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Feb 21, 2020

Three Questions to Determine Whether Federal R&D Funding Is Good for You

Time to read: 7 min


 

THE QUICK PITCH

The good…

Federal R&D teams fund 3,700 angel stage and 2,000 seed products a year (through programs called SBIR and STTR), making them the biggest angel in America, and they don’t take equity

The bad…

The application is obnoxious and I wouldn’t rely on it if you are looking for fast funding

The uplifting…

A lot of people have done it, it’s more accessible than you think, and it’s been FREAKING transformative for the winners


 

HOW FEDERAL R&D FUNDING WORKS

That escalated quickly…

The R&D teams invest like any other angel, they write relatively small check at first, and if things go well they’ll increase funding in a seed, and then go full novelty check in series A.  The exact amount vary by R&D team (see HERE) but are in the range of:

 
Timeline basic.jpeg

 

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Choosing beggars…

When a federal R&D team funds you they don’t take equity, which let’s be honest, is freaking amazing. Instead they want a product at the end.  So think Kickstarter, or maybe reverse Kickstarter, here’s how it works:

  1. An R&D team puts out a list of problems that they have (topics)

  2. Companies pitch ideas to address one or more problems

  3. The R&D team funds the ones it likes

But in every group one kid has to be different and in this group that’s the Air Force’s R&D team*.  and they’ve gone more pure-Kickstarter

  1. Their list of problems just says “send us cool stuff we might want”

  2. Companies pitch their cool stuff

  3. The R&D team funds the ones it like

This difference may seem small but it’s critical and between that and a couple other differences the Air Force R&D team is probably the best for start-ups so we’re working on some blog posts just about them.


 

IS FEDERAL R&D FUNDING RIGHT FOR YOU

To know if R&D team funding is right for you I think you need to ask two questions:

QUESTION 1: Are you trying to end whatever you are doing right now (quit your job, graduate, etc) to start a new company or can you continue with what you’re doing and layer R&D team funded product development into it?


If you are graduating or want to quit your 9-5 in the next six months R&D team funding probably isn’t going to work for you.  There are a lot of reasons why but they basically come down to timing (R&D teams take a while to make funding decisions) and consistency (there tend to be long gaps in federal R&D funding) which make them challenging “first money” providers and they probably won’t be your only funder.


On the other hand if you can wait a bit, have some flex in your day job, or have other funding streams already in place, then R&D team funding is an AMAZING way to fund product development and/or to supplement your funding stack.  For example:

    • People in grad programs: R&D team funding is awesome for people in graduate (especially graduate STEM) programs.  Apply when you’re 12-18 months from graduating and if you want to increase your chances of getting funded

      • Include some university IP in your pitch

      • Apply in partnership with your university

      If you win you can go part-time at school, fill funding gaps with classes and hopefully you graduate about the same time that your R&D team funded Seed round hits.  BOOM!

    • People with flexible jobs: If you win an angel-round can you go part-time at your job and lead development or can you hire someone to lead the development while you help but keep your full-time grind?  Both are great options!

    • People running profitable companies: We’ve seen:

      • Services companies fund their first product

      • Product companies fund new product development

      • Product companies fund new feature development

      • Product companies extend their runways on a product already in flight. 

      All are great options.

    • People who are already funded: If you have a year of runway left go ahead and pitch for federal R&D funding now and it can be all or part of your next raise 

    •  

      Typical funding timelines
      (Details HERE)

seed timeline basic.jpg

 

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QUESTION2: Are the R&D teams interested in the sorts of things you have in mind? The R&D teams have very specific funding theses and the best predictor of what they will fund next is what they’ve funded in the past.


We are working on a free app to help you get a sense for whether your idea aligns with any of the R&D teams’ funding goals (and a bunch of other helpful information) but for the time being the best thing to do is to go HERE and see if they’ve funded similar things in the past.


 

IS THE JUICE WORTH THE SQUEEZE

So assuming federal R&D funding makes sense for you I recommend thinking a bit about whether the time investment is worth it:

What are the chances of getting funded…

We’ve got a detailed analysis of win rates for each of the R&D teams (HERE) but a good rule of thumb is

Chances seed.jpeg

What do you get if you win…

As mentioned above it varies by R&D team but

Timeline basic.jpeg

How much work is it to apply…  

There are HUGE variances here but we’ve interviewed a lot of people and 300 hours is a decent guess for a first application.  I know that’s a lot of time but for comparison most people we talk to put at least 50 hours into their pitch deck and another 50 traveling, preparing, and pitching investors, and investors expect to get a part of your company in exchange for their money so it might be worth an extra 200 hours now to own your company.

* Quick note: When we say “Air Force” funding we’re referring to the Air Force’s Dual-Use SBIR Program not their traditional SBIR program

 

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