Compared to private funding, public funding allows you to grow without giving up your company's equity. If we compare it to bank financing, the most normal thing is that public funding does not require personal or additional guarantees to your own project and your chances of obtaining larger amounts in the earlier stages of your company and with a grace period (grace period until you start paying back the funding) are much greater.
In today's article, we wanted to summarize the main mistakes that startups make when seeking public funding.
From Intelectium we have been advising companies to obtain different lines of public funding for more than 18 years, so these recommendations are strictly based on our experience and on the more than 400 startups we have helped to obtain funding. We hope that these tips will help you not to make the same mistakes:
- Just want non-refundable grants: It is very common for entrepreneurs to be attracted to non-refundable aid. These are grants that are like prizes, the funding granted to you by the public entity does not have to be returned and that is why they are so attractive a priori. However, just wanting this type of aid greatly limits the amounts and options of public funding that a company can choose. In addition, the possibilities of obtaining it are more limited, since this type of 100% non-refundable aid is usually allocated in the form of competitive competition and that means that you compete with the rest of the applications that are submitted, so simply meeting the requirements of the call is not enough to be successful in obtaining them. At Intelectium, we recommend going for this type of option whenever the company has a very differentiating technical/innovative component, but not basing the company's financing plan only on 100% non-refundable grants.
There are partially refundable grants, with grant tranches and soft loan tranches, or participatory loans with very good conditions, which are also very interesting aid options for financing the growth of the company and the development of new projects or improvements within it. Examples of these aids are CDTI PID, CLICK or Enisa.
- Underestimate the innovation implicit in your projects: Many companies we talk to believe that the daily life within their company, or that the internal projects they do to improve their processes or solutions, are not innovative enough to qualify for public aid. Most of the time, this is not the case. There are a large number of lines of public funding that seek to encourage and help startups and SMEs to continue to improve their processes or solutions, either by integrating third-party technologies to increase company efficiency or developing their own solutions because they cannot find options in the market that meet the company's needs well.
From Intelectium, we advise you to assess with a financial consultant such as ours, if past projects are likely to be submitted for tax deductions, and/or future projects/development objectives may be eligible for public funding in the form of loans or grants.
- Start looking for funding when you run out of cash: Another very common mistake we encounter is that startups start looking for public funding options shortly before running out of cash. This makes it very difficult to obtain public funding, since like banks or private investors, public entities are looking for companies that are in a good financial situation, not that are in such need of cash, since many grants cover up to 75%-85% of the project and the rest of the funding must be covered by the company with its own funds. Also, soft loan grants want to have some confidence that the company will be able to repay the funding granted. Therefore, the ideal time to go looking for any type of financing is when the company has had a capital increase or has good levels of equity.
- Wanting to apply for European funding from the start: We find many startups that want to go directly to apply for European funding, even without first having taken advantage of all the public funding options at the national level. This is a major mistake, since European funding is even more competitive than national funding. When you go to Europe, you have to keep in mind that you are competing with the best startups and companies from all the countries that make up the EU, so the chances of obtaining aid are much more difficult. In addition, if the company is at a very early stage, where it has not yet been able to make much progress with its technology or with market validation, it will be even more difficult for it to be able to compete with other companies. In this regard, our advice is to first take advantage of options at the national level and, then, to be aware of European aid in order to present yourself at the best possible time.
- Wanting to go alone/ without help from a consultant: Public bodies are very thorough when it comes to providing funding to companies that request it. This is because they manage state or regional funds and such efforts must be very transparent. Therefore, the requirements are many and tedious. Every request is different and a wrong approach can ruin the aspirations of many. Often, opportunities are lost to obtain calls that are only published for a few months of the year, or that can only be requested for a short period of time. Having an expert consultant in applying for and obtaining aid allows you to maximize (not guarantee) the amounts earned and the chances of success. In addition, the consultants are clear about the typical mistakes that you don't have to make to be successful in the first application, without the need for representation.
At Intelectium, and for everything that is national public funding, we work with a successful business model, with which the companies we help to obtain public funding only have to pay our fees if we finally get help for the company, and not in advance, which significantly reduces barriers for companies in the initial stages or that do not want to allocate part of their own budget to this type of action.
- Assuming that you will get help: There is always a certain risk factor that can make an application for public aid not a winner. Therefore, we always develop for our clients a financing plan that considers all feasible options for each type of company depending on its stage of development and its technological plans. In this way, if one of the grants is not obtained in a particular year, especially those in the form of competitive competition such as Neotec, the company does not exhaust all its options or lose an entire year, which is how long it can take to make a re-presentation.
We hope that this summary of the most common mistakes that startups make when seeking public funding will help you to better understand how this type of funding works. If you want to know if your company is eligible for public funding and which lines of aid are the best suited to you, you can contact us through our form or the following email: comunicacion@intelectium.com. From Intelectium we will be happy to make a first call or video call to get to know your company and to be able to assess the best public funding options for your particular case without any commitment.
