Grants
Grant are funds given to an individual or entity (such as a not-for-profit organization or company) for a specific purpose linked to public benefit.
Non-recoverable grants are distributed by charitable organizations, governments, and companies who do not expect to be repaid for the funding.
Grants vs. loans
Most grants are not loans, but make sure you specify. Recoverable grants are designed as short-term loans and were used during COVID19 to provide capital to nonprofits and social impact organizations, but repayments were expected. Providers of non-recoverable grants, however, do not expect repayment and there is no claim on you or your company. This type of funding is called “non-dilutive” because you do not give up any ownership to a grant-giver.
Grants vs. early seed investment
Grants are designed to generate societal benefits, whereas not all Angel equity investors are looking for their capital to generate a social benefit. The line between early-stage impact equity investment and grant funding, however, has become blurry because an early-stage company may receive government and charitable grants alongside equity investment. Foundations and Donor Advised Funds have more flexibility to both give grants and invest in for-profit organizations that address the core societal benefit they are seeking to catalyze.
Example Grant Givers
Bill and Melinda Gates | Rockefeller Fund | UNDP | National Institutes of Health | Department of Defense
Are grants the right capital for your business at this stage?
COMPANY PERSPECTIVE
Benefits
- Grants givers do not claim to own a part of your company (non-dilutive)
- Grants can be a signal to future backers particular if awarded through a competitive vetting process
- Grants can be structured to de-risk commercial or scientific discovery that is too early for customer demand
Challenges
- Grants have strings attached, usually in the form of pre-determined milestone commitments that may encourage a company to adhere to the plan and not pivot in response to market demands
Key Performance Indicators
- Milestones
CAPITAL GIVER PERSPECTIVE
Benefits
- Fund sectors that require a boost from government or foundations to spur commercialization of technology
- Allocate funds to underrepresented founders
- Support capacity building for a sector or company
Challenges
- Grant givers recognize that they add burdensome requirements that do not always increase the quality of oversight
- One size fits all selection and management process does not fit the needs of all grantees
- Difficult and time-consuming to truly design with community partners for whom grants are designed to support
Key Performance Indicators
- Shifting from inputs (technology developed) to outcomes (# of people helped by technology)
- Sustainable Development Goals (SDGs)
- Awareness that qualitative measures are needed esp. for social impact aims
- Milestones
When it Works Well
Grants help society
Why do governments and foundations and individuals give grants? To satisfy needs that are not easily solved through market-based mechanisms. The. best grants programs achieve this goal of satisfying a greater need that helps society.
Co-created with community
For grants targeting equity or social justice, communities are engaged in co-producing the goal, purpose, and process for transitioning to a better future.
For company: aligned to mission
Grants can help direct an early-stage company to invest in a promising opportunity that advances its mission.
Challenges to Managing Grants
Time consuming reporting process
When grant administration comes with complex processes and time commitments, they may outweigh the benefits of receiving the grant.
If the grant funds a process or area of inquiry that directs the company to pursue a different tactic, market, or goal, the administration of the grant may dilute management focus.
Misallocating of funding
A big challenge for grant makers is knowing which types of projects, technologies, sectors, and founders to fund. Grant-makers do not always choose these topics well, nor do they always choose the best recipients. When companies are caught in this cycle they may get caught in multi-year milestone reporting and project execution and lose sight of more productive uses of human and financial capital.
Ignores community need
Grant programs can fail if the community the grant intends to support is not considered nor consulted in the creation process, and the solution designed is not accepted by the community or fails to address the primary concerns.
For example, climate change adaptation solutions might address the concerns of the shoreline or real estate developers but ignore the need to preserve manufacturing or higher-paying jobs in an industrial maritime zone. Companies should not see a grant as a sign that societal benefit has been determined at the community level.
Trends in Grant Giving
Convening and collaboration
Grants makers recognize the need to collaborate and sharing learning with other grant-makers and commercial actors in the private sector. Recognizing that long-term systemic change will not come from any one solution or sector, these stakeholders are experimenting with new methods of collaboration
Demand for accountability
A continuing trend in grant making is the use of monitoring, evaluation, ad learning methods to determine the effectiveness of grant administration processes.
Grants within blended finance
New financial instruments are emerging to address complex system challenges. These instruments combine debt, equity, alternatives or hybrid financial structures AND grants to fund a community or sector. Grants typically cover the initial investment in a project, solution, or company that will not generate financial market-rate returns.
Before You Consider Grants
- Does your application for a grant highlight the impact and benefits to the recipient, giver, and the community being served?
- Does your organization have the ability to assign a dedicated team to fulfill the milestones of the grant?
- Are the milestones of the grant aligned with your primary path?
Exploring Grants
- Explore government and foundation sources for grants
- In the US try Grants.gov and OpenGrants.io
Discover Alternative Capital
Grants are one way to grow your company, and you can choose other capital types as an alternative or pair and combine at different stages of your business. Consider these alternative capital sources or explore our Capital Library.
