Many founders I meet get frustrated when I suggested that they consider government fundings for their startups. I recall a recent chat I’ve had with a startup founder that complained that applying for government funding means he has to do “donkey work”. I mean, it can be exhausting having to put up the necessary application requirements which tend to be demanding and extensive.
After getting through the first paperwork hurdle, you still need to attend the pitch and convince the investment committee why you should get the government grant.
Zero equity taken
Most if not all, the government funding agencies take zero or little equity in your company. In other words, you don’t have to worry about giving away your precious equity, especially at an early stage of the company. You should keep your equity pie tight and only dilute when you’ve got to fund and scale the business (the same rule also usually applies when choosing a right accelerator that may not take up too much upfront equity).
Also, if you think you don’t need the money, just know that even Grab (previously MyTeksi) took cash from Cradle Fund when they first got started in 2012. Cradle Fund once operated using an equity investment model, but in 2020 it recently reverted to the original cash reimbursement grant model.
Government agencies want to look good and showcase their potential and future unicorn startups. I’ve worked with so many clients funded by agencies like Teraju and Cradle Fund. Their investee companies generally get good press and visibility on the major publications, even local mainstream press. Good press is excellent, especially if you’re dealing with product or services that may want to tape into the general market.
Different investors have different ways of managing their investment risks ranging from a simple angel investor that is venturing into a startup for the first time to sophisticated venture fund with an army of investment analysts.
If you think putting in the application form to a government funding agency is “donkey work”, just wait until you’ve had to deal with a corporate investor. The larger the company you’re dealing with, the more potential bureaucracy levels and hurdles attached to the whole funding process.