Secrets to Getting Funding from the U.S. Government. If You’re a Founder, Find out How.

Most innovative tech startups, especially those abroad, don’t automatically think of the US government as a potential investor. Maybe for the founders who have, they’re not sure if it applies to their tech – just publicly inclined verticals like defense. And most startup founders aren’t prepared to weed through piles of bureaucracy to make sense of what’s available. After all, fighting through red tape is…well…for a bureaucrat, not an entrepreneur or innovator.

However, according to Daniel Ritter, about one-third of the startups he assesses can get funding. And if you’re thinking you need to be in your typical government-type industries like defense, homeland security or energy, then think again. As surprising as it sounds, there’s huge potential for even early stage startups to get funding. That’s right, you don’t need to be profitable yet. What this means is that most startups should do an assessment. It’s a small investment for a potentially large payoff. Even if you don’t move forward after the assessment, there’s additional benefits like identifying risks you could encounter in the private sector.

But since most of the inner workings of the government remain mysterious from the private sector, we’ve asked Daniel Ritter – expert for helping startups with US government partnerships –to help reveal what government opportunities there are for innovators.

Why Partner with The Government – It Has Deep Pockets

If you even look at the number of startup technology companies that are engaging at the federal or state level in seeking direct funding in the form of grants, procurement, regulatory changes, loans, or loan guarantees, it’s in the many thousands at the federal level and in the tens of thousands at the state level. So there are hundreds upon hundreds of potential programs even at the lowest level. At the highest level, you could be looking at contracts with the Department of Energy, Department of Commerce, or Department of Defense.

In some cases, it’s not a single benefit. It’s not one contract or one grant. In many cases, you’re seeking a relationship with a federal agency that is multi-year in nature. So this means ongoing grants or ongoing contracts and in some cases across more than one program within federal or state governments. And so, yes, startup companies in the U.S. can benefit from numbers as small as one or two million dollars to numbers as large as in the low hundreds of millions of dollars, depending upon what it is they’re trying to accomplish within the U.S.

When Startups Can Partner with The Government – You Need Your Tech Ready

Revenue is not really an issue. The central focus is whether you can demonstrate to a government agency that the technology that you have works, or will work within typically six months with an infusion of funding for the particular application that is relevant to that government program. So you need to have technology that can be demonstrated now or be able to in a short period of time with an infusion of capital. This means technology that is both relevant to the particular program and can meet the needs of that program that is currently unfilled. You should be able to say that we can do this faster, better, and cheaper.

You would not want to engage with the government until you have a technology that could be demonstrated to meet a specific need that is relevant for a program of a federal or state agency. Or would be able to do this within a very short period of time. That’s really the first stage you’d want to assess whether to engage in government. Prior to that, you’re still working out the technology internally, and that’s too early to engage with the government. They’re not interested in something that’s going to take more than six months before it can actually be tested and potentially implemented for the relevant agency.

Types of Government Partnerships – Depends on What the Investment is For

Research and development

At the lowest level, there is research and development funding. And that can take the form of grants, direct grants, or contracts between the US federal agency, a state agency, or via the US Congress. Research and development grants and contracts tend to be on the smaller side, ranging between $1 and $8 or $9 million for a particular grant or a contract. That’s at the earliest stage of development for a startup.

2. Pilot projects

The next one is funding for pilot projects. This is when a company is actually seeking to set forth either a provision of a particular service or product, or is actually building something in the United States that’s going to manufacture a product of some kind.

But pilot projects take both forms. And that funding can be grants, again, contracts, but in this case also direct loans or loan guarantees from relevant federal agencies.

3. Procurement

Then there is procurement. If a company is ready to actually sell a product or service in the United States, the goal would be to have the federal or state agency purchase that product or service or several agencies across the board. And those can be sole-sourced depending upon the technology or working with the agency to develop language that points the agency’s procurement towards that particular company’s product or service.

4. Regulatory Changes

Probably the last one and the rarest but potentially most valuable in cases where it’s appropriate is where you seek a regulatory change, where a particular agency has outdated regulations that don’t apply to faster, better, cheaper services or products provided by the companies. One seeks a regulatory change from the agency either to permit where it’s not permitted by current regulations or to require, even if it’s currently permitted, a new type of capacity. This is assuming it’s once we’ve demonstrated that the technology is available, that it works, and that it’s economically feasible for the private sector to use.

So you can think about that in the context of, for example, the Environmental Protection Agency, cybersecurity, money laundering, or whatever area a particular federal agency regulates. However, the regulations have failed to take account of the opportunities available by the new technologies offered by the company. In that same context, in many cases, a company will need approvals from federal or state agencies in order even to operate and sell their product.

The Path to Funding – What Startups Can Expect

The first step in the process is very straightforward. You need a public policy consulting practice to do a simple and straightforward analysis, which requires a basic understanding of the technology itself and, of course, its potential applications. The consultant then cross-references that technology and its applications with available agency programs. Again, whether that’s for R&D funding, pilot projects, procurement loans, loan guarantees, or tax credits, are there opportunities at that stage of the company’s growth including the product that they’re seeking a partnership with? Is there a correlation between one or more federal or state programs of significance that would make it worthwhile for a company to engage?

Once you’ve decided if and to what extent federal or state programs offer a potential value to the company, you need to know what the commercial benefit is. You can’t decide if it’s worth engaging at a policy level without understanding what’s the commercial benefit. So that’s part of the analysis. It’s how much this would be worth to the company in the short term, medium term, and long term.

You need an assessment of what the likelihood of success is, what the timeline to success is, and whether there are assessment points along the way where the company can determine if the project is likely to succeed. Usually, this takes place with a series of meetings, presentations, and discussions with grantmakers at the agency or congressional level. And so you can gradually get a better sense in those meetings and discussions and applications along the way before a final decision is reached as to whether this continues to be likely and therefore worth it.

The company also needs to ask itself whether a government contract, a government grant, or any type of interaction with federal or state government provides any indirect value to the company. Basically, the building of its brand and something of a good housekeeping seal of approval. Oh, the Department of Defense is using this product. The Department of Energy has purchased this particular service. So that’s another question to ask oneself as a company or an investor deciding whether or not to engage with the government in that.

Finally, the startup needs to know what the cost is. Once you’ve established if there’s a benefit and how significant it is, how much will it cost to achieve that benefit? And that’s not just what you might pay a consultant, it’s also the internal resources that a company would need to put into presenting a case to the government.

Typically, in the companies that I’ve assessed for VCs over the course of the last 30 years, roughly one third of the companies that I’ve reviewed are suitable for using resources for engaging with state or federal government.

International Startups – Here’s What You Need To Do Differently

If you’re a non-US company without any significant constituency or number of employees in the United States, don’t do it on your own. You need someone in the US with a network of contacts to be able to make the right introductions to the program managers, political officials, congressional officials, to the company itself to be able to decide whether they’re likely to be successful and successful to a significant enough degree to make it worth it at the federal or state level. You need someone to be able to introduce you to that process and to do an assessment as to how valuable it might be for the company and in what way and under what timeline. Otherwise, you’re just shooting in the dark.

Also, it’s also important for the company to have an employee or someone on the ground in the United States with a deep knowledge of the company’s technology and its application to attend all the meetings and manage the process. .

You also have to do a risk assessment. There may be, to the surprise of many foreign companies seeking to enter the US market, legal, regulatory, or procurement obstacles and risks to the entry of that company into the US market in terms of what it’s trying to sell. Even obstacles and risks to the provision of their service or product in the private sector. You’re also looking to make sure that there aren’t significant obstacles and risks to seeking to enter the US market at the same time.