If you're located outside of a startup hub, taking the week or two to apply for a $100,000 Phase I SBIR grant - if there is one relevant to what you are doing, is a smart move. If you know your subject matter, it is not that much work, and the red tape can be well worth a six month budget. Other than the red tape, which is not THAT bad operationally, the money is literally free. There are often good opportunities from DoD, in some solicitations. There's a new solicitation out from someone every few months. http://www.dodsbir.net/ A Phase I can lead to a Phase II - which can be $1 million or more. For instance, there were some very interesting topics in DoD's solicitation a few back: http://www.acq.osd.mil/osbp/sbir/solicitations/sbir092/osd09...

BTW - DoD is pretty cool about not requiring an advanced degree, unlike some other departments. If you have a background full of successful projects but no degree, you can still win by stuffing some MS/PhD's in as advisers.

That being said - for some of these it can take six months to hear whether you even won the grant, so this is not a primary funding strategy. It is a supplementary funding strategy. Its something to do, then forget about until you hear back. You don't want to try and setup a company with the government as your only customer - they will bleed you dry with delays. But if you're going to build something anyway, and are an expert in the area... why not go for the cash?

Your state may have an office setup to assist you in applying for these. The folks at ATDC in Atlanta were very helpful: http://innovate.gatech.edu/Default.aspx?alias=innovate.gatec... There are numerous companies in Atlanta that have 'bootstrapped' to the tune of several million dollars using SBIR/STTR, and have gone on to success in the broader market.

This doesn't really compare to Y Combinator, but it is (almost) free money. Uncle Sam dolla dolla bill, yo.

My company (Freytag & Company, LLC), won a DARPA Phase I and Phase II STTR (just like a SBIR but 30% goes to a US univesity). Phase I was for <$100K/1 year (at least 30% to a U.S. university so its $70K which has to in fact last you 18-24 months IF you win Phase II - YC-like if you ask me) and Phase II was competed with second-contract award a year after Phase I ended for < $750K/2 years (again 30% to university).

Topic DARPA ST061-004: ttp://tinyurl.com/yzuqxwh

This was our fourth SBIR/STTR proposal and only win. SBIR/STTR topics are very competitive (winning teaches you how so you are more likely to win again). This particular topic received ~30 submissions of which an unusually high number were awarded (3) Phase I money. Winning Phase I does not mean you win Phase II because of poor results or no Federal funds available. For this topic we also had two competitors for Phase II funding. You cannot win Phase II without first winning the Phase I.

The marketing, regulatory, and compliance process that comes with this money has been VC-pitching-intense but the advantages and cautions are very, very different. One advantage is that the Federal government pays in a recession. The catches are important and I found surprising (e.g it is non-trivial to negotiate a contract with a U.S. university under a deadline and to do so while complying with the Bayh-Dole Act). Also DoD SBIR/STTRs train you to become a government contractor (NSF might be different). Selling commercially is unusual but laudable - just don't expect people to be very familiar with what you need in the way a VC is "supposed" to be.

As a result of this process, my company (Freytag & Company, LLC), has products, enough money for one other employee, and huge experience going to the government market.

Since, our Phase II contract was "cost plus fixed fee" (most bigger government contracts are), and most costs are labor hours, regulatory compliance means tracking labor hours with contract codes. We passed our first Defense Contract Audit Agency (DCAA) audit just before we won our Phase II and are about to undergo another audit less than two years later. As a result we have probably one of the tightest accounting systems for a company this size you will ever see (and a damn fine accountant).

Because we took a lot of money and are doing something that might fail despite the money, we (well, -I-) decided to give our time-tracking tool away free. Figured it was a certain way to: 1. help the SBIR/STTR program grow our economy by 2. helping other firms immediately solve one part of their compliance problem - that of being able to track employee and contractor hours in the particular way the government expects.

If you need to track your labor hours over a distributed team of developers and would like to use a tool that has taken at least one firm through a government audit (and soon another - joy!) email me at timesheets@freytag.us. Please tell me who you are and what your problem is when you write.

It's significantly more convoluted for European Commision-funded projects. Having worked on a number of proposals, the process goes something like this:

You put together a consortium, with partners from at least three different European countries (seven for some proposals).

If you are applying for "Future and Emerging Technologies", you write a 5 page proposal saying what you want to do, how much it will cost, how you plan to do it and why it should be done. Wait three months for the EC to respond. If they like your idea, you get to the next stage.

If you are applying for a specific call or your FET-open short proposal was accepted, you get to write a full proposal. This is 60-90 pages of detailed justification for why your proposal is beyond the state of the art, a detailed work plan, a justification of the concept, the specific tasks of each partner, a timeline, a budget, and what "impact" it is meant to have on Europe as a whole in terms of the objectives of the specific call. This is a rather massive, hard to distribute amount of work. During the three months after the deadline, your proposal is sent to some call-topic-specific experts as deemed by the EC. A lot of these experts are working in the same field and indirectly competing with you. They are almost all academic or bureaucratic, since industry people don't have time for this sort of stuff. Three months later, you are told how you scored, and if you scored well enough, you are put on a list. The commission goes through the list and funds projects until the budget runs out or the projects get too bad. All in all, the feedback cycle can be over a year long, and that's before you even start work on the project itself. Resubmitting an improved/modified proposal takes an incredible feat of enthusiasm across a necessarily large number of people within several institutions. The amounts distributed are in the millions of euros, so it can be worth it, but the process essentially requires the working group to be so large that a lot of efficiency is lost.

Oh how deliciously ironic: sneering contempt for the NSF... on the Internet.

This is the government agency that gave us ARPANET and the Mosiac browser. They also provided funding for Larry Page and Sergey Brin's proto-Google project at Stanford.

Anecdote: I've applied twice with NASA's SBIR program and been denied twice. It has the advantage of being 'free money', besides your time required to apply (the first time I took about two months of weekends and evenings to put together an application; the second time I did 1/2 week full-time), and the disadvantage of being extremely competitive. The competitors are often firms which do little but SBIR, full time, and they have serious advantages from knowing the system.

(Example of not knowing the system: on my first application, I put forth a very ambitious workplan in order to entice NASA with a high bang:buck ratio; this backfired completely as they loved my proposal except for its unrealistic workplan. D'oh!)

However, I'd still say it was worth the time, as they forced me to do a lot of explicit planning about where I was taking product development, and now I have two well-written proposals that I can cut-and-paste into various new incarnations for other audiences.

That said, my company will never be doing that again. :)

Hey, what is this for? I'm about to start on a project at the border of research and industry, and I could use some money.

Don't apply for SBIRs if you're at a startup - unless you think addiction to crack is good. Seriously, there have been but a dismal few examples of companies that actually stop working for the government and become product centered.

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I wonder if some other person like PG will do a Y Combinator for another industry.

goodluck with that, nsf