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NIH grants as alternative to angel funding - smart or not?

What are the pros and cons of grant money as an alternative to angel funding? What has made you successful in using government grant funds to reach venture stage?

6 Replies

Todd Kovalsky
1
1
Todd Kovalsky Entrepreneur
I help businesses get where they need to go
If you could get a grant, for a for profit venture go for it. Grants are free money and don't need to be repaid. Sent from my iPhone
Andrew Lockley
1
3
Andrew Lockley Advisor
Investor and strategy consultant
Government money is a cancer that will slowly turn you into a public sector zombie. Firstly, it's addictive- there's always more if you apply somewhere else. Secondly, almost everything a firm needs to do to be commercially successful is the opposite of what it needs to do to get grants. Think very, very carefully. A
Thomas J. Kaled
2
0
Thomas J. Kaled Advisor
Business Development Consultant @ thomas.kaled@gmail.com
I can't speak to all Government Agencies however let me address your question as if you were applying for a Health Care Grant from NIH or NCI. There are grant thresholds wherein you must submit a statement of financial viability for the venture seeking a grant and in some cases (grants of $5 million or >) undergo at least a superficial financial audit by a firm selected by the Grant agency or one of the recognized auditors (typically the Big 5). There is also the reality of the ventures' financial requirement versus the Agencies timing which are not necessarily in correlation. Lastly, large Grants (aforementioned) are typically awarded in phases hence if Phase I does not have the outcome the Granting Agency is seeking although you have been awarded the full grant you will only see the portion that funds the Phase and nothing further. As you would suspect, except for capital equipment costs the bulk of funds are granted longitudinally hence there are no guarantees that the venture will ever see the full amount of the Grant.

Having said all that a Grant gives your venture a great deal of third party validation making it in some cases a far more enticing investment. It also gives a threshold for equity ownership by a party other than those to whom the Grant was awarded in some cases and in others defines the type of equity holders.

Hopefully this helps and if you have further and more specific questions my LinkedIn profile has my email address.

Thomas J. Kaled
0
0
Thomas J. Kaled Advisor
Business Development Consultant @ thomas.kaled@gmail.com
Sorry, just saw that you had specified NIH. So the above applies.

Leo Lam, PhD
1
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Leo Lam, PhD Advisor
Product development executive, serial entrepreneur and Angel Investor
Patrina,

This is a great question. But first, I disagree with a comment above saying that government money is a "cancer". There is no qualifier for such a statement. Many ventures and companies started with the help of government funding.

You should, however, understand that grants and Angel money are not mutually exclusive. One does not replace the other and they serve different purpose. The idea is to use each source strategicallyto maximize both business and financial outcomes. For many healthcare related ventures (since you mentioned NIH), having grants is pretty common.

There are many pros to getting grants (assuming that it is strategic):
  1. It's non-dilutionfunding - you don't lose equity but you get funding.
  2. Credibility - as Thomas said above, it is a 3rd party validation.
  3. Phased funding injection - a good mechanism for fail-fast, if the business/method/innovation actually doesn't work, you have less to lose.
  4. Because of 1 and 2, your company can be even more attractive to private investors because they can maximize their return on investment.
  5. Helps you prepare - with all the auditing requirements, it actually forces a new venture to put their ducks together in an organized manner. This would also help you in your private fundraising later.
As for cons, you can always mitigate them by strategically applying and receiving only the right kind of grants.
  1. Time-consuming - application takes time, and can be a lengthy process. Only apply for the grants (or specify it in your application) that are strategically aligned with what you are trying to build.
  2. Reporting requirement - this can also be time-consuming, but for me, it serves also as an accountability mechanism.
  3. Phased injection - you may not get the full grant in one go. Make sure the milestones are reasonable, timely and match your strategic plan.
In short, if you can get free money that matches your go-to-market strategy, get as much of it as you can. It will make your company a more attractive investment target for private investors (with other validations also assumed, that is).

Hope this is helpful.
Aiborlang Andrew Chyne
0
1
Aiborlang Andrew Chyne Entrepreneur
Bass Guitarist at Klevoans
Patrina Mack, Grant money is good initially if you don't have the funds but it is always good to go for Angel funding because getting free goods won't add value. When you pay a price for something, you would value each and every penny being spent. If you are starting a social project, it is good to go for grant money but if you are starting an enterprise, I would suggest you not to go for grant money more than once.
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