We all know that female founders don’t get their fair share of venture capital. According to the Q3 2020 PitchBook-NVCA Venture Monitor, startups with all female founders receive a low and declining amount:
- VC capital: 2.6% in 2019 and 1.8% in Q1,2&3 2020
It makes it all the more critical that women know about other funding sources. For women with STEM (science, technology, engineering, and math) startups, grant dollars from the federal government could be an additional capital source. While the dollars available are lower ($3.6 billion in 2018) than venture capital ($135.8 billion in 2019), your chances of getting funding are nearly five times higher. Best of all, the grants are non-dilutive. That means you do not have to give up any equity in your company. Since it’s a grant, you also don’t have to pay the money back.
Currently, 11 Federal agencies participate in the Small Business Innovation Research (SBIR) program and five of those agencies also participate in the Small Business Technology Transfer (STTR) program. Each agency administers its program. The agencies include the Department of Agriculture, Department of Commerce, Department of Defense, Department of Education, Department of Energy, Department of Health and Human Services, Department of Homeland Security, Department of Transportation, Environmental Protection Agency, National Aeronautics and Space Administration, and National Science Foundation.
The SBIR and STTR programs mandate those federal agencies with procurement budgets of $100 million or more set aside 3.2% to fund their SBIR programs. Agencies with an R&D budget above $1 billion must also set aside 0.45% of those funds for the STTR program. The pool of money available in 2018 was $3.6 billion.
Just as getting venture capital is a complicated process, so too, is receiving SBIR/STTR grants. The application process is highly competitive. However, if the National Women’s Business Council (NWBC) has anything to do with it, it will be easier for you to learn about opportunities like these and evaluate if they are a good fit for you.
NWBC is a federal advisory committee established to serve as an independent source of advice and policy recommendations for the President, the US Congress, and the U.S. Small Business Administration (SBA) on issues of importance to women business owners and entrepreneurs.
The Council recently released America’s Seed Fund: Women’s Inclusion in Small Business Innovation and Small Business Technology Transfer Programs. The report is the first comprehensive analysis of women’s participation in the SBIR/STTR programs as business owners or principal investigators.
“The idea to do this research came out of our annual meeting in 2019,” said Monica Stynchula, chair, NWBC’s Women in STEM subcommittee, and REUNIONCare CEO and founder. An official from the Patent and Trademark Office had a deck of cards with female trailblazers and their different inventions. “We had never seen anything like this. The committee recommended that the Council do a study to find out exactly how many women are accessing the SBIR/STTR opportunities.”
The total number of women-owned small businesses (WOSB) SBIR/STTR Awards decreased to 13% in 2018, down from 14.4 in 2013. Even though the number decreases, the percentage is higher than venture capital (2.7% in 2019 and 2.2% in Q1&2 2020). The Department of Education (29.5%), followed by the Department of Transportation (22.7%) and the National Science Foundation (17.6%), gave out the highest percentage of awards. The Department of Defense ($1.75 billion), followed by the Department of Health and Human Service ($1.08 billion) and Department of Energy ($280 million) have the largest budgets.
To increase the representation of women-owned businesses in the SBIR/STTR programs, NWBC is recommending that:
- The SBA ensures streamlined and more consistent data collection and reporting on women’s inclusion in these programs. “Data needs to be collected on an annual basis and provide more granular information,” said Stynchula. For example, currently, male/female teams aren’t tracked. It is well documented that diversity leads to greater success.
- Congress should ensure the agencies have enough resources to do outreach to women and other economically disadvantaged groups. “Some agencies do a better job than others,” said Sara. “There no one size fits all, but, by sharing successes, each agency can develop a program that works for them and female founders,” said Stynchula. “Finding a champion in an agency is critical to success.”
- The definition of ‘women-owned business’ should be expanded to allow women and minority-owned firms to accept VC and equity investments. Many of these firms have angel and venture capital investors. I’ll add that because the most successful companies have diverse teams that include both men and women, diversity needs to be considered.
- Participating agencies should offer the opportunity to do an initial pitch to determine if the company’s idea is a fit for the program. “The process to do these applications takes a significant amount of time and research to do,” said Sara. “If there were a quick pitch phase, it would eliminate women-owned businesses that are outside the scope.”
In addition, NWBC is recommending increasing the Angel Investment Tax Credit cap to more than $50,000. Nearly 17 million households qualify as accredited investors (angels),* yet there were only 323,365 angel investors in 2019. Raising the cap would incentivize new angel investors and broaden the pool of investors, particularly female investors. It should be noted that the SEC modernized the definition of an accredited investor to include not just people with high income or net worth, but also those who are financially sophisticated. With the tightening of credit during the coronavirus pandemic, equity funding is even more important.
“We’re now packaging these recommendations up and they’ll be delivered to the White House, to SBA, to Congress sometime in December,” said Sara.
How will you let your congressperson know how important this is to your startup?