A guide to grant funding - alternative finance options for startups
Updated: Mar 9
In the second part of our series on alternative financing options, we’re exploring the world of grants. They can be a fantastic way of receiving ‘free money’ when you’re starting a business 🕺.
Although there are a large number of small-ticket grants available which are meaningful for young entrepreneurs (such as The Prince’s Trust), there is also a myriad of lesser-known opportunities for later-stage companies.
What is it?
Grant funding comes from a range of awarding bodies, in different shapes and sizes, across different purposes and industry focuses. They can come from governments, where they are normally allocated in response to policy aims and objectives (e.g. driving economic growth), or from other organisations such as charities, trusts and foundations in response to their own strategic objectives. The two main types of grants are direct cash payments and benefits in kind (via resources and training). Although this article will focus on direct grants, there are a number of structured and formal programmes which can provide advice across sales, marketing, finance and technology, such as the Growth Vouchers research programme.
Direct grants are cash awards. They do not lead to any equity dilution, interest payments, or paybacks. These typically require matched private funding, and will have some restrictions on how the money is spent. They are a way for governments and other institutions to promote the flow of private capital into businesses or to support the development of a new product or service which may have been more difficult to build without their intervention.
Grant funding can form an integral part of an organisation’s long term funding strategy and warrants appropriate consideration. Many organisations have developed their IP pipeline, supply-chains and relationships with end-users by using grant funding, enabling them to deliver high-risk technologies to the market that may not have been funded otherwise.
Oliver Bennett, a grant funding specialist and Head of Innovation Partnerships at Iconiq Innovation
Who is eligible?
The eligibility criteria varies according to each grant scheme. In your applications, you will be required to outline:
The purpose and objectives of your business - explain why your business aligns with the goals of the specific grant.
Your sector - they are generally aligned to a specific industry, so ensure your focus is applicable.
The size of your company - some are only available for businesses of certain sizes or with a maximum number of employees
Where you're based - some are only available for in specific regions
Although grants can be a fantastic way of growing your business, there are a number of limitations to take into account:
The lengthy application process can drain some of your resources away from your core activities
The requirement for match funding means that you will still need to cover part of the costs yourself or identify private capital to help
Once you're received the grants, you may encounter complex and time-intensive reporting requirements
The grants are often time-specific, so you will need to plan for the future when the grant has been fully allocated
Who are these organisations giving away free money?
The UK Central Government
We're fortunate in the UK to have a wide range of support available in the form of grants and other funding competitions. They're important, not only as a source of non-dilutive cash, but being competitive, they also provide external validation of the company's technology and business plan.
Active Needle has been awarded several grants, which together have made a huge contribution to the company's progress in a comparatively short time.
Ian Quirk, CEO and Founder at Active Needle Technology
If you’re a company based in the UK and are focussed on innovation, the UK government provides funding through Innovate UK. Each programme has specific criteria, so make sure you take the time to find the programme that best fits your business’s objectives. There are over 30 active funding calls right now, including:
£10 million towards automotive transformations for electric vehicles and their supply chains, if you’re in the mobility, energy and Industrial sectors. The deadline for applications is fast approaching so make sure to have a look at the details here;
£26 million investment from The Sustainable Innovation Fund. The aim is to help businesses get back on track after COVID-19. There’s a list of eligibility criteria, so check out whether you can apply for some funding here;
Biomedical catalyst, with up to £30 million of funding;
Energy efficiency projects, with up to £30 million of funding,
£2.5 million for innovative agritech projects,
Funding for digital technologies to transform supply chains & implement industry 4.0;
£20 million for renewable energy development; and
£800k for R&D into sustainable plastics.
Welsh companies - For companies based in Wales, you can apply for grants by checking your eligibility here and to search for other grants available in Wales, have a look at Business Wales’ Finance locator.
Scottish companies - The Scottish government provides R&D grants to help you research and develop your business’s project. Further information here.
Northern Irish companies - The Northern Irish government also has a number of grant support schemes. Have a look at some of the schemes available here.
Local Enterprise Partnerships (LEPs) are business driven partnerships between local authorities and businesses in England. You can search for local schemes using the Finance and Support Finder. These local schemes are an attractive source of grant funding, as the more local the awarding body, the faster you will likely receive the money. Have a look at this map to find your local LEP.
European governmental support
Although we have an interesting relationship with the EU, the UK is hopeful that businesses will be able to benefit from the Horizon programme in 2021, although this is still uncertain. The Horizon 2020 programme has been established by the EU to help push Europe’s research and innovation. If you’re a UK-based business, this programme would support your development and innovation, whilst also giving you access to new markets. Many different schemes make up Horizon 2020, so have a look at which funding scheme suits your business. Currently, the extension of the 2020 programme is open to UK businesses.
If your business has the potential for positive change (think shaping new markets, creating jobs, improving living standards, driving economic growth) have a look at the EIC Accelerator, which will help you build on your project and get it market-ready. Projects can be awarded €0.5 million to €2.5 million in grants for single company SME applications.
If you decide to apply for funding as a consortium, you may want to consider the Fast Track to Innovation programme (You’ll need to apply with companies from at least 3 separate countries and is typically for larger organisations). The programme provides funding of up 3 million Euros, covering 87.5% of direct costs, for close-to-market innovation activities in any area of technology or application.
The Eurostars programme is a funding and support programme, aimed at R&D-performing SMEs that wish to exploit the benefits that come with international collaboration.
Nordic companies: Nordic countries are home to some of the most start-up friendly environments (Finland and Norway in particular). There is a vast amount of financial support out there: have a look at Research Council Norway and Nordic Culture Point’s grant schemes
Germany: The German Federal Government offers a number of grants for businesses just starting up or expanding, in order to drive economic growth (that could be tapping into new markets, creating jobs). They’re also impressively efficient - we know of one business who applied for a cash grant on their mobile phone during lunch, and had cash in bank the next morning
Netherlands: The Dutch government provides support to new innovative businesses: check out this online tool to determine which cash scheme is best suited to your business.
R&D Tax credits
Tax breaks are a valuable source of cash for UK businesses and can come in a couple of forms, including R&D tax credits. They let you reclaim up to 33% of your direct R&D costs. They’re paid as corporation tax refunds or cash if you’re loss-making, and you can spend the money on anything! In order to qualify, you must be able to prove that your UK business’s R&D satisfies HMRC’s criteria. You must show that your business has spent money on developing the technology. Have a look at some of the advice on how to get some R&D tax relief.
Social Enterprise grants: If your business delivers a social outcome, such as facilitating access to employment or supporting the social wellbeing of society, take a look at UnLtd (they also host training sessions and specialist guidance). Or if your business targets improving the lives of those in developing countries (people living on around $5 a day or less), you could think about applying for the Global Innovation Fund (applications run on a continuous basis so take your time making a thorough application). Another useful page to explore is this handy list of grant providers for social entrepreneurs in search of some social investment.
How to maximise your chances of securing a grant
Once you’ve done your research and decided on a grant that suits your business’s own objectives, there are several steps you can take to give you the best chance of securing one of these awards.
Have a clear business plan: Tailor your plan to the one you’re applying for, including a detailed breakdown of how you plan to use it and how it will help you meet your business’s (and the grant’s) objectives. The more detail you put in, the more likely you are to get selected.
Emphasise your experience: The more credible you sound, and the more you can leverage relevant experience, the higher the chance of securing a grant.
Bridge the gap between the grant and the matched funding: Ensure you have the capability to invest the amount that it requires. For example, Innovate UK is typically 70% of direct costs, paid quarterly in arrears. Some local funding is only 30%, whereas some of the larger EU funding is 100%.
Research the awarding body and ensure your application is in scope: If you’re to make a successful application, the research process will be fairly time-consuming; if your business is just starting out, you may find this time better spent on other projects. The objectives set out in each grant can be very niche, therefore ensure that the grant application is clearly in scope and tailored to the competition.
Get your application in early: The application process will vary with the awarding body, but many grant issuers (especially local funding) will have a finite amount of cash they’re giving away. Therefore, make sure you get your application in as early as possible.
Be aware of the timelines: Getting your hands on a grant can take anywhere from a couple of weeks to a few months. If you’re applying for one from a local awarding body, you should have it within a matter of weeks, whereas governmental awarding bodies could take up to a few months.
Iconiq Innovation and KTN provides additional support if you're looking for someone to help guide you on that journey. These organisations can help review applications (and identify other relevant to your business) and act as a partner or subcontractor, significantly increasing your chances of success. Grants online is also worth taking a look for a list of available grants.
If you are interested in exploring grant funding, get in touch with the team and we will happily introduce you to someone who can help. (We don’t advise on grant funding, but we may be able to help you on your next equity raise!)