By APEX Process Navigation Team
Technology startups are hard. The term “valley of death” has been used to describe the difficulty of attracting funding needed for you to obtain customers, attract more funding, and get to a cash-flow positive position. It’s real and still around. The Department of the Air Force’s (DAF) Small Business Innovation Research and Technology Transfer (SBIR/STTR) program can be a fantastic vehicle to help get you get past the “valley of death” and realize your entrepreneurial dream.
The DAF SBIR/STTR program is renowned for the ingenuity of its approach, flexibility in solution consideration and ability to attract proposers who are new to the SBIR/STTR program. To the last point, I was recently at a SBIR/STTR conference where the DAF and National Science Foundation were singled out for being well ahead of all other SBIR/STTR awarding agencies for results in attracting new entrants to the program.
A prime driver for the DAF’s success is the Open Topic, which allows entrepreneurs to tell the DAF how your technology can solve a real problem for them. This is very different from the traditional approach where an agency tells you what problem to solve. The DAF publishes technology focus areas that are of interest (i.e., hypersonics, data security, artificial intelligence, machine learning, advanced materials, etc.), but it is important to note that entrepreneurs can propose anything that solves a problem for the DAF. During APEX consulting with entrepreneurs proposing to the DAF program, we have seen many ideas get selected for awards, despite being relatively far afield from the DAF-published focus areas.
So why should you propose to the DAF SBIR/STTR program?
Obtain early-stage funding that might be unavailable anywhere else
Raising early-stage capital is difficult. Even though venture capital (VC) investments have steadily risen, and valuations are currently high, raising early-stage, pre-seed capital is getting harder for an interesting and somewhat paradoxical reason. Entrepreneurial Development Organizations (EDOs) play a huge role in providing support and occasional funding opportunities to early-stage companies in entrepreneurial ecosystems across the U.S. Moreover, they encourage development of angel groups and angel networks. However, an unintended consequence of these efforts is that venture capitalists have become more risk-averse, requiring other players to “de-risk” early-stage technologies and deals.
The DAF SBIR/STTR program can significantly help with this de-risking and provide crucial funding that can make a difference in bringing your technology idea to market. If you are selected for a Phase I Open topic award, you will likely have $50,000 and three months to find and develop customers in the DAF and other services as well as to determine how to optimize your offering for DAF needs. The latter frames your Phase II approach. If you are selected for Phase II, you will likely have $750,000 and 12-15 months to transform that optimization to a working prototype. This development work, funded by DAF SBIR/STTR, will better position your company and technology in the general marketplace and de-risk it for future investment opportunities.
What can I do to get started?
Although DAF SBIR/STTR funding will undoubtedly make a difference in your technology development, the DAF’s goal is to eventually buy products from you. They want to get solutions into the hands of the warfighter to make the U.S. a more potent and effective fighting force and to protect airmen and their families, but the onus is on the small business to reach out to the appropriate agency/team which would be interested in your technology. Of course, this includes potential customers within the DAF, but it also includes potential customers in other organizations such as the Army, Navy, Homeland Security, and others. The overarching goal of the SBIR/STTR program is to drive commercialization and, ultimately, customers and market acceptance will bring revenue to your company, allow you to grow, and move you toward a positive cash flow position.
Raise more capital to fund growth
Market acceptance and actual customers are what the VC community terms “traction.” Traction is a key element to enable significant VC funding and getting that traction through DAF SBIR/STTR is a great approach. The fact that the DAF wants to purchase your company’s solutions and thought enough of those solutions to fund their development is a huge positive and perceived risk-reducer for VCs. It gets even better though! The DAF’s STRATFI and TACFI programs come into play after Phase II completion and can provide $400,000 to $15 million in follow-on funding. These programs generally require matching funding, typically from investors, but this will be quite attractive to VC investors because DAF funding is non-dilutive to their investment and indicates great customer acceptance with strong chances for market success. In general, working within the DAF SBIR/STTR program will increase your chances of raising the capital you need to grow.
Ease your technology development costs by connecting with a university partner in an STTR
In running a startup, you understand the difficulties of getting and paying all the resources you need to develop your technology. An often-overlooked opportunity to address this is to use the STTR program to enable access to resources available in U.S. universities and research institutes.
Universities and research institutes have renowned experts in a variety of technologies and can help you bring something to the table that you couldn’t otherwise offer, particularly in terms of research.
Many STTR proposers only consider using a university partner for research or development work, but there are many other ways to utilize university resources creatively and effectively. For example, it’s a great idea to use university testing centers for access to esoteric and well-maintained equipment, which often come with low cost, trained personnel who can often perform high throughput testing for you. Many universities also have unique manufacturing capabilities, particularly in additive manufacturing, also with personnel to do the work. As a bonus, testing and manufacturing services typically do not require IP sharing.
Another way to use university resources is to have their business school or entrepreneurial center provide student resources to determine DAF contacts for whom you can solve a problem. Although it’s best for the entrepreneurial team to make DAF connections, lower-paid student resources can do a lot of “front-end” work better and more cost-effectively.
Lastly, the DAF wants to broaden its relationships and work with the university community. As a result, proposing an STTR with a university or research institute partner might improve your selection chances.
All in all, there are solid financial reasons to use the DAF SBIR/STTR program to help fuel your entrepreneurial journey and we hope that this post gave you some ideas on how it might work for your organization.
Interested in learning more? APEX (www.apex-innovates.org) is a Department of the Air Force partnership intermediary agreement (PIA) organization managed by Parallax Advanced Research. APEX provides free-of-charge services to DAF SBIR/STTR proposers. These services include support cohorts, matchmaking, information sessions, events, and many others. Also, it’s useful to join the APEX mailing list, which you can sign up for on the homepage, to be kept aware of opportunities during and in-between solicitations.