The following excerpt is from Entrepreneur’s book Finance Your Business. Buy it now from Amazon | Barnes & Noble | iTunes
Looking to fund your startup? Let’s take a look at something everybody dreams of: free money or, in other words, landing a grant from the federal government.
“But wait,” you may be thinking. “I’m not a nonprofit — I can’t get a grant.” Well, as it turns out, nonprofits aren’t the only organizations eligible for government grants. For example, from 2010 to 2014, for-profit company Canopy Apps received $2 million in National Institutes of Health (NIH) grants to develop translation technology for medical professionals working with patients who don’t speak English.
Jerrit Tan, former CEO of New York City-based Canopy, believes more entrepreneurs should take advantage of the billions of dollars in business grants offered by government agencies, which can buy a startup valuable R&D time and boost credibility.
“You’re literally turning stacks of paper [grant applications] into money for your business,” Tan says. “And the government usually doesn’t take equity.”
Of course, nabbing local, state and federal grants involves more than cutting and pasting your business plan into an application. Here’s what you should consider:
1. Aim high
A revolutionary idea is essential, says Tan, whose translation app targets the language barriers that plague 15 percent of U.S. patients. “Incremental ideas usually don’t win,” he says. “It’s almost like the crazier, the better — within reason. This is the government, after all.”
It’s essential to be able to quantify the effect your product will have on the market, says Amy Baxter, an Atlanta pediatric emergency doctor who in 2009 scored $1.1 million in NIH funding for Buzzy, a pain-blocking device used for administering injections to children. “Make it clear how big the impact of the problem you want to solve is,” she says, “and how inadequate the previous solutions are. Even better is to have a way to measure how well your solution is working.”
2. Put in the time
For large federal grants, expect to spend several months preparing an application.
“It’s not a fast process,” says Michael Patterson, CEO of Graphene Frontiers in Philadelphia, an advanced materials and nanotechnology company that has won ten grants from local, state and federal agencies totaling nearly $1.3 million. Payments can be slow to arrive too. To tide you over, he says, “You have to have funding from other sources or be able to get other funding quickly, whether that’s revenue or equity investments or something else.”
3. Find the right opportunities
“There are grants out there that can be more trouble than they’re worth,” Patterson warns. Some have big payouts but overly restrictive stipulations on how the money can be used. Others seem almost too good to be true, such as the $930,000 Graphene received from the National…