Starting a business is a challenging but rewarding endeavor. Entrepreneurs must put in much effort, hard work, and dedication to make their venture successful. One of the entrepreneurs’ most significant challenges is finding the necessary business funding. While several funding sources are available to startups, it is crucial to identify the most suitable option for your business. The right funding source can make a big difference in the success of your startup.
Most entrepreneurs are aware of familiar funding sources such as angel investors or venture capital, but one funding source often overlooked is government funding. Government funding can be an excellent source of financing for startups as it can provide businesses access to capital they may not be able to secure through other means. Additionally, government funding can come in different forms, such as grants, loans, tax credits, and subsidies, which can benefit startups differently.
It is worth noting that government funding plays a significant role in supporting social enterprises and non-profit organizations. These organizations often work towards achieving social or environmental impact but may not have the financial resources to sustain their operations. Government funding can provide a stable source of funding to support the work of these organizations, allowing them to serve their communities better. Additionally, government funding can help to incentivize private investment in social enterprises and non-profits by demonstrating a commitment to supporting these organizations. When working with founders with a social mission, building interventions for behavioral change, I encourage them to research these important funding sources.
This post will focus on federal, local, and global government funding. We will discuss the eligibility criteria for accessing these funding sources, tips for preparing solid applications, and how to follow up with government agencies to increase the chances of securing funding. With this information, entrepreneurs can make informed decisions about which funding source is most suitable for their business and increase their chances of success.
Federal Government Programs
The federal and local government offers a range of grant and loan programs for startups. These programs can provide significant funding for startups to start or expand their business. In addition, several federal government grant programs are available for startups depending on their industry, location, and specific needs. Below are some of the more relevant national program offerings for startup support.
Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Grants: The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs are U.S. government programs designed to stimulate technological innovation in small businesses. Several federal agencies administer these programs, including the Department of Defense, the Department of Energy, and the National Institutes of Health. These programs support scientific research and development projects with commercial potential. They are available to small businesses that meet specific criteria and offer up to $1.5 million in funding. The SBIR and STTR programs are highly competitive. For example, in fiscal year 2022, the programs received over 111,000 applications for only 2,500 awards. Since their inception in 1982, the SBIR and STTR programs have awarded over $35 billion to small businesses.
The SBIR and STTR programs are open to small businesses with fewer than 500 employees and less than $3 million in annual revenues. The programs are also available to small businesses owned by socially and economically disadvantaged individuals.
The SBIR and STTR programs offer three phases. In Phase I, the government awards small businesses up to $250,000 to conduct feasibility studies of their proposed research projects. In Phase II, the government awards small companies up to $1 million to further develop their research projects. Finally, in Phase III, the government does not provide funding but encourages small businesses to seek private-sector financing to commercialize their research projects.
For example, Nauto, based in Mountain View, California, received a $2.5 million SBIR grant to develop a driver monitoring system to detect and alert distracted or drowsy drivers. The company’s system uses cameras and sensors to track a driver’s eye gaze, head position, and facial expressions and can identify signs of distraction or drowsiness. The grant allowed Nauto to improve its accuracy, expand its system’s capabilities, and bring it to market. As a result, major trucking companies like Anheuser-Busch, UPS, and FedEx use Nauto’s systems, effectively reducing driver distraction and drowsiness. The company is also developing a version of its system for passenger vehicles. According to the National Science Foundation’s website, Nauto won an SBIR Phase I grant in 2014 and an SBIR Phase II grant in 2016. The company was also awarded an SBIR Phase II Fast-Track grant in 2017. The first SBIR award was a significant source of seed funding, leading to its official launch in 2015.
For SBIR or STTR grants, small businesses must apply to the federal agency sponsoring the research area of their interest. The application includes a description of the research project, the research team’s qualifications, and the research project’s commercialization potential. The SBIR and STTR programs are valuable resources for small businesses developing new technologies or products. The programs provide small businesses with the funding and resources they need to conduct research and development, and they also help small companies to commercialize their research projects. Check out https://www.sbir.gov/.
Small Business Administration (SBA) Loans and Grants: The SBA offers a variety of grants for small businesses, including the Small Business Grant, which provides funding for startups involved in scientific research and development. The Small Business Administration (SBA) is a federal agency created in 1953 to help small businesses get the financing they need to start, grow, and succeed.
The Small Business Administration (SBA) offers several loan and grant programs to assist small businesses. The most popular program is the 7(a) Loan Program, which provides funding for various business expenses. Another loan program is the 504 Loan Program, offering long-term financing for real estate and equipment purchases. In addition, the Microloan Program provides small loans for entrepreneurs who cannot obtain traditional financing, and the Express Loan Program offers streamlined loans of up to $350,000. The SBA also has programs that guarantee surety bonds for small businesses, including the Surety Bond Guarantee Program. The agency also helps socially and economically disadvantaged small businesses through the 8(a) Business Development Program. Finally, it provides federal contracting preferences to small businesses in HUBZones, veteran-owned businesses, and women-owned businesses through the HUBZone Program, VOSB Program, and WOSB Program, respectively.
Aerobotics, a South African company, operates a drone-based platform that uses artificial intelligence to identify and classify plant diseases, pests, and weeds for crop monitoring. In 2022, Aerobotics received a $2.2 million loan from the SBA to purchase new equipment and hire additional staff. Additionally, the company won a $1 million grant from the SBA’s Technology Commercialization Fund to develop new drone technologies and expand research and development efforts. As a result, Aerobotics has expanded its operations to the United States, Australia, and Brazil. It is now one of the leading providers of global drone-based crop monitoring and disease detection services. Its services have helped farmers increase crop yields and reduce losses.
Businesses must meet specific criteria to be eligible for SBA financing, such as being small (fewer than 500 employees) and for-profit. Companies must also demonstrate that they are creditworthy and have a sound business plan. Businesses must apply to an SBA-approved lender. The lender will review the application and decide whether to approve the loan. Check out https://www.sba.gov/.
Rural Business Development Grants: The U.S. Rural Business Development Grants (RBDG) program is a competitive grant program administered by the U.S. Department of Agriculture (USDA) Rural Development. The program provides funding to support the development and growth of small and emerging businesses in rural areas. Eligible companies must have fewer than 50 employees and less than $1 million in gross revenues. In addition, they must be in a rural area, defined as any area “outside the urbanized periphery of any city with a population of 50,000 or more”.
Here is a recent example of a Rural Business Development Grant that funded a startup on sustainable farming. In 2022, the USDA Rural Business Development Grant Program awarded a $50,000 grant to Root Down Farm, a sustainable farming cooperative in rural Maine. The grant supported the purchase of new equipment and expanded its operations. Root Down Farm is a certified organic farm that grows various vegetables, fruits, and herbs. The cooperative is committed to sustainable farming practices, such as using no pesticides or herbicides. The grant funding will help the joint increase production and reach more customers.
RBDG grants are competitive, and applicants must submit a grant application with a detailed project description, budget, and timeline. The USDA Rural Development will review all applications and select the most likely to achieve their goals successfully. The RBDG program is a valuable resource for rural communities. The program provides funding to help businesses grow and create jobs in rural communities. The program has awarded over $1 billion in grants to support sustainable agriculture since its inception in 2002. The program is a valuable resource for farmers and ranchers looking to adopt sustainable practices and grow their businesses. Check out https://www.rd.usda.gov/programs-services/all-programs.
Economic Development Administration (EDA) Grants: The Economic Development Administration (EDA) is a federal agency that provides grants and loans to communities and businesses in economically distressed areas. EDA aims to “generate economic development that lifts people out of poverty and creates jobs.” These grants are available for companies in regions that have experienced economic distress or high unemployment rates. EDA loans and grants are available for a variety of projects, including:
- Infrastructure projects, such as roads, bridges, and water and sewer systems
- Public facilities, such as libraries, museums, and parks
- Business development projects, such as job training and technical assistance
- Planning and technical assistance
For example, The Pine Bluff Economic Development Corporation, a nonprofit organization responsible for the economic development of Pine Bluff, Arkansas, received a $10 million EDA grant to revitalize the Pine Bluff Arsenal. The former military installation has been vacant since 1999, and the grant helped to demolish old buildings and develop the site into a mixed-use development. The project projects five years to complete and generate $100 million in economic activity while creating 250 jobs during construction and 500 jobs once completed. The Pine Bluff Arsenal revitalization project is an excellent example of how the EDA can revitalize communities, create jobs, and improve quality of life.
EDA loans and grants typically go to communities and businesses that meet specific criteria, such as being in an economically distressed area or creating a certain number of jobs. The applicant must apply to EDA for an EDA loan or grant. The application must include a description of the project, the cost of the project, and the source of funds. EDA will review the application and decide whether to approve the loan or grant. Check out https://www.eda.gov/funding/funding-opportunities.
Department of Commerce Minority Business Development Agency (MBDA) Grants and Loans: The Minority Business Development Agency (MBDA) is a federal agency created in 1969 to help minority-owned businesses grow and succeed. The Minority Business Development Agency (MBDA) provides counseling, training, technical and procurement assistance, and financial aid, including grants and loans, to eligible minority-owned businesses in the United States. In addition, MBDA financial assistance is available for research and development, marketing, or training projects. Loans are repayable with interest, and collateral may be required, while grants are not repayable and do not require collateral.
Eligible businesses must be minority-owned, located in the United States, for-profit, and small (fewer than 500 employees). Companies can apply for MBDA financial assistance by submitting an application that includes information about the business, the project, and the need for funding. The MBDA financial assistance can be instrumental in helping minority-owned businesses to grow and succeed.
In recent grants, the MBDA Enterprising Women of Color Business Center Program received a $2.5 million award, with funding distributed among five organizations across Washington, DC, Atlanta, Metairie, LA, and Honolulu, HI. These organizations aim to provide specialized training and support for minority women-owned businesses by offering educational workshops, networking opportunities, and training sessions. Additionally, these organizations plan to provide collaborative workspaces for minority business owners to connect with incubators, accelerators, co-working spaces, university-focused technology, research, mergers, and acquisitions.
Businesses must apply MBDA directly. The application must include information about the company, the project, and the need for funding. MBDA loans and grants can be a valuable resource for minority-owned businesses. By providing financing for working capital, equipment, real estate, research and development, marketing, or training, MBDA can help minority-owned businesses to grow and succeed. Check out https://www.mbda.gov/grants.
National Science Foundation (NSF) Grants: The National Science Foundation (NSF) is a federal agency that supports fundamental research and education in fields of science and engineering. The NSF offers a variety of programs and resources to startups, including funding opportunities, mentorship programs, networking events, and access to resources such as research facilities and technical expertise. The Small Business Innovation Research (SBIR)/Small Business Technology Transfer (STTR) program provides up to $2 million in non-dilutive funding to conduct research and development (R&D) projects with commercial potential. The Innovation Corps (I-Corps) program provides training and resources to help startups validate their business ideas and develop a go-to-market strategy.
Apart from the programs and resources mentioned above, the National Science Foundation (NSF) provides various other benefits to startups. First, the NSF brand is highly respected and recognized for its long-standing commitment to fostering innovation. Being associated with such an esteemed organization can lend credibility to startups and enhance their reputation in the industry. This credibility can significantly impact a startup’s ability to attract investors, customers, and collaborators.
Secondly, the NSF has a vast network of contacts in the scientific and engineering communities. Startups can tap into this network to seek out new customers, identify potential collaborators or partners, and gain access to valuable resources. This network can be especially beneficial for startups just starting and trying to establish their presence in the industry.
Finally, the NSF seal of approval is a mark of quality that can significantly benefit startups. Startups that have received funding or support from the NSF can use this as a selling point to attract investors and customers. In addition, the NSF’s seal of approval signifies that a reputable organization has vetted a startup and meets specific standards. This affirmation can give potential investors and customers the confidence they need to invest or purchase a product or service.
The NSF can be a valuable resource for startups looking to grow and succeed. The NSF can help startups overcome the challenges of starting and growing a business by providing funding, mentorship, networking, and access to resources. However, the NSF offers startups much more than just financial support. The NSF brand, network, and seal of approval are additional benefits that can help startups establish themselves in the industry, attract investors and customers, and collaborate with other organizations. Check out https://www.nsf.gov/.
SCORE: Service Corps of Retired Executives: Another great resource the SBA provides is SCORE, Service Corps of Retired Executives. SCORE is a nonprofit organization that provides free and confidential business mentoring to entrepreneurs. SCORE is a resource partner of the U.S. Small Business Administration (SBA), and its more than 13,000 volunteer mentors have a combined 24 million years of business experience.
SCORE is a remarkable resource that provides entrepreneurs with a wide range of benefits, including access to various resources, funding sources, business development organizations, and professional associations. In addition, SCORE mentors can help entrepreneurs succeed by providing guidance, support, and valuable insights to help them avoid common mistakes and make better decisions.
A significant benefits of working with SCORE mentors is their extensive experience in starting and running businesses. SCORE mentors can share their knowledge and expertise with entrepreneurs, helping them to develop their business skills and grow their companies. SCORE mentors can also provide encouragement and support, assisting entrepreneurs to stay motivated and focused on their goals.
Another significant advantage of SCORE mentoring is that it is free of charge. Entrepreneurs do not have to pay fees to participate in the program and can meet with their mentors as often as necessary. Additionally, SCORE mentoring is confidential, meaning all conversations between the mentor and the entrepreneur are private.
SCORE mentors are also available to meet with entrepreneurs in person, over the phone, or online, making it easy to find a time and location that works for both parties. This flexibility benefits entrepreneurs who live in rural areas or have busy schedules.
Finally, SCORE mentors have a vast network of contacts in the business community that they can leverage to help entrepreneurs grow their businesses. This network can connect entrepreneurs with funding sources, business development organizations, and professional associations that can provide valuable resources and support.
Entrepreneurs can visit the SCORE website and create a profile to begin working with SCORE mentors. Once you set a profile, entrepreneurs can search for mentors in their area and schedule a free consultation. With SCORE’s support, entrepreneurs can take their businesses to the next level and achieve long-term success. Check out https://www.score.org/.
Federal Government Funding for Social Enterprises | Nonprofits
Social enterprises and nonprofit organizations are essential in addressing social and environmental issues like poverty, inequality, and climate change. However, these organizations often struggle to secure funding to sustain their operations and programs. The federal government provides funding opportunities to support social enterprises and nonprofits through various initiatives, such as grants, loans, and tax incentives. These funding sources aim to help these organizations create social impact and improve the well-being of communities. In this way, federal government funding for social enterprises and nonprofits can be critical in advancing social progress and promoting a more equitable society. Several federal departments can provide funding opportunities. Here are a few examples.
The Department of Health and Human Services (HHS): HHS is a cabinet-level department responsible for protecting all Americans’ health and well-being. HHS offers a variety of grant programs, including the Substance Abuse and Mental Health Services Administration (SAMHSA) grant program, which provides funding for substance abuse treatment and prevention programs. HHS also works to create an environment that is supportive of innovation. As a result of these efforts, HHS plays a significant role in the growth of the health tech industry. For example, HHS and other federal agencies have supported Omada Health. Omada Health (Founder from Columbia University) is a digital health company that helps people with chronic diseases manage their health. HHS has funded Omada Health through the Health Resources and Services Administration (HRSA) and the Centers for Disease Control and Prevention (CDC). For example, Omada Health has received over $256 million in funding from various sources, including HHS. In 2016, HRSA awarded Omada Health a $10 million grant to support the development of its diabetes prevention program. In 2017, the CDC awarded Omada Health a $5 million grant to keep expanding its diabetes prevention program to new markets. These early grants allowed the company to flourish, and it has successfully procured several funding rounds, including a $192 million Series E funding round led by Fidelity Management & Research Company. Check out https://www.hhs.gov/.
The Department of Education (E.D.): E.D. is a cabinet-level department responsible for education policy. E.D. offers a variety of grant programs, including the Title I grant program, which provides funding for schools with high concentrations of low-income students. While the Department of Education (E.D.) does not directly fund startup projects, it does provide funding to organizations that support startups, such as universities, community colleges, and nonprofit organizations. By funding organizations that support startups, E.D. is helping to create an environment conducive to innovation and entrepreneurship. These initiatives help to create new jobs, boost the economy, and improve the lives of Americans. For example 2017, E.D. awarded a $10 million grant to the National Science Foundation (NSF) to support the NSF’s Innovation Corps (I-Corps) program. The I-Corps program is a 12-week program that helps early-stage entrepreneurs understand their customers and develop a go-to-market strategy. Based on this early development, versions of the I-Corps curriculum have been disseminated across specific universities and through online educational offerings. Check out https://www.ed.gov/.
The Department of Justice (DOJ): DOJ is a cabinet-level department responsible for enforcing the law and protecting the civil rights of all Americans. DOJ offers a variety of grant programs, including the Office of Justice Programs (OJP) grant program, which provides funding for crime prevention and victim assistance programs. In addition, the DOJ offers a variety of grants and loans to startups working on innovative solutions to criminal justice problems. These funds help to develop new products, conduct research, or expand operations. For example, the DOJ supported a Columbia University Program in developing and delivering a program focusing on design thinking to support future new venture projects. This program helped local community members generate innovative ways to solve local problems. Check out https://www.justice.gov/.
Local Government Funding for Startups
In addition to federal funding, several local government funding programs are available to startups. These local city or county government programs offer loans, grants, or other forms of assistance. As a result, local governments can provide valuable funding opportunities for startups. Some examples of funding options local governments offer include loans, grants, business development centers, tax incentives, counseling and training, office space, and other resources.
- Loans are a common form of local government funding for startups. These loans often have below-market interest rates, making them an attractive financing option for startups. Also, micro-loans are available for startups that may not qualify for traditional bank loans. Loans range from a few thousand to tens of thousands of dollars to help startups cover initial costs or invest in growth opportunities.
- Grants are another funding option provided by local governments. These grants are for startups that meet specific criteria, such as being in a designated area or creating a certain number of jobs. They can provide startups with much-needed capital to help them get off the ground or expand their operations.
- Business development centers are also a valuable resource provided by local governments. These centers offer a range of services to startups, such as business planning, financial management, and marketing support. Additionally, they may provide access to funding and networking opportunities.
- Tax incentives are another way local governments can support startups. These incentives can include property tax breaks, reduced business taxes, or credits for job creation. Tax incentives can encourage startups to locate or expand in a particular area, helping to drive economic growth.
Local governments may also assist startups, such as counseling and training on various business topics, discounted office space, and access to networking opportunities. Incubators and accelerators, which provide startups with resources like office space, mentorship, and funding, are another resource local governments may offer. Pitch competitions are also becoming more popular, allowing startups to pitch their ideas and win funding or other resources to help them grow.
The best way to find funding and support for your startup is to contact your local Small Business Development Center (SBDC). SBDCs are nonprofit organizations that provide free counseling and training to small businesses. They can help you identify the best funding and support options for your business, and they can also help you prepare your application materials. You can also find information about government funding and support online. For example, the Small Business Administration (SBA) website has a comprehensive database of government funding programs, and the website of the Department of Commerce has information about minority business development programs.
For example, the Columbia-Harlem Small Business Development Center (CHSBDC) has been part of the community of Upper Manhattan since 2009. Initially administered by the Columbia Fu Foundation School of Engineering, now hosted by Columbia Business School, the CHSBDC provides various services to help entrepreneurs start and grow their businesses, including one-on-one business counseling, training workshops, and access to capital. It also offers assistance with business plan development, market research, and financial analysis. The Columbia-Harlem SBDC serves diverse businesses, from food trucks to tech startups, and is committed to fostering economic growth and job creation in the local community. In addition, the Columbia-Harlem Small Business Development Center (SBDC) guides various government loan programs for small business owners. These loan programs include the Small Business Administration’s (SBA) 7(a) Loan Program, which provides financing for small businesses, and the SBA’s Disaster Loan Assistance Program, which offers low-interest loans to businesses impacted by natural disasters. During the COVID-19 pandemic, Columbia Business School launched an emergency loan fund for local small businesses through the CHSBDC, helping guide local firms on the loan application process.
Global Government Funding Opportunities
Governments worldwide understand that startups play a crucial role in creating jobs, driving innovation and economic growth and that these young companies often struggle to find the financing needed. To address this issue, many global governments have established funding programs specifically designed to support startups. Here are a few select examples.
The European Union (E.U.) has several funding programs available for startups. The Horizon 2020 program funds research and innovation projects in various fields, including science, technology, engineering, and mathematics. The SME Instrument (part of the Horizon 2020 Program) is a €2.7 billion fund that provides grants and loans to small and medium-sized enterprises (SMEs) for research and innovation projects. The European Commission manages this fund and is open to SMEs in all sectors of the economy. The EIC Accelerator is a funding program by the European Commission (E.C.) and the European Innovation Council (EIC) as part of Horizon Europe. It funds innovative DeepTech companies with grant or equity financing of up to €2.5 million and €15 million, respectively (see 2023 Budget). The EIC Accelerator supports high-risk, high-potential SMEs and innovators. The aim is to help them develop and bring to market new innovative products, services, and business models, which could drive economic growth. The EIC Accelerator focuses on innovations based on scientific discoveries or breakthrough technologies. The funding will support innovators to attract the total investment amounts needed for scale-up in a shorter timeframe.
The U.K. government offers a variety of funding programs for startups. Innovate U.K. is a government agency that supports businesses to innovate and grow by funding research and development projects and advice and support. Innovate U.K. is part of U.K. Research and Innovation, the U.K.’s innovation agency. It works with people, companies, and partner organizations to drive the science and technology innovations that will impact the U.K. economy. It has funded over 14,000 projects since 2004. Some of the current projects include Smart Grants for game-changing and commercially viable innovative or disruptive ideas¹, Earth observation investment², and Smart Grants for world-leading ideas designed for swift, successful commercialization.
One example of a grantee who won Innovate U.K. award is O.X. Delivers. It received £3.91m in grant funding in June 2022 and was the lead participant in Innovate U.K.’s CLEAN: Clean Logistics for Emerging African Nations project. O.X. Delivers is an automotive startup based in the United Kingdom that aims to deliver clean, affordable transport in emerging markets, creating a self-reinforcing cycle of economic growth and social impact. They are developing off-road electric trucks to provide a clean, affordable transport service in Africa and beyond.
The Canadian government provides a range of funding programs for startups. For example, the National Research Council of Canada (NRC) Industrial Research Assistance Program (IRAP) is a federal program that grants businesses funding to complete a research and development project to help the company decide. The program plays a huge part in developing new and innovative Canadian technologies by helping established Canadian businesses and high-growth startups receive grants of up to 80% of labor costs towards a creative project. In addition, the organization hosts a startup resources platform for newer enterprises.
The MaRS Discovery District, a nonprofit organization, supports the development and growth of technology startups in Ontario by providing funding, mentorship, and other resources. These programs support Canadian startups’ with a focus on medical research, innovation, and growth. It supports Canada’s most promising startups — helping them grow, create jobs and solve society’s most significant challenges. From advisory services to connections to talent, capital, customers, and more, MaRS offers a range of high-value services that help high-growth companies succeed.
For example, SWIFT Medical is a digital wound care management company that provides an AI-powered, digital wound care platform that allows any patient or clinician to quickly capture a high-precision image of their wound with their mobile phone, autonomously determines wound dimensions and clinical characteristics, enables virtual wound care consultations and provides real-time, predictive insights to drive enhanced preventive and personalized care. It received early funding and support from MaRS and recently raised a $35M Series B to continue transforming wound care through artificial intelligence.
The Indian government has various funding programs for startups, including the Startup India initiative, to promote entrepreneurship and innovation in the country. This program offers tax breaks, funding, and mentorship. In addition, a major Indian government initiative called the Fund of Funds disburses money to alternative investment fund (AIF) vehicles to finance promising startups. In 2017, 75 startups received funds from 17 different AIFs. The program is currently operating until 2025. One of the initial 75, Loantap, provides loans for personal needs such as home renovation, medical emergencies, and education. It recently raised a series B of 7.5M USD.
The governments of individual Latin American countries also provide a variety of funding programs and initiatives for startups. For example, the Mexican government’s National Council for Science and Technology (CONACYT) grants startups developing innovative technologies. The Brazilian government’s Innovation Agency (FINEP) funds startups developing new products or services. Startup Chile is a seed accelerator created by the Chilean government. Startup Chile was launched in 2010 by the Chilean government through its development agency CORFO (Corporación de Fomento de la Producción de Chile). It provides equity-free investment for qualified startups. Since its inception, Startup Chile has generated a portfolio worth over $1.4 billion and helped fund over 1,600 startups from 80+ countries.
The Inter-American Development Bank (IDB) is a multilateral development bank providing loans, grants, and technical assistance to Latin American and Caribbean countries. The IDB has several programs and initiatives that support startups, including the IDB Lab, which provides seed funding and support to early-stage startups, and the IDB Invest, which includes debt and equity financing to more mature startups. One example is the startup called Conekta, a Mexican fintech company that provides payment solutions for businesses. Conekta received a $6.6M investment from IDB Lab in 2018 and has since then expanded its services to other countries in Latin America.
Several government organizations in Africa support startups. One of them is the African Development Bank (AfDB) which has several initiatives focusing on startup funding and support. For example, Boost Africa’s program aims to empower young African entrepreneurs. The program provides funding and technical assistance to startups and SMEs in Africa. It seeks to increase the capacity of these businesses to compete regionally and globally, attract domestic and foreign investment and diversify investor profiles, and contribute significantly to job creation and economic growth. Like India’s Fund of Funds, investments run through intermediary vehicles such as venture capital funds and accelerator programs.
Other International Organizations
The United Nations has no specific startup fund, but several U.N. agencies support entrepreneurship and innovation in developing countries. For example, the United Nations Industrial Development Organization (UNIDO) offers technical assistance and training to entrepreneurs. At the same time, the United Nations Development Programme (UNDP) provides grants and loans to small and medium-sized enterprises. In addition, the United Nations Office for Project Services (UNOPS) provides project management and procurement services. However, while these agencies can provide valuable support, they do not offer direct funding to startups.
For example, Columbia Business School and Venture for All®️ , as part of a consortium of North American organizations, won a $1.95 million (USD) grant from the International Fund for Agricultural Development to train local farmers in Western Africa. IFAD is an international financial institution and a specialized agency of the United Nations dedicated to eradicating poverty and hunger in rural areas of developing countries. IFAD invests in rural people, empowering them to increase food security and improve their families’ nutrition and incomes. They help them build resilience, expand their businesses and take charge of their development.
The World Bank is another multilateral development bank that provides loans, grants, and technical assistance to developing countries. In addition, the World Bank has several programs and initiatives that support startups, including the Global Entrepreneurship Monitor (GEM), which tracks entrepreneurial activity worldwide, and the World Bank’s Women Entrepreneurs Finance Initiative (We-Fi), which provides financing and support to women-owned businesses.
Advantages and Disadvantages of Government Funding
Startups can benefit from government funding in various ways. First, government funding can aid in developing innovative technologies or products that serve public goods, such as environmental protection or public health. Winning a government grant can also signal potential to private investors, attracting additional private funding. Government funding can offer more flexibility, allowing startups to allocate funds for research and development or hiring new employees. Additionally, this type of funding encourages startups to locate in areas of national importance or in sectors that require significant capital costs or regulatory hurdles. These sources can also help startups establish a track record of success, attracting future private investment and customer contracts.
Some additional benefits that startups may acquire from government funding include:
- Opportunity to Innovate: Startups with innovative ideas or products that align with government priorities can be eligible for funding from government agencies or programs specifically designed to support innovation. This focus can be a significant advantage for startups developing new technologies, products, or services to solve pressing societal issues or meet unmet market demands.
- Reduced Risk: Government funding can provide a more stable funding source for startups, reducing their reliance on private investors and venture capitalists. Providing a steady source of financing can be particularly beneficial for startups in industries deemed high-risk or with long development cycles, such as biotech or clean energy, where the return on investment may take years or even decades.
- Networking Opportunities: Government funding can also provide startups with networking opportunities with other companies, entrepreneurs, and experts in their field. Increased networking can be a valuable resource for startups, as they can learn from the experiences of others, collaborate with potential partners, and identify new business opportunities.
- Access to Global Markets: Government funding can help startups expand into new global markets. For example, some government programs support startups participating in international trade shows or connecting with potential customers and partners overseas. This global reach can be an essential advantage for startups looking to scale their business and reach a broader audience.
- Increased Visibility: Lastly, government funding can increase the visibility of startups, providing them with exposure to potential customers and investors. Increased awareness can benefit startups developing products or services with a significant social or environmental impact, as government funding can help them gain recognition for their work and attract support from a wider audience.
While there are benefits to government funding for startups, there are also some disadvantages. For starters, the application process for government funding can be complex and time-consuming, challenging for startups with limited time and resources. Additionally, government agencies can be slow to make decisions and distribute funds, hindering a startup’s growth and making it difficult to plan for the future. The lead time required to respond to a request for a proposal and go through the vetting process can take up to a year or more. The timing to secure funding can be a significant deterrent for seeking this type of funding. Secondly, once a startup receives funding, submitting regular reports to the government on how they spend the funds can be burdensome for businesses already occupied with daily operations. Reporting is very time-consuming, and sometimes a founder must hire an outside evaluator to support outcome assessment.
Most importantly, when a startup accepts government funding, it may be required to relinquish some control over its operations to the government, which can be concerning for startups that value their independence. Founders must read the funding criteria and expectations to see who owns the intellectual property derived from the project. From experience, I have found that there is usually a way for you to build on the results of a government-funded project and launch a version as an independent venture. For example, earlier, while at Columbia Engineering, I worked on a funded project to support the development of outcome assessment tools for professional skill development. While the initial software was available to the targeted public audience per the program criteria, we created and disseminated a similar version for independent use and dissemination.
Applying for Government Funding
When applying for government funding, it is essential to read the funding application instructions carefully and ensure that your startup is eligible. You must provide detailed information about your startup’s business plan, as well as your financial information. Most importantly, start early. There are always several steps and deadlines for these grant situations. Many agencies have strict deadlines and do not allow late submissions.
When following up with government funders to support your startup, there are several steps you can take to increase your chances of success:
- Be clear: Ensure you understand your goals and what you want to achieve with the funding. This understanding will help you communicate your needs effectively and demonstrate that you have a solid plan.
- Stay organized: Keep track of deadlines, submission requirements, and other essential details related to the funding process. This organization will help you stay on top of things and avoid missing out on opportunities.
- Be prepared to provide detailed information: The funding application will likely ask for detailed information about your business, so be prepared to provide this information. You must provide clear and detailed descriptions of how the funds will help to achieve the stated program impact.
- Be persistent: Government funding can be highly competitive, so it’s essential to be persistent and follow up on your application regularly. This behavior demonstrates your commitment to your project and shows you are serious about securing the funding you need.
- Show your impact: Government funders often look for projects that positively impact the community or society. Make sure you can demonstrate how your project aligns with these goals and how it will benefit the public.
- Be professional: When communicating with government funders, being professional and respectful is essential. Professional behavior means responding promptly, following up promptly, and professionally presenting yourself and your project.
Applying for government funding is a competitive process. By taking the above steps, founders increase their chances of securing government funding for their startup and building a successful business. Furthermore, if your startup obtains government funding, it helps startups grow and achieve their goals.
In conclusion, government funding can be an excellent source of financing for startups. By exploring federal, local, and global government funding options, entrepreneurs can identify the most suitable funding source for their businesses. Understanding the eligibility criteria, preparing a solid application, and following up with government agencies can increase the chances of securing funding and helping entrepreneurs achieve their business goals.
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