By: Elitsa Dermendzhiyska, Co-founder of Grant Central
Is there such a thing as a free lunch when it comes to startup funding? That’s the question hanging in the air as I sit down with Jan Reichelt, co-founder of Mendeley, a research collaboration platform boasting over 3 million users and touted as one of the startups most likey to change the world for the better. If anyone had the answer, that would be Jan: on top of a Series A funding and acquisition by Reed Elsevier, over the past 6 years Mendeley has won a slew of national and EU grants whose precise number Jan seems to have lost track of.
Equity-free money in the form of grants holds a special allure for bootstrapped, cash-starved startup founders – an allure Jan is quick to dispel. Grants are like a sweetener, he says. They are nice to have, but startups shouldn’t count on them. Even if you get one, the money can be slow to come in, so you need to have other funding sources ready at hand.
Back in 2008, when Mendeley applied for the EUREKA Eurostars grant scheme, the startup had already secured seed funding and was eyeing VC investment to develop its research collaboration platform. The grant wouldn’t make or break Jan’s vision; rather, it just turned out to be the right fit at the right time.
Jan wouldn’t recommend the grant route for most startups, invoking the somewhat laborious process of obtaining and managing the funds. The amount of time you have to dedicate to writing the application through to forming a partnership to reporting and monitoring the project is only justified if you can find the right fit between your goals and the purpose of the grant, he says.
Grants such as the ones offered by Eurostars exist for two main reasons: to encourage research or to facilitate collaboration between academia and businesses. Mendeley fit both requirements, as the startup was looking to engage with academic experts in crowdsourcing and modern semantic technologies in order to provide real-time impact analysis for its platform users.
With the grant, the startup was able to create a win-win consortium by partnering with the Estonian Technology Competence Centre in Electronics-, Info- and Communication Technologies (ELIKO) and Austria’s Competence Centre for Knowledge Management (Know-Center).
Besides fit, another consideration businesses need to keep in mind is the rigidity of most EU grant schemes vis-a-vis VC funding. Grant applications often call for specific development plans and growth projections over 2 to 4 years down the line – something almost unthinkable for startups used to changing direction (or “pivoting”) on the go. A grant entails pre-committing to a certain course of action and any later changes, while possible, require reasonable justification and official permission from the government funders. A helpful strategy, Jan offers, is to make up a story and define your roadmap broadly enough to leave room for flexibility.
Grants require founders to maintain constant communication, as rules call for regular financial and technical reports to keep the funding authorities apprised of any progress, delays and changes to the project. Consortium agreements and allocation of responsibilities among partners also come with their own set of communication challenges. One example is deciding who would own the IP developed, – an issue that can become tricky if there are two or more commercial partners involved. Further still, aligning academic and business needs may require careful treading – or what Jan aptly describes as “hand holding” – in order to keep the theoretically appealing in line with the practical commercial realities.
Grant funding can appear rather rigorous to founders tied in the day-to-day running of business, and Jan, who tackled the initial Eurostars application by himself, concedes that the initial learning curve can be steep. Apart from hammering out a comprehensive application, he needed to then setup solid management and reporting processes in the post-grant period. And yet grants, while no free lunch, offer an opportunity for startups to grow on their own terms if they can muster the management skill, clear vision and R&D potential.
Have you had any experience of applying for similar grants? Share them with us in the comments!