Beyond venture capital: 5 funding options for start-ups that might not have crossed your mind

America's Network, Dec 1, 2003 by Stephen M. Fredrick

Ten federal departments and agencies provide SBIR awards, including the Departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, and Transportation, as well as the Environmental Protection Agency, NASA, and the National Science Foundation.

SBIR awards are based on innovation, technical merit and market potential, and run in three phases. Phase I provides awards of up to $100,000 for six months to determine technical merit and feasibility. Successful Phase I efforts proceed to Phase II, which features awards of up to $750,000 for as many as two years for R&D and commercial evaluation. In the unfunded Phase III, the company moves from the laboratory into the marketplace and must find private or other non-SBIR federal funding.

STTRs are similar to SBIRs in the eligibility criteria and phases, but require teaming with a non-profit research institution in the U.S. While there is no size limit, the research institution must be a nonprofit college or university, a domestic non-profit research organization, or a federally funded R&D center. Phases I and II feature awards of up to $100,000 and $500,000, respectively. As with SBIRs, participants must seek non-STTR funding in Phase III.

[FIGURE 2 OMITTED]

(4) Numerous federal agencies also award billions in funding to credible technology companies, including start-ups, through additional programs administered by each agency. Some of the more notable funding agencies include the Defense Advanced Research Projects Agency, the new Homeland Security Advanced Research Projects Agency, the National Institute of Standards and Technology, and the research offices of each branch of the armed forces--the Office of Naval Research, the Air Force Office of Scientific Research and the Army Research Office. These funding opportunities often take the form of a Broad Agency Announcement (BAA) released by each agency to solicit proposals for research and development in specific fields of interest. Each agency's website readily advertises these opportunities. Government procurement opportunities, which differ from funded research, are posted by law on www.FedBizOpps.gov (formerly called Commerce Business Daily).

STATE GOVERNMENTS

Many states also run programs to directly assist pre-revenue tech startups. New Jersey, Maryland and others have loan programs that provide investments to in-state companies in amounts ranging from $50,000 to $250,000. In many instances, the company pays back only the principal.

(5) Some states also operate STTR-like programs to fund joint development work between startups and research universities, giving companies access to world-class academic researchers and facilities. Maryland's Industrial Partnerships program (MIPS) is one such example. Virginia, New Jersey and others run similar programs.

New Jersey, Connecticut, and Hawaii allow high-tech companies to convert into cash such tax benefits as net operating loss carryovers and unused research and development tax credits. Texas and California are contemplating similar programs. These programs allow startups to monetize unused tax benefits by selling them to established companies, effectively using the state's corporate income tax system to provide financial assistance.