
Ask HN: US government funds a lot of tech research, why don't startups use it? - notkid
Some people know about SBIRs (small business innovative research grants), through which federal government gives away more than $1B of R&amp;D funding to small businesses. There are many more opportunities open for small businesses. For example, AirForce recently opened a $100M solicitation looking for machine learning technologies.<p>I know government grant process can be very cumbersome but so is trying to raise VC money (especially outside of SV). And government money is non-dilutive.<p>I am noticing more startups (e.g. Palantir, Anduril) starting off of government opportunities, but they seem very rare.<p>Why isn&#x27;t gov funding a more common way of starting a startup? Is it mostly because people don&#x27;t know about these and&#x2F;or don&#x27;t know how to navigate the process?
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marcus_holmes
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.

~~~
TeMPOraL
I worked on a software project funded from an EU grant (which essentially
funded half of the company); from this + some conversations with other
entrepreneurs interested in EU grants, my impression is that the reality is
similar over here.

It's cool that you can get lots of money for essentially a wishlist on a piece
of paper (though to actually get that money, your best bet is to hire someone
specializing in writing EU grant proposals). However, the amount of paperwork
couple years in, involved in verifying you spent the money appropriately, is
so big you'll regret ever taking the grant.

(One could say that entrepreneurs are partially to blame for this one, though.
I hear that initially, it was much easier to work with EU grants, but a lot of
people wrote up bullshit proposals and stole the grant money.)

~~~
PeterisP
The last sentence is kind of the key issue. If you're a good entrepreneur
skilled at doing your job well, it's very hard to compete with a good crook
skilled at doing his job well; and you have to worry about your actual product
while he can focus on making the paper milestones.

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gbaccount9999
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
You're being too kind on point #2

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matt_the_bass
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.

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convivialdingo
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.

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sleighboy
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.

~~~
sdinsn
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.

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deddy
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/)

~~~
chatmasta
> 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.

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cushychicken
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
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
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.

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tschwimmer
Applying for a SBIR grant is probably orders of magnitude more work than
raising VC money in this market.

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mojomark
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.

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thom
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.

~~~
AlunAlun
> 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!)

~~~
thom
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).

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ykevinator
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.

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lostmsu
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.

------
dbt00
Recently discussed here:

[https://news.ycombinator.com/item?id=19659853](https://news.ycombinator.com/item?id=19659853)

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AWildC182
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.

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aerophilic
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.

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JangoSteve
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-
engi...](https://bbcetc.com/sbir-related/ann-arbor-company-is-an-engine-for-
growth-with-tips-to-share-on-sbir-success/)

------
brianfitz
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.

------
xvilka
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)

------
zigzaggy
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.

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Spooky23
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.

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chrisseaton
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.

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swalsh
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
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.

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PatentlyDC123
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
With SBIR funding you retain your IP

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6gvONxR4sf7o
They also sorta-kinda-fund research via tax credits. As far as I know,
startups do take advantage of this.

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madamelic
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.)

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espeed
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.

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ArtWomb
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...

