Almost every federal and state government is eager to promote their own startup ecosystem. How can you take advantage of this support?
Ahmad Ibrahim, CEO of neo.tax, observes, “It’s important to understand what behavior the government is trying to incentivize with their credits and incentives. The government cares about creating and protecting US-born innovation. It may be cheaper for a company to develop innovative software overseas, but that means that any profits generated from that innovative software belong overseas — and as such, are taxable overseas. So Congress and the IRS have been brainstorming ways to make it worthwhile for a company to keep that innovative software development on its own shores. That way, any profits generated from that innovative software are taxable in the US and, you guessed it, those taxes are revenue to the US government.”
“Because startups are the principal purveyors of innovation, it is not surprising that they would be showered with credits, refunds and incentives by the government. The IRS is not really in the business of handing out free cash. They will, however, give you back money that you have given them. Startups often make the mistake of thinking that they don’t pay Uncle Sam since they aren’t profitable yet (or maybe ever!). What many of them don’t realize is that Uncle Sam charges them 6%+ on top of every paycheck they cut to their brilliant team members and employees. Since payroll is startups’ biggest expense item, by far, getting those payroll taxes refunded is like getting a 5% cash back on your monthly burn!”
For US-based companies, a good starting place is Grants.gov, where you can find a fairly comprehensive directory of federal grants, searchable by keyword, agency, funding-type, and date. For innovation research and technology transfer funding, Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) are competitive programs that encourage domestic small businesses to engage in Federal Research/Research and Development (R/R&D) with the potential for commercialization. GrantWatch centralizes data on US funding opportunities, but its focus is on the non-profit sector, which excludes many startups.
For non-federal grants, the best tactic seems to be searching for “technology grants” or “innovation grants” in connection with your local state or city, but the most reliable source of information will be your local Small Business Development Center. For state and municipal level resources, explore the Funding Opportunities provided by the EDA. Nerdwallet has compiled specific small-business grants for women, veterans, and minorities.
A number of companies specialize in helping companies leverage government support:
- Neo.tax – helps startups to apply for and secure their startup payroll tax refund.
- Brief – consultancy helping startups access government funding
- Mainstreet – helps startups discover, apply for, and receive government credits and incentives.
Nick Abouzeid, Head of Marketing, MainStreet.us, said, “There are thousands of programs across the US, everything from large federal R&D tax credits down to local, city, and county programs designed to encourage the work you’re already doing. If your CPA or firm is only checking for a single credit, you’re leaving big dollars on the table. We’re proud to support 200+ different credits today – more credits means more money for you. CPAs, consultancies love to charge you big dollars upfront to do these studies and filings, leaving you on the hook for 6-12 months before the IRS will write you a check. Find a partner for your filings that can get you cash upfront for your credits – ours is 0% interest & free to take – so you don’t have to wait for Uncle Sam to cut you a check. It really is free money.”
From all the diversity that is government-related grants, we’ve squeezed out a shortlist of grant programs related to the regions and industries that most of our portfolio companies are located in (not including federal grants; see Grants.gov for that):
- Empire State Development’s Division of Science, Technology and Innovation (NYSTAR)
- New York Grant Watch
For advice on contracting with the government:
Many other countries have their own local initiatives. For example, Rosi Haft, CEO, Lumenora, has won almost €200K from various German entities. She observes, “Berlin has lots of great programs that provide non-dilutive funding: Berlin Founders Fund; Entrepreneur First; Berlin government specific funding; Bosch; Horizon 2020; Deutsche Telekom (T-Mobile); for everything from patents to MVPs and also business coaching.”