Finance · 23 June 2016

What’s out there for tech startups seeking grant funding?

tech startup
Grant funding can be a great way for tech startups to get off the ground

When developing a fundraising strategy, grant funding is an attractive option to help tech entrepreneurs get an idea off the ground and provide much needed cash flow early on. Here, GrantTree expert Richard Wigley looks at the best grant options available for tech startups.

A source of equity-free finance, grant funding can often be incompatible with the speedy development cycles or pressing cash needs prevalent in the tech sector. By approaching grants as part of a balanced funding strategy however, and being honest about how it fits with your ambitions, many tech startups could benefit hugely from the process if not the cash.

Grant funding is designed to support risky innovation, from fundamental research through to experimental development. It is a way of supporting companies whose ideas are not yet proven but have massive potential and therefore struggle to raise finance through equity, debt or other more traditional mechanisms.

It is nearly always match funding – money set to be paid in equal amount to funds available from elsewhere – paid in arrears, for developments planned in the future, so founders will need access to between 30 and 55 per cent of a project’s total costs to cover the initial activity. However, a successful grant application is often excellent leverage for further investment.

Funding bodies are looking to support highly innovative ideas that meet the needs of a fast-growing market. Projects must be a significant progression on the current state-of-the-art and must have cross-sector applicability.

The funding must have a clear impact on the applicant’s organisation and be able to demonstrate a wider social or environmental impact. Funders want to know what value they are adding by supporting you, not just what the money will be spent on.

Where should tech startups go to find grants?

Although there are isolated grant funding opportunities from time-to-time from industry associations, particularly those in the energy or “internet of things” sectors, the most suitable grants for the vast majority of tech startups will be government innovation grants. This funding is administered and distributed by Innovate UK or through the European Commission’s H2020 programme.

Innovate UK is an arms length organisation funded by the government to support business-led innovation in the UK. Their grant programme offers startups ten opportunities throughout the year to apply for funding to support innovative R&D in; health and life sciences, emerging and enabling technologies, manufacturing and materials and infrastructure systems as well as through an open competition for projects that do not fit into the sector specific competitions. Each round has £15m to distribute and will support projects up to three years in length and £1m in value.

H2020, the EU funding programme for research and innovation, includes a wide range of funding opportunities aimed at securing Europe’s global competitiveness.

Of particular interest to tech startups is the SME instrument funding stream, which supports high-potential innovation through phased, progressive support. Phase 1 provides €50,000 for exploring and assessing the technical feasibility and commercial potential of a breakthrough innovation that a company wants to exploit and commercialise. Phase 2 provides up to €2.5m for innovation projects underpinned by a sound and strategic business plan.

Both Innovate UK and H2020 assessors are looking for projects that are between six months and three years in length. As projects increase in length and cost the requirements for collaboration increase.

Although H2020 SME instrument applications are welcomed from individual SMEs for Innovate UK, any project over a year in length and £100,000 in size requires risk-sharing collaboration with another business or research institution.

How do you secure a grant?

Applying for a grant is not an insignificant undertaking. Although both Innovate UK and H2020 applications start at around ten pages in length, the key to securing highly competitive grant funding is in the preparation.

The foundation of every winning application is ensuring that what you are proposing meets the scope of the competition. Check your tech is eligible, read the guidance, go to briefings and ask the experts. Whether applying to Innovate UK or H2020, there are multiple topics and exclusions for every topic.

Don’t try to shoehorn your development into a topic that you nearly fit into, as there is also open access streams that will not place you out of scope at the first assessment check.

It’s vital to remember that grants will support projects not companies, make sure that you’ve got a well defined project that has assumptions to test, achievable milestones and clear outputs. Ensure that you have access to, or plans for how to access the resources to deliver the project, whether internal, in a collaborative partnership or subcontracting arrangement. An in-depth project plan and resource allocation must be accompanied by a well-constructed risk assessment and mitigation strategy.

As with other forms of investment, such as angel, venture capital or debt, business planning is needed. Grant applications need you to be able to confidently assess the market you are entering, honestly outline the competitive landscape and present how you intend to gain your predicted traction. A credible route to market is essential, even if you only want to fund early stage R&D. With limited space it is advisable to undertake this work before committing to an application, it will be of use in so many other contexts as you grow.

Your application should be concise. Not too much jargon, but enough to ensure that sector expert assessors don’t question your ability and knowledge. Don’t hold back on your description of your innovation or technical development though, any application is commercially confidential and holding back key information will only negatively affect your chances of success.

Finally leave time, plenty of time. Around three to four weeks to write and iterate your application and collect the necessary supporting documentation is not unreasonable and if you need to develop a consortium, generating shared objectives can take months. And don’t forget, if in doubt ask an expert. Innovate UK have a range of support for both their own funding and H2020 funding and there are many independent consultants specialising in increasing your chances of success.

Still confused about the grants available to your business? Read our guide to the national grants available.

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ABOUT THE EXPERT

Daniel Tenner is a serial entrepreneur and, most recently, the founder of GrantTree – a business established chiefly to assist others with funding requirements. From both tax schemes like R&D tax credits to UK government schemes such as InnovateUK’s Smart Grants, and EU schemes like Horizon 2020.

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