In raising cash, grants offer low-risk opportunity – for the right applicants
Angus McQuilken, vice president for communications and marketing at the Massachusetts Life Sciences Center (MLSC)
Jerry Bird, CEO of MassVentures
Is there such a thing as free money? For for-profit companies? The answer is “Yes,” but business grant prospects vary depending on the industry.
Gov. Deval Patrick’s economic development agenda has created a wealth of opportunity for high-tech companies in Massachusetts. It’s a strategy that has paid dividends for the broader Bay State economy, according to Angus McQuilken, vice president for communications and marketing at the Massachusetts Life Sciences Center (MLSC).
“The state strategy has been to make targeted investments in the innovation sectors and that strategy is leading to strong results,” McQuilken said.
The MLSC, which was created as part of Patrick’s 2008 life sciences initiative aimed at growing that Bay State business sector, administers a handful of the state’s major grant programs for businesses.
Through a small business matching grant program that leverages federal grant dollars, the MLSC has provided $4 million to Massachusetts life sciences and technology companies that are ready to bring their products to market but need cash to commercialize them. The competitive process is opened to applicants yearly.
Other MLSC grants support myriad for-profit initiatives, from collaborations with companies in other parts of the world, to paid internship programs.
“We’re aggressive about outreach and want to make sure people know about these programs,” said McQuilken, who said new life sciences companies are always being launched in Massachusetts.
According to McQuilken, financial support for the sector has made Massachusetts a global leader in life sciences, and he hopes programs will continue after Patrick leaves office in January.
“We feel a very strong case to be made that this level of support should continue,” McQuilken said.
Opportunities beyond tech?
But what are the options for companies in other sectors?
Thomas Savino, principal at the accounting firm Bonanno, Savino, Davies & Ganley, of Framingham and Needham, said that, as a rule, for-profit business grants are difficult to win. The government favors awarding grants to nonprofit organizations, according to Savino, leaving small businesses to rely largely on private investment to launch and grow.
That’s a challenge, especially for early-stage companies, Savino said. Many new business owners use their own savings for seed money, and those who look to outside investors must be effective salesmen, he said.
“The investors have very high expectations of monetary results,” Savino said. “Yes, they want clinical results but they also want to know it’s going to translate into monetary results,” he said.
That’s a lot of pressure, and many business owners would rather skip the ordeal altogether, Savino said. For that reason, business owners who are lucky enough to qualify for grants are presented with a unique opportunity.
“The definition (of a grant) is that you don’t expect anything in return,” he said.
They might not receive anything in return, but the agencies awarding grants in Massachusetts do have high expectations that the money will help companies lay the foundation for success.
MassVentures, the state-backed venture capital firm, funds companies that have already made progress commercializing technology using federal grant money through its grant program, known as START. MassVentures increases funding as companies reach certain development milestones. Each year, 10 out of as many as 90 applicants are selected to receive initial grants of $100,000 each. The following year, the five companies closest to commercialization receive another $200,000; in the third year, the top two firms receive $500,000 each.
Now in its third year, Bird said START has allowed 27 companies to develop technology they might not have been able to otherwise, said Jerry Bird, CEO of MassVentures. That’s because federal grants can’t be used for crucial work, such as marketing and building prototypes.
Grants also for better-heeled companies
Even a company with millions in venture capital may struggle to fund new technology, as investors keep a close eye on how those dollars are spent, according to Bird, so $100,000 means a lot.
“They can’t take money out of a product that’s … well funded and move it to the underfunded ones,” Bird said.
Reactive Innovations LLC, a defense contractor based in Westford, faced this predicament when it was seeking to develop a medical oxygen concentrator it was working on. MassVentures awarded the company a $100,000 grant in 2013, which company President Michael C. Kimble said was used to develop a business plan, marketing study and competitive analysis for the product.
“The government typically expects small businesses (like ours) to do many of these commercialization activities under our own funding. This is difficult and costly given the limited personnel resources that most small businesses have that can do such work,” Kimble explained in an e-mail.
Like the MLSC, MassVentures tends to award grants to highly technical companies, especially in the advanced manufacturing and robotics realms. Bird said that’s because the federal grants they leverage come from the Small Business Innovation Research fund, which fosters high-tech innovation.
Big banks step in
Businesses from other sectors may be hard-pressed to find such robust, government-backed grant programs that can help them. But the private sector may offer an alternative source of funding. Some large financial companies often offer grants in the form of cash and services, to smaller for-profit businesses as part of their corporate responsibility efforts, which are receiving greater emphasis following the financial crisis of 2008. High-profile examples include JP Morgan Chase & Co. and Goldman Sachs. Goldman, for example, is running a $500 million program to help entrepreneurs in several major U.S. cities, while JP Morgan, which runs nine grant programs, says it has donated $50 million to help small businesses since 2009.
Meanwhile, nonprofit organizations have a much broader base to pull from, with most major American corporations offering grants to tax-exempt organizations to support community service efforts.
Hunting for grants can be difficult, said Barbara Finer, founder and CEO of Hopkinton incubator TechSandBox. She has applied for several to support her growing nonprofit organization, but said it’s worth the effort, especially for the young businesses TechSandBox serves. The alternative, securing funding from angel investors and venture capitalists, is difficult for even the most promising early-stage company, Finer said.
“If they know what they’re doing and they’re working really hard and doing the right things from day one, 18 months is the earliest point when they can start asking for angel money,” Finer said. “Just getting to that point is a lot of work.” n
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