If You Receive Equity Funding, Can you Still Apply for Grants?

Many high technology companies have accepted private equity, or dilutive, financing (it is called dilutive as it dilutes the founder ownership in the company).  The federal government supports many such high technology, high risk/reward endeavors through research and development and Innovation programs.  The most prevalent sources of government R&D funding are the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs.  According to the SBIR website (www.sbir.gov), 11 federal agencies currently participate in the SBIR program and five of those also participate in the STTR program.  

So, how do these programs handle private equity?  It all comes down to the percentage of ownership that the private equity firm possesses.  According to the SBIR Eligibility Size Compliance Guide (https://www.sbir.gov/sites/default/files/elig_size_compliance_guide.pdf), an eligible applicant can be majority owned by multiple venture capital, hedge funds, and private equity firms, so long as the total ownership is more than 50% but no individual private equity firm can have more than 50%.  Also, The venture capital operating company, hedge fund or private equity firm must have a place of business located in the United States and be created or organized in the United States, or under the law of the United States or of any State.”  However, these entities are only allowed if the SBIR/STTR program is offered by an agency using the authority provided in section 5107 of the SBIR/STTR Reauthorization Act (majority VC-owned). The National Institutes of Health (NIH), the Department of Energy (DOE) and the National Science Foundation (NSF) can award up to 25% of its funding to majority owned private equity firms.  All other participating agencies can award up to 15% of their funding allocation to these companies.  

What if a company is not majority owned by private equity?  Any firm with less than 50% private equity ownership can apply for SBIR/STTR funding, as long as the private equity firm(s) doesn’t have the power to control the company.    

So, if your company is partially owned by private equity, you can apply for SBIR/STTR funding. If you wish to apply for a program outside SBIR/STTR, I suggest you read the Notice of Funding Opportunity’s eligibility criteria very carefully before applying.  If it is not clear whether you are eligible, contact the Program Manager for the funding program.

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