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Catalyst - Fall 2012 - Non-Dilutive R&D Grants Might Be Your `Entrée’ to Funding

In the search for investor interest that hopefully leads to securing critical capital, life science companies often get rejected and frustrated and rejected and frustrated…again. The process can be daunting and tiring and a steady stream of “no’s” can douse even the most fired-up entrepreneur.

Many turn to the government grant process where one would think fantastic, market-changing science might win the day over failure-to-impress investor presentations.

There is certainly plenty of money out there – it is estimated that the federal government makes available more than $60 billion in grants – that’s billion with a B – to address topics of importance to public health. Every year, myriad government agencies release hundreds of solicitations in search of the country’s best and brightest scientists and technologists.

SBIR grants (www.sbir.gov) have become popular in recent years and regular visits to www.grants.gov are commonplace. Who wouldn’t want to grab a slice of what often amounts to free pie – known as “non-dilutive funding?”

Non-dilutive R&D funding has become a major player in the life science finance industry as more federal agencies and dozens of private entities, support biological and medical preclinical and clinical activities in all fields and scopes of research and development. Funds for individual projects range from less than $100,000 for early stage research, through $2 million for standard hypothesis-driven and product development grants. There are even large-scale funding opportunities of up to $100 million and more.

The Small Business Innovation Research (SBIR) program is a highly competitive program that encourages domestic small businesses to engage in R&D that has the potential for commercialization. SBIR grants support scientific and technological innovation through the investment of federal research funds.

Sounds easy, right? Not so fast.
“It sounds great but there is are many misperceptions out there. First, with regard to SBIR funding, people see it as the main source non-dilutive funding. Not true,” explained Ram May-Ron, managing partner of Freemind Consultants, Washington D.C.

In fact, SBIR represents only 2.5 percent of the government funding available. Since the SBIR rate is lower than many options out there, the number of submissions has increased dramatically. “It’s simple math,” he said. “The SBIR budget is stagnant so the more people who apply, there’s fewer who get funded.”
 
At the same time, the other oft-sought well -- grants.gov -- lists only about 20 percent of awards allocated by the National Institutes of Health. Eighty percent of funding is awarded though unsolicited application, said May-Ron.

“The government wants researchers to be able to approach the various agencies for funding with whatever they are working on because it doesn’t want to say that one aspect of research is more important than another.” Free-for-all, anyone?

Consider that the burden for application falls to the same individuals who are rightfully tied to the lab bench, unable to present a one-hour Powerpoint to investors – much less dot the “i’s” and cross the “t’s on a seemingly endless government RFP. And, even if they could get the paperwork completed, the short time frame, exhaustive followup and more often turns even the most likely-to-be-funded companies away.

That’s why some are now seeking out assistance from firms, such as Freemind, that specialize in overseeing the non-dilutive grant funding process. Freemind has helped clients secure over $1 billion in grant awards for clients, said May-Ron, noting his business is no different than any other.

“Knowing your customer is critical. Freemind researches opportunities, finds out what the customer – in this case a federal agency – is looking to `buy,’ and figures out the best way to present the offering.

“We are not doing magic,” continued May-Ron. “We assist companies in having a better understanding of the interest and focus of the agency they want to apply to because we are in contact with agency officers and seek feedback about the best way to present the science to increase the chances for an award for our clients.”

With the published average success rate for grant applications submitted to the NIH sitting at around five to 16 percent, it doesn’t take a professional gambler to see the odds are not in favor of the applicants. That’s why strategy is key.
“There is a lot of money out there. But it’s not a crap shoot,” May-Ron said. “Non-dilutive funding is a real source of capital for life science companies and it must be treated as such.”

Be strategic. Maximize your chances by exploring all opportunities – even those that don’t seem likely candidates for your science.

 

  • Be serious and diligent about the process.
  • Realize that anything worth doing is worth doing right.
  • Go the distance with a plan.
  • Know why your science is different and better.
  • And, when they ask, `why should we give you money,’ know the answer.

 
“…Because being really smart and having a novel science is not enough to get the attention of these federal agencies,” concluded May-Ron. “Everyone and everything being submitted is considered `innovative science’ by its owner.”
 

EisnerAmper's Catalyst: Fall 2012

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