When it comes to raising capital for a tech startup, savvy entrepreneurs know how important it is to hustle. From trying to attract the attention of VCs to appearing on television shows like ABC’s Shark Tank, these days when it comes to raising cash, everyone is out to get their share.
However, you may be surprised to learn that in this high-tech world, one very traditional institution is looking for smart entrepreneurs to give money to. Aspiring entrepreneur, meet the Small Business Administration (SBA).
“It is the innovative entrepreneurs and high-growth small businesses who help power our economy and move it forward; they create new jobs and make our industries globally competitive,” says Maria Contreras-Sweet, SBA Administrator. Indeed, the SBA provides small business owners with an assortment of financing options, from microlending to equity investment capital (venture capital).
As a government agency, the SBA also offers loans, loan guarantees, contracts, counseling and other forms of assistance to small business owners. Today, the government is funding a myriad of tech startups—from robotics to nanomedicine.
“Most consumers don’t know that it was SBA’s SBIR investments that led to the technology behind breakthrough inventions like 3D printing,”says Javier Saade, SBA’s Associate Administrator for the Office of Investment and Innovation. SBIR, otherwise known as Small Business Innovative Research, is a highly competitive program that encourages small business owners to explore their technological potential.
“Over the last three decades, 11 agencies have awarded about 145,000 competitive grants totaling over $38 billion to small business and researchers across the land,” Saade continues. “That is all great and good, but the rubber meets the road on the commercialization of the resulting inventions and IP. This is what creates jobs and enhances our position as the world’s undisputed innovator.”
According to the SBA, “SBIR targets the entrepreneurial sector because that is where most innovation and innovators thrive. However, the risk and expense of conducting serious R&D efforts are often beyond the means of many small businesses. By reserving a specific percentage of federal R&D funds for small business, SBIR protects the small business and enables it to compete on the same level as larger businesses. SBIR funds the critical startup and development stages and it encourages the commercialization of the technology, product, or service, which, in turn, stimulates the U.S. economy.” This means that entrepreneurs, especially those in the tech space, have a great friend in Uncle Sam.
To qualify for SBIR, the startup (or small business) must meet certain eligibility requirements, including being American-owned and independently operated, a for-profit entity, a cap of no more than 500 employees, and the principal researcher for the business must be employed by the actual company (i.e. not a contractor). Those who are ultimately given SBIR awards are eligible for up to $850,000 in total funding.
Another good option for tech startups is the SBA’s SBIC program. Although the Small Business Investment Company (SBIC) program does not provide capital directly to businesses, it does partner with private investors on professionally-managed investment funds (known as “SBICs”) that finance small businesses.
In essence, the SBA recognizes the importance of companies in the science, technology, engineering and mathematical industries (otherwise known as STEM). Startups in these areas are of particular interest to the government as they help create a more progressive country and create jobs for the next generation. “A country’s commitment to the future can be measured in many ways,” Saade says. “One of the best yardsticks for this is investment in STEM-driven innovation and these programs are indeed and by far the government’s largest innovation effort focused on small businesses.”