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Ask HN: US government funds a lot of tech research, why don't startups use it?

• brianfitz 7y ago
  TL;DR - The money available to any one company is small (hundreds of thousands) which means it could only ever be a supplement. Since they are very difficult to apply for, it could be argued you’re just better off to spend time raising money from entities that can provide more capital down the road. Also, traditional capital can be spent on all aspects of the business. However, these grants are generally very restrictive on what the money can be used for.
• tschwimmer 7y ago
  Applying for a SBIR grant is probably orders of magnitude more work than raising VC money in this market.
• thom 7y ago
  This is interesting, because certainly in the UK it’s extremely common to take advantage of government and EU money, either as an individual company or in partnership with an academic institution. It’s basically free R&D, and even if you can’t be bothered with the paperwork, companies have sprung up to work as a middleman doing all the boring bits for a cut of the money.
  • onion2k 7y ago
    I think Granttree, the company swombat (https://news.ycombinator.com/user?id=swombat https://news.ycombinator.com/user?id=swombat) runs, does exactly that.
  • AlunAlun 7y ago
    > companies have sprung up to work as a middleman doing all the boring bits for a cut of the money This is creating a problem just as much solving one. The billions in grants that are given away every year by the EU are basically controlled by a cabal of private consultancy firms who will cherry pick companies to write grants with; and create tailor made proposals designed to fit the call perfectly. On the one hand this is good as it creates a ‘pre-filter’ to stop you from wasting your time writing a proposal; but on the other hand it puts the EU’s R&D budget into the hands of a small group of private companies. Either way you look at it, it means that, unless you are ‘in’ with one of these consultants, getting the funding is extremely difficult (I write from experience from both sides of the coin!)
    • rjsw 7y ago
      We have had a couple of Innovate UK grants without using any external consultants to write the proposals.
    • thom 7y ago
      I don't know that this is generally the case. I've never been involved directly in bigger (6+ figure) grants, but I know plenty of academic spinoffs who have had no problems writing their own grant proposals (admittedly this is a specific skill you pick up in academia so maybe not relevant to the general public).
• dbt00 7y ago
  Recently discussed here: https://news.ycombinator.com/item?id=19659853 https://news.ycombinator.com/item?id=19659853
• deddy 7y ago
  Currently VC backed companies are barred from competing on SBIRs. There is legislation currently in the works to change that. But gov funding isn’t more common currently because you legally can’t do it. Edit: I need to amend that to say majority-VC backed companies can’t be awarded SBIRs: Source: https://www.fedscoop.com/sbir-dod-legislation-mac-thornberry/ https://www.fedscoop.com/sbir-dod-legislation-mac-thornberry...
  • deleted 7y ago
    [deleted]
  • chatmasta 7y ago
    > In 2003, courts ruled companies with more than 50 percent venture capital ownership are ineligible for SBIR grants. This seems like it would be a rare case, especially early in a company's lifecycle. Any company that is majority owned by VCs is either very late stage, or suffered a down round. Nobody is raising Series A or B while giving away more than 50% of their company to investors.
• gbaccount9999 7y ago
  My $.02 as someone who has applied for multiple SBIR grants with one winning proposal. 1. Government proposal selection is painstakingly tedious and slow. 2. There are actual politics involved with final selections and winners may be pre-selected to win through information back channels that exist outside of the official process. 2. Big contracting firms (GD, Boeing, British Aerospace, Leidos, etc.) with a lot of political muscle and connections pair with connected small companies and individuals to help them win these contracts. It's not only allowed that they do this - it's actually suggested. [1] In return they get consulting fees and free R&D for future product lines. [1] https://www.sbir.gov/tutorials/preparing-proposal/tutorial-4 https://www.sbir.gov/tutorials/preparing-proposal/tutorial-4
  • sleighboy 7y ago
    You're being too kind on point #2
    • robertAngst 7y ago
      The Left acts like point 2 doesnt exist. And it really hurts them being relevant in modern economics when they ignore corruption.
      • deleted 7y ago
        [deleted]
  • bkloppenborg 7y ago
    Most importantly, the Government receives "Government Purpose Rights" to Data and Computer Software (including source code). The "SBIR/STTR Protection Period" gives the government a copy of the product for evaluation during which the government has limited distribution and use rights. After four years, the Government has Unlimited Rights (see the SBIR Policy Directive [1]which means they have a royalty-free license to use, authorize others to use, distribute, and disclose said data and software for Government purposes. All of this is defined in the model contract [2] for Phase I and Phase II awards. There are some restrictions, but you'll need to read the documents carefully to determine when these items apply and/or can be excluded. With that said, I've found SBIRs to be exceptionally useful for my business (I've won $750k in Phase I funding and administered $1M in Phase II funding). The proposal forced me to hone my idea and I received feedback fairly quickly (6 months) with a week or so of invested time. The product is built with minimal risk to my business and the Government can set up meetings with potential users (something that is exceptionally difficult if you aren't on contract). Lastly, with most SBIRs you can request up to $10-15k of additional funding for Commercialization Assistance which permits you to sit down with an adviser who can guide you on bringing your product to market. SBIRs are really an ideal method for Small Businesses to grow. [1] https://www.sbir.gov/sites/default/files/SBIR-STTR_Policy_Directive_including_Preamble_2019.pdf https://www.sbir.gov/sites/default/files/SBIR-STTR_Policy_Di... [2] https://www.acq.osd.mil/osbp/sbir/sb/resources/model-contracts.shtml https://www.acq.osd.mil/osbp/sbir/sb/resources/model-contrac... Edit: fixed links, added statement about my involvement with SBIRs.
• convivialdingo 7y ago
  Our company did a handful of these before we sought VC funding. I have to agree with most everything said already. You’ll starve before the contract gets funded - it can take years and you will likely be on a second generation of code by then. It’s hugely political. We partnered with larger competitors and spent a lot of cash on legal fees and patent protections. Net profit was just not worth it alone - but we had a few prestigious projects that helped us get on the GSA schedule, get FIPS and CC certified, and snag a few hard-earned customers. Honestly I wouldn’t do it again unless it had a contingent long term contract.
• sleighboy 7y ago
  After years of inside experience with SBIR applicants and the various agencies I can say confidently that is largely a sham to funnel money to those who make friendships and scratch the backs of the various agency heads and their underlings. Also, the things I saw regarding how the agencies and their contacts exchange private data were frightening. People talk about the "deep state" of unelected bureaucrats. It doesn't have to be some grand plan to exert great power. These programs are robbing taxpayers to enrich a small clique with self-serving goals, returning little of value. The Idaho company of "solar freaking roadways" fame is an SBIR boondoggle, that should tell you something, and I think they made it to Phase II.
  • therobot24 7y ago
    this has not been my experience with SBIRs
  • sdinsn 7y ago
    I think you are exaggerating. The goal of SBIRs is to fund high risk research. Solar roadways are high risk; even if it fails completely it's not like a lot of money is wasted, and something valuable is still learned. Qualcomm was the result of SBIRs, for example.
• marcus_holmes 7y ago
  I don't know about the USA, but in Australia all these government programs come with so much paperwork and bullshit that it's not worth it. The most successful program, Accelerating Commercialisation (or Commercialising Acceleration, or whatever this year's government is calling it) requires matching funding, only funds a specific project, and takes around 3-6 months to complete the application process. Very suitable for a existing small business trying to create a new product line, totally useless for a startup trying to iterate in a new market quickly. The grant also comes with a case worker to follow progress, and the money is released in tranches according to achievement milestones. All sounds great on paper, but it completely ignores the fact that the original plan will definitely change in response to new information or market changes. I've known a few people who've been through the process, and they all said that the money wasn't worth the hassle involved. And that's the best, most successful government funding program. The others are worse, way worse. The root cause is that the mindset needed to be a successful bureaucrat is so far away from the mindset needed to be a successful entrepreneur. There's no way any program that would actually be useful to entrepreneurs will be acceptable to the bureaucrats who administer it. Also, the purpose of any funding program is complete the moment that a politician steps up to a TV camera to accept credit for creating it. Anything that happens after that is pointless/just a bonus. The point of all these programs is not to actually help new businesses, but to help political careers. My advice to anyone looking to get government help for their business is to not bother, it's just a distraction from communicating with customers. And it'll be five times as time-consuming and painful as you expect, with one fifth the return you expect.
  • hackits 7y ago
    Big reason why most tech people I know leave Australia, go over to the states make their million and then come back home. Then the ATO has the audacity to want to tax them for their over-seas income well not residing in Australia.
    • afarrell 7y ago
      The IRS makes Americans abroad file taxes as well.
• chrisseaton 7y ago
  Is a startup going to be able to do research? Research takes years, is extremely risky, and even if it's successful may not produce anything that can be a product. Most of the time the output of successful research is a paper.
• matt_the_bass 7y ago
  I think that many people forget that one can start a company without being a “start up”. Foray people, success doesn’t always mean raising a ton of VC funding and aiming for a huge valuation. I started my company over 18 years ago. We have a lot of fun doing really interesting work for interesting customers. We’re now a “commercial” company funding ourselves through commercial sales. However before we reached that point we had a few SBIR grants as well as some other US govt grants. Total was about 4M. I’d say that was helpful and valuable especially during the recession. Ironically we’ve sold more product to non-US governments than US. We try to only apply to grants that are 95% focused on what we want to do anyway. We’ve also found that applying to grants we find out about from public solicitations is not worth the effort. To win these grants one needs to find a sponsor interested in your technology, then get them to write a solicitation that is focused on your unique sauce. It doesn’t gaurentee you winning the grant but does increase the chances of your being considered. I am a little jaded on this topic. I feel that my team has really leveraged these findings into real products and, in turn, jobs. However I see TONS of companies that just charge through grants and never do anything greater with the funding. As a small business owner and tax payer (funder of these grants) that is not what I think is an ideal use of the money.
• ykevinator 7y ago
  It's mostly because most startups are not scientific and most of the funding goes toward scientific ideas and companies. If you don't have good scientific credentials and scientific research to support your business hypothesis, you will have a hard time getting funded.
• mojomark 7y ago
  After years of contemplating, I once tried going after an SBIR with a partner. It was for a robotic ship tank inspection system. We put a lot of time and effort (about a month of constant work) into designing a strong concept solution and puting the proposal together. However, we had a few basic questions and the government technical and programmatic POC on the solicitation was non-respinsive after several contact attempts. We submitted our proposal, meeting all of the insanely meticulous format requirements, but as feared we never recieved a response. Instead, the award was given to an off the shelf product for an incremental upgrade. Clearly, the awardee was already identified by the PM before the SBIR solicitation was even written, so I essentially lost a month of my life by being mislead into thinking the solicitation was truly open. The SBIR was just another way to funnel R&D money to the existing product the PM manages. Gov't PM's do this because government funding comes in "colors" that specify by law how the money can be used (e.g. Operation and Maintenance, Construction, R&D, etc.). However, for some programs it's hard to secure R&D dollars, so back channels, like working with your supplier to craft an SBIR solicitation you know you will be awarding to them, are needed to fund improvements. I suspect the fear of this occurnace (wasted effort) is the primary reason startups avoid government funding, and I can tell you first hand it's a valid concern. If you think the U.S. doesn't have it's own backchannels of corruption and unfairness in the contracting community, and that such practices are limited to developing or non-ally nations, you are mistaken. Ironically, I think one of the reasons this type of behavior has emerged is thanks to the push from our own citizens - largely due to the "fleecing of America's dollars" scare of the 1980's and 90's, which asked America why the government was buying a $100 hammer or a $200 toilet seat. The push for transparency and frugality has driven the government in many cases to a culture (or requirement) to use funding loopholes and side agreements to get work done and also award contracts to lowest bidders regardless of the quality of the offering. There are good program managers out there, doing their civic duty and following all the rules to the best of there ability. However, to me, the chance of finding such honest brokers and opportunities isn't great. If you want to work with government, your best bet (IMO) is to go to a trade symposium in your specific area of interest and strike up conversations with PM's in attendance to discuss solutions to their problems.
• PatentlyDC123 7y ago
  Another factor might be control of IP. IP created with government funding can be pretty restrictive for the company depending on the government program and other factors.
  • 1auralynn 7y ago
    With SBIR funding you retain your IP
• aerophilic 7y ago
  As someone that went through the process as a startup (in the US): the biggest impediment is timing/paperwork. In the best case scenario, you apply as part of a round (filing out a ton of paperwork), wait 3-6 months to hear that you got it, and then have to receive the money in tranches (Which sometimes includes terms like net 30days). Often, you don’t get final payment till final deliverable. How that played out for our company was for us to take out a loan against the award, just so we can get the work done. So it helps, but as others have said as a small startup it is not easy to do. We had the advantage of folks on the team who had done this sort of thing multiple times, and knew how to navigate the process.
• swalsh 7y ago
  I've always wondered how many of these solicitations already have a recipient already choosen, but the law mandates you have to ask publically first. Does anyone have any experience trying to bid on one of these contracts?
  • mojomark 7y ago
    See my response above. Yes, they technically must ask publicly as it's extremely difficult to justify sole source acquisition. However, in reality, for smaller contracts most PM's will all but ignore applicants they don't know personally. You have to engage face-to-face in some way (e.g. at a symposium, reaching them through your network, finding their phone # or email). Some PM's are responsive and will entertain a discussion while others just want to keep their job by mimimizing risk and maintaining the status quo, and will simply blow you off. I don't have (and doubt there are) stats on this, but I suspect chances of winning a blind award (without a face-to-face meeting) are virtually zero.
• Proven 7y ago
  Government spending is wasteful enough as is, and you want more of it? No wonder the US is going down the toilet! Investing in startups (or basic science) is bordering on insanity because before you do it, you know you'll waste 90% of your money. Yet the government somehow must be involved in that. Investing other people's (taxpayer's) money knowing that you're unlikely to earn it back is a form of fraud (and of course vote buying).
• ArtWomb 7y ago
  Funding momentum is shifting to private sector research financing. Apple may spend on order of $10B on research this fiscal year. But even higher dollar outlays will not solve the problem of the "chasm". An invention made under laboratory conditions requires a lot of finesse before it becomes a mass market consumer product. And product design and go-to-market strategy are not skills found in your typical inventor's wheelhouse. I'm curious to hear if anyone has had an experience with the "invention services" industry. The few insiders I've spoken to seem to be more interested in revenue generation via litigation, than actually ever developing a product! Seems like a service ripe for disruption...
• 6gvONxR4sf7o 7y ago
  They also sorta-kinda-fund research via tax credits. As far as I know, startups do take advantage of this.
• xvilka 7y ago
  There is an interesting project to connect scientific community and funding organizations - Polyplexus[1]. It might be extended to support private research and development probably, you could suggest that using the contact form. [1] https://polyplexus.com https://polyplexus.com
• cushychicken 7y ago
  There's a pretty serious disconnect between the demand of those that the SBIR program is meant to serve, and the mindset of those actually receiving SBIR grants. On the demand side - many of the intended customers of SBIR grants (government agencies who need a specific technology solution) can get what they want faster, and with lower risk, through an existing contractor. You could gamble with a two person company funded by a few hundred thousand government dollars, or you could go to a Raytheon or a United Technologies and get the same thing made by a team of experts who will build you exactly what you want. In terms of deliverables, the risk profile is much lower (and the resulting upside to your mission is much higher) if you go with the big contractor. SBIR exists to fund some of the riskier technology efforts, but also to give the government some cover in terms of perceived equality. They can point to SBIR and say "Look, the little guys had a chance to bid too! We even gave them money!" On the receiving side, I've met more than a few researchers who have gotten SBIR grants for their work, and effectively used them to pay for research/proof of concept that they have already done. I.E. the SBIR grant (Phase I) pays for work that they've done over the past year or so. Many of the folks who take Phase I grants that I've spoken to have no interest in commercializing and productizing their work. They are interested in basic science, not product development. I'm not sure how to get over what seems like a pretty serious disconnect here.
  • 1auralynn 7y ago
    The purpose of the program is to help grow the economy by supporting development of innovative and risky new technology. The regular SBIR program is not about building something specific.
    • cushychicken 7y ago
      It's true that a lot of the technologies are risky, but many government departments (DoD, Homeland Security, NASA) put forth solicitation requests asking for companies to build proof of concepts to fill specific needs of the requesting agency.
• JangoSteve 7y ago
  This is timely. Our startup just had an article written about our use of SBIR grant funding with some tips at the end: https://bbcetc.com/sbir-related/ann-arbor-company-is-an-engine-for-growth-with-tips-to-share-on-sbir-success/ https://bbcetc.com/sbir-related/ann-arbor-company-is-an-engi...
• AWildC182 7y ago
  I worked for a company doing SBIRs. The overhead for taking advantage of these is insane. You need people who understand how to get through the contract process and all the legal requirements. You have to use incredibly bad time tracking software and deal with yearly time tracking and budget audits. Your IT systems must be locked down but in a way defined by the government, not necessarily industry best practices. Finally, as others have mentioned, you have to deal with the politics of defense contracting. Ultimately you'll just be beat out by one of the many small or medium size companies that literally exist to farm these if it hasn't already been given to a large established DoD contractor.
• espeed 7y ago
  notkid...a green account 12 hours old. Who are you? Contact me from your .gov or .mil address and I'll reply. And following that, if you want a public reply, OK.
• zigzaggy 7y ago
  Interesting question! I've been in government contracting off and on for over a decade. I've spent the last 5 or so helping small businesses get contracts and grants. In my opinion, having a 2 sided business - 1 for commercial and 1 for government - is a very good business strategy. But it's hard finding the right people to join the team because we get snatched up by the big shot military contractors all the time. To answer your question, it is a very common way to start a startup in big government contracting towns. I see that all the time around here (SE US). Government contracts have been spinning up new tech since I've been in the business. But there are high barriers to entry for new players, unfortunately. Most of them have already been discussed already.
• madamelic 7y ago
  It's slow. I got laid off because the startup I was at was relying on a huge gov't grant to come in, the gov't dragged their feet then boom, the startup had to go more lean. No clue if they've gotten it yet or just decided to abandon a possible huge payday in a few years (or decades, who knows.)
• lostmsu 7y ago
  I am interested in applying to one of those programs, but I'd like to know approximate refusal rate to estimate if the effort of applying is worth it. As a technical person with a prototype, that is already useful for some business usecases (but needs lots of polishing before the final release) I find it hard to find a specific grant matching my project, and need some guidance on following the expected application procedure. It also looks like the entire process could be streamlined. While there is a tutorial linked here: https://www.sbir.gov/tutorials/preparing-proposal/ https://www.sbir.gov/tutorials/preparing-proposal/ , a simple wizard walking through the entire process would make me much more eager to go with it.
• Spooky23 7y ago
  Lots of small businesses use these funds. It’s just not a good fit for a VC backed “startup”. Also, just like SV folks know the lingo and rules around VC investors, you need to get the grant or contract lingo and process. You need to be wary of wasting your time. One government entity that I know of will happily have you spend lots on money on upfront compliance and insurance, and then offer minimal or trivial contract opportunities. On the other hand, I know another guy who literally got free mentoring and training for his folks as part of a program, and built a 250-person company that was initially seeded by a single contract.