In this video, Stacy Chin of keepyourequity.co explains why Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants, while valuable non‑dilutive funding sources, are not suitable for every science or technology startup. She outlines nine specific reasons a startup might avoid pursuing SBIR funding: (1) the program’s focus on R&D makes it a poor fit for revenue‑generating, service‑based, or already‑launched product companies; (2) the application process is lengthy, resource‑intensive, and highly competitive; (3) award amounts are limited (typically a few hundred thousand for Phase I and up to $1‑2 million for Phase II), which may not meet the capital needs of startups seeking larger rounds; (4) applicants must disclose detailed intellectual property, which can be problematic for firms protecting proprietary technology; (5) strict limits on purchasing large equipment (> $5,000) restrict certain development plans; (6) the decision timeline (4‑6 months after submission) is too slow for time‑sensitive opportunities; (7) eligibility is restricted to U.S.-based businesses, excluding foreign startups; (8) nonprofit entities cannot apply directly, only as subcontractors; and (9) small teams with limited staff may lack the capacity to dedicate the necessary effort to a competitive SBIR application. Throughout, Chin emphasizes the importance of aligning funding strategy with a startup’s stage, resources, and goals, and suggests considering alternative funding sources when SBIR is a mismatch.
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Getting grants from the SBIR program, or the Small Business Innovation Research program, is an excellent way to secure non-dilutive funding to support research and development efforts to commercialize new technologies. However, this may not be the best fit for every single startup. So in this video, I'm going to go over the top 9 reasons why size and tech startups may not want to go for SBIR funding. So if you are a startup founder trying to decide whether or not to pursue SBIR funding, keep watching this video because it might save you a lot of time investors in money as you pursue your fundraising journey. Hey guys, welcome back to the channel. I'm Stacy Chin from keepyourequity.co, and our goal is to help startup founders secure non-diluted funding so that they can bring their innovative ideas to the commercial market. We particularly specialize in science and tech startups, and we help them get funding from federal programs called the SBIR and the STTR. So if you're interested in learning more about these different non-diluted funding opportunities, check out the link in the description to another video. As a science or tech founder, it is important that you know the reasons whether or not SBIR funding is a good fit for you and your startup. And that's because pursuing these non-dilutive funding opportunities can be time-consuming and a resource-intensive process. So it is important to know whether pursuing SBIR funding is aligned with your startup goals, funding needs, and current progress on your developments. And by understanding the potential benefits and drawbacks of pursuing SBIR funding, you can make an informed decision whether or not to go after it. So as a startup founder, ensure to take the appropriate time and effort to consider all of your funding options so that you can choose the best strategy for your startup's needs so that you can be successful in the future. And by doing this due diligence upfront, you might save yourself a lot of wasted time and resources in the long run. So with that, here are the top 9 reasons why you should not go for SBIR funding. Some examples of these types of startups may be those that have e-commerce platforms or service-based companies or those developing mobile apps. Also, startups that are offering research or consulting services, as well as those with developed products that are already launched in the market, may also fall under this umbrella. And this is because the US federal government wants to use SBIR funding to invest in companies that are pursuing research and development projects with high commercial potential that can result in long-term, high-impact outcomes and growth. So while revenue-generating projects are very important for startups, they don't always fit within the scope of the SBIR program and their funding priorities, especially if the startup is not focused on pursuing R&D. Applying for these grants can take anywhere from months at a time and also requires significant efforts to prepare a really strong application. Additionally, the competition is fierce, so there's no guarantees that you will get SBIR funding. Even after your first second or third submission. So if your startup is stretched really thin and is short on time and resources, then pursuing SBIR funding may not be feasible for you and your startup. And this is especially true if you are a small startup without that many employees or resources to fully dedicate the time and effort needed to pursue these applications. So instead of spending all your time and resources applying for SBIR funding, it may be more productive to focus on other funding sources that might be better aligned with your startup's available available resources, times, and need. This is especially true if you're looking to raise more than $2 or $3 million. SBIR grants are typically limited to a couple hundreds of thousands of dollars in a Phase I or about $1 to $2 million in a Phase II, depending on the federal agency you're going after. You can learn more about the NSF and NIH budgets for 2023 using the link in the description that goes to another video. When preparing one of these applications, startup founders must disclose the intellectual property, which may not be aligned to your goals. I've worked with many founders that are very hesitant about disclosing the proprietary IP in an SBIR application. And while these are very valid concerns, if you cannot provide enough details in your SBIR application, this makes it crazy challenging for the reviewers to properly evaluate the competitive advantage and the broader impacts of your innovation. And for these reasons, that will also impact your score. So if your startup has a proprietary technology or IP that you do not want to disclose in an application, then pursuing SBIR funding may not be a good fit for you. In this case, you might want to consider other funding sources that don't require IP disclosure, or you can work with a lawyer to figure out a strategy that works best for you and your startup. If your startup is looking for funding to purchase a lot of huge equipment that costs over $5,000 each, then SBIR funding may not be the best fit for you. And this is because the U.S. government have placed really strict limitations on the purchase of really large equipment so that the SBIR funding can go towards R&D efforts instead of the acquisition of large items and facilities. And by restricting the use of funds in this manner, the US government hopes that SBIR money go towards R&D research to develop new innovations that have strong potential for commercialization and for the public benefit. Another reason for this limitation is that the US government wants to avoid the risk of misuse of funds or fraud by limiting the use of these funds for certain activities. And by prohibiting the purchase of large equipment with these SBIR funds, the government can ensure the monies are being used on the appropriate activities instead. With that being said, there are some exceptions to the rule, such as purchasing large equipment that is essential for the R&D project and that cannot be attained by any other means. So in such cases, startups should consult with the program officer or speak to the agency to seek approval before going and submitting their SBIR application. The SBIR application process is very lengthy, and it can take several months before a decision can be made to know whether or not you got the funding. If you see my other videos, you would know that I usually advise startups to start at least 3 months before the deadline to prepare a Phase I application, and even up to 5 to 6 months if you're preparing a Phase II. Once you submit your application, it can take anywhere from 4 to 6 months to even just hear back whether or not they want to fund your application. So if your startup needs funding to meet a deadline or to seize an opportunity, then SBIR funding is not the best option for you. In this case, you might want to consider other options that can provide you funding in a shorter amount of time. The SBIR program is a federally run program that is only offered to U.S.-based businesses. So if your startup is a foreign entity or not based in the U.S., then you won't be eligible for SBIR funding. So that means if your startup falls in this category, then it's probably better to consider other funding options that are within your region or country instead. Non-US-based citizens can participate in SBIR-funded projects as employees of the small business, but they can't directly receive the SBIR funds. Additionally, non-US-based citizens may be subjected to certain restrictions and requirements, such as obtaining a work visa or work authorization, in order to work for SBIR-funded small business. It's worth noting that some other federal agencies may have additional eligibility requirements or restrictions whether or not SBIR funding are allowed to be used on non-U.S. citizens. So it's important to review the guidelines for each agency's SBIR solicitation before applying. The SBIR grant program is designed to support R&D developments for for-profit institutions, and as such, nonprofits are not eligible to apply for SBIR funding directly. However, nonprofit organizations may still be able to participate in the SBIR program either as subcontractors or collaborators with small businesses that are directly receiving the SBIR funds. And this is true for research universities or teaching hospitals as examples. In such cases, the small businesses that are receiving the SBIR funds would be the primary recipient of the funds and responsible for the management and oversight of the project. Additionally, some federal agencies that do have the SBIR program may have additional funding programs or mechanisms specifically designed to support nonprofit organizations to engage in R&D activities in collaboration with a small business. And for that reason, these nonprofit organizations may want to seek those different funding opportunities from these agencies. So that concludes the top 9 reasons why you should not consider SBIR funding for you and your business. Thank you so much for watching till the end of this video. If you found any of these tips helpful, please like and comment and subscribe to this channel so that you won't miss out on any other tips and tricks on How to secure non-dilutive funding from the federal programs called the SBIR and the STTR. And always don't forget to check out our website at keepyourequity.co where you'll find lots more tips, advice, and resources to help support you in your non-dilutive fundraising journey. Thank you so much for joining me today, and I'll see you in another video very, very soon.
