There’s a growing trend at Capital Factory. Not only are startups increasingly getting funded by traditional means; Angel and Institutional investors, but now startups are also receiving significant funding from the United States (U.S.) government. In 2020 Capital Factory worked with over 50 member companies, of which 31 received more than $63M in government funding. This funding came from “America’s Seed Fund,” programs officially referred to as the Small Business Innovation Research (SBIR), and Small Business Technology Transfer (STTR) programs.
Startups and government have long been viewed as contradictory, resulting in each avoiding the other. Their cultures and needs are decidedly different. Startups have neither the time nor the resources to overcome the bureaucratic hurdles, risk aversion, and long wait times typically experienced in winning a government contract. The U.S. Government has been intolerant of risks and uncertainty surrounding startups and their solutions, often fearing the lack of technical continuity and lack of financial stability startups are known for.
An important component that can bridge this divide is money. The government is making a deliberate investment into entrepreneurial solutions that meet strategic, economic, and/or defense objectives. Although the U.S. government created the SBIR program to encourage nascent technologies, certain federal departments have only recently realized how they can use SBIR’s public funding to help minimize commercial investment risk and stimulate or accelerate innovation and scale of these small business solutions. The STTR program, which partners small businesses with universities and research institutions, makes it more feasible for small businesses to adopt available federal research projects and complement their R&D efforts in partnership with a university to help facilitate technology transitions.
The SBIR/STTR programs are financed by public funds and distributed to eleven federal agencies. The SBIR/STTR budget totaled $3.2B in 2020 and is administered by the U.S. Small Business Administration (SBA). A startup firm must be working on a dual-use commercial solution to qualify for SBIR/STTR funds. Dual-use means that the solution is intended for sale to, or consumption by, the general public, but also adaptable across inherently governmental applications.
SBIR has three distinct phases:
• Phase I establishes a concept for the exploration of its technical merit and feasibility often called the concept development phase. Awards range from $50,000 – $250,000 and typically last for three to six-month periods.
• Phase II is a continuation of Phase I where R&D occurs and a prototype is developed. Awards are typically around $750,000 with an 18-24 month performance period. In Phase II, the aim is to achieve the necessary R&D, testing, and prototyping to enable a successful commercial product.
• Phase III is the period when the efforts move from the laboratory into the marketplace. It’s important to note that Phase III is not funded by the SBIR program, but by the federal department or agency that is interested in purchasing the final solution.
So, how does a startup, with limited resources and little to no government process expertise take advantage of SBIR/STTR? First, get educated (visit SBIR/STTR) and stay informed. Learn how the government structures its procurement offices, understand what the government is looking for, what their timelines are, and how the different SBIR/STTR phases apply to a startups’ growth plans. Attend our Federal/Defense Academy or Fed Supernova (more info below). Another critical factor for success is getting to know the right decision-makers. It can be the office that can buy for an end-user within the government agency, or people who can match the startup with the right department within the right government agency customer. Here is a hint, it’s not the highest-ranking bureaucrat within an agency or department. Another hint, you can find five government agency offices within Capital Factory: AFWERX, AAL, NSIN, DIU, and NGA. Capital Factory’s Fed Supernova virtual event can also introduce you to some of the right people.
Capital Factory is an organization that actively bridges the gap between startups and the Government. What does Capital Factory offer? Education, translation, and introductions. To educate, Capital Factory regularly holds Ask Me Anything (AMA) sessions and is building upon its Federal/Defense Academy. In this academy, speakers from the government walk through what the current desired solutions are and how to navigate the competitive processes. In order to translate, Capital Factory has the knowledge and resources to help adapt “government speak” federal processes to jargon-free English for our many startups. Capital Factory excels at making introductions. When it sees that a startup has dual-use potential, especially in a targeted area that government agencies are interested in, we introduce the startup to the appropriate government contact(s), many within the Capital Factory immediate ecosystem!
One way to educate yourself on the strategic technologies important to the U.S. Government agencies right now and which future problems they’re thinking about is to attend Fed Supernova March 9-10, 2021. This is a virtual event where you’ll have the opportunity to hear from government innovation personnel and meet not only the government people but also dual-use startups, technical talent, and investors all interested in U.S. government plans and priorities. This year the topics are Quantum Computing, Space, Digital Engineering and Autonomy, and Robotics and Drones. It promises to be both exciting and informative. Register today!
Check out 2020’s Fed Supernova presented by Deloitte!