouraged.  Control of the small business by entities which change the nature of the business through control and investment is the issue.  The SBIR program is for SMALL businesses.  When the businesses receiving the funds become extensions of larger entities, then the competition becomes impaired.  On the other hand, well run, well funded businesses are the ultimate objective, so SBIR companies are to be encouraged to develop to the point that venture and other investors want to put their money into them.  It is almost a paradox that getting to the point of being disqualified from participating in the SBIR program may be a milestone to be celebrated.  It depends upon when and how that milestone is achieved!

Creating a funding strategy which incorporates all types of funding and takes into consideration the requirements, restrictions, and implications of each type is an important step for every company.  Funding is critical to the success of an organization and overlooking any aspect of the funding equation can result in serious implications for the organization.

Whatever the source of funding, the business and its founders need to understand the rules, the roles, and the implications of the “strings” attached.  No funding source comes without expectations, without rules, and without requirements. For instance, government funds come with eligibility, compliance, performance, and other potential restrictions and attachments.  The uninformed organization can, through its actions and inactions, create long term business constraints with unintended consequences.  Private sector funding also comes with expectations and changes in the business.  The combination and the timing of these funding sources and how the organization manages them are important.

Grant funding is a means of leveraging additional private sector sources.  Grants are “replacement” funds for projects the organization would have undertaken anyway.  The grants free up those funds to be deployed to other aspects of the project or the business.  For example, there are now funds for commercialization of the technology.  The synergy of funding sources is what the recipient should be working to achieve through strategy, timing, and commercialization efforts.

Grant funding isn’t the objective or the end game.  The objective is commercialization.  Grant funding is a mechanism for achieving commercialization.  If a business grows beyond the grant funding mechanism, then that may be a true metric of success.

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