A reader from New York emailed me a few days ago to ask me about non-equity based early funding resources that are available to startups. The answer I gave him is that city, county and state government funding resources for startups are often overlooked by founders. Most people are convinced that private sector investors are the only game in town and that accelerators like YCombinator and Tech Stars have a monopoly on building successful businesses. The truth is that most accelerators and even VC’s are doing business development just like you will if you sell to businesses. Governments do the same thing. They all want something from you – for VC’s they want a business that they can control and sell for a 5-10X+ return (5X is not idea, but you would be surprised what conversations happen behind closed doors in some circles). Government is looking to create jobs, increase tax revenue, and to fill real expensive empty real estate that the state is not collecting taxes on.
When I talk about government, I want to point out that I don’t mean that you should become a government contractor. There are plenty of those and your state might be more familiar with that but that is something else entirely.
Let’s start with state government. While every state does things slightly differently, most will have an economic development department (that works to attract, grow and retain business) and a quasi-governmental entity (that does private sector investing). Some states will even have a third organization that acts as a venture capital fund.
In Maryland it works like this:
DBED (The Department of Business and Economic Development)
TEDCO (The Economic Development Corporation of Maryland
Maryland Venture Fund (under DBED)
<Insert County Economic Development Corporation> (e.g. Montgomery County Economic Development Corporation)
DBED has people who are called business development directors – they are like account managers for the state, much like what a company has. Their job is to attract businesses to the state and try to help line up resources that are available in their business development sales territory with what is available at the federal, state, county or city level. They usually work with people from TEDCO as well as the Maryland Venture Fund, not to mention county, city and federal people.
Each county has its own economic development corporation, much like the state. These will often have business development directors who function in a similar fashion to the ones from DBED. They are looking out for their county.
Most cities are doing the same thing. Some, like DC, will even give out grants up to $250k.
What all of these have in common is that they have charters. You can usually find out what their charters require them to do by visiting their website. Some of these can be really cryptic which is where spending some time getting to know a few business development directors that are assigned to your territory will be extremely helpful. Some of these folks are well versed in software, but most are not so assume that you will need to adapt your message more than usual. I had a conversation about internet startups with one who compared my SaaS startup to a website their 14 year old son had built for a friend’s company. They really wanted me to be a Cybersecurity startup which was what they were working to attract. The key is to know what they can do to help you as much as possible and to be really patient and not to give up easily.
One such product is the TEDCO Technology Commercialization Fund which is essentially a convertible debt note available to companies in Maryland incubators or that meet other criteria. These go up to $100k and the process is fast, sometimes within 60-90 days vs. 6+ months which is the norm for similar programs in other states. It can be upsized to $250k later if you are in Baltimore city.
Federal resources are also available. There are lots of grants. Some these include the SBIR and STTR grant programs. Your local university engineering school will have a department full of people who know all about these. The state and county people you talk to should also know about these but may not be technically qualified to help you with getting them like the university folks will be. Universities take full advantage of federal and state resources so they tend to be great places to start when you are looking to take advantage of these resources.
Just know that while some these resources are set up for consumer and business app companies, most of them are set up for things that have been legislated into priorities at the city, county, state and federal level. Startup founders don’t have the same kind of lobbying efforts that biotech and government contracting firms have.
On my current startup I was able to get get close to $30k in no strings money. I did not work these channels that much because I found out about most of them later in the game. I got a small chunk of cash through a partnership between a University based incubator that was connected with the state resource pool. I also got just over $24k through one company’s startup program. Microsoft rejected my application for Bizspark, but signed me up for an endless firehose of spam. I guess they didn’t like that I just wanted a free copy of MS Office for my business team. A friend’s company got $10k for being a Rural startup as well as $100k for winning a startup business contest hosted by the state of Maryland. There are plenty of easy to attain convertible debt options with 30-90 day turnaround times. I also got an offer for a $50k no strings grant from a County as a prize in a competition, but I did not want to move my business to that county.
It is easy to find this stuff:
For example, I searched for “New York Economic Development Corporation” and found theirs HERE. One resource that they have is the New York City Entrepreneurial Fund. To qualify you have to meet these pretty simple criteria:
- the company must have its headquarters in New York City and be subject to corporate taxation as a resident of New York City;
- the company’s most senior executive officer must work primarily in New York City;
- the company must be a “technology” or “technology enabled company”;
- the company must not engage in any illegal activity, or engage in the business of firearms, gambling, alcohol, tobacco, or other lines of businesses that would preclude procurement by the City of New York.
In Virginia the name is slightly different. Theirs is called the “Virginia Economic Development Partnership” although it shows up in the same web search. Virginia’s equivalent organization to TEDCO is CIT GAP Funds which does seed funding for companies ranging from $25-150k. I have seen a lot of companies go incorporate in Virginia and then basically work from DC so it might be possible to work with a fund from an adjacent state provided you observe their requirements.
If you are in a particular state and have a question, send me a note and I will try to get you in touch with resources local to where you are. I am using Maryland, DC and Virginia as examples because these are fresh on my mind after having a conversation about this today.
For updates, check out my resource page for government funding resources for startups by state.