Uncle Sam wants to help small companies pay for R&D. So why aren’t more KC companies pursuing federal research grants?

The world’s greatest innovations don’t always come from the well-funded laboratories of corporate monoliths. Sometimes they spring from the minds of unknown entrepreneurs working in their garages, under the radar of lenders and big-money investors.

Uncle Sam understands this. That’s why funding opportunities exist for smaller companies through the federal Small Business Innovation Research (SBIR) program and Small Business Technology Transfer (STTR) initiative.

Congress launched SBIR back in 1982 to award grants to smaller companies developing new technologies that serve the greater good. A sister program, STTR, debuted 10 years later and functions much like SBIR, except grants are given to businesses that develop a technology in partnership with a nonprofit research institution such as a university.

Eleven federal agencies, ranging from the Department of Defense to the National Institutes of Health, all of them with R&D budgets exceeding $100 million, are required to spend some of that cash on SBIR and STTR grants.

The SBIR website routinely publishes a list of solicitations from the 11 agencies looking for solutions to specific problems. Companies with technologies that address one of these problems are eligible to apply as long as they are majority owned by a U.S. citizen or permanent resident and don’t have more than 500 employees.

Roughly $2.5 billion is awarded in SBIR and STTR grants each year.

It’s a great opportunity. And it’s one that too many Kansas City companies are passing up.

Why KC Lags Behind

Hang around Kansas City’s community of entrepreneurs long enough, and you are guaranteed to hear this complaint: If you’re a young, growing company, it can be difficult to find capital.

Earlier this year, Maria Meyers and the team at KCSourceLink decided to take a close look at the real state of funding for smaller companies and startups here.

The resulting “We Create Capital” report found that Missouri and Kansas rank 28th and 39th, respectively, in the number of SBIR grants received since 1982.

Even worse, the Kansas City region lags far behind.

From 2010 to 2014, Kansas City was awarded $10.8 million in SBIR grants, averaging slightly more than $2 million per year. St. Louis garnered almost three times that amount at $30.6 million. Even the regions outside the two major metros outperformed the Kansas City region.

The problem is not enough Kansas City companies are taking advantage of SBIR and STTR, said Meyers, the executive director of KCSourceLink. Based at the University of Missouri-Kansas City, the organization connects entrepreneurs with a network of 200-plus nonprofit resource organizations that provide business-building services.

Meyers suspects Kansas City’s weakness in SBIR and STTR funding is due to a lack of awareness and the fact that most of these grants are awarded to communities with strong connections to research institutions. St. Louis, in particular, is known for having a robust life sciences industry, spurred in part by local university affiliations.

“One of the reasons why the numbers are stronger in St. Louis is because they have Washington University there,” Meyers said. “The numbers tend to be stronger in Columbia because it has a high concentration of researchers. Manhattan and Lawrence have stronger connections to universities with researchers that can partner up with companies to commercialize their innovations.”

There could be another reason why more Kansas City startups aren’t winning SBIR and STTR grants—they are notoriously hard to get.

“It’s very difficult to obtain an award not only because of competition from the other applicants, but also the proposals are quite difficult to write,” noted Roger S. Cohen, president of Nyack, N.Y.-based Cohen International and a national SBIR expert. “The agencies receive many more proposals today than they did in early days, and the success rate back then was 12 to 18 percent.”

Putting together a proposal can take 50 hours—or more. On the plus side, most agencies provide specific outlines for the way the proposal should be written and submitted.

“At least they take the mystery away from how you’re supposed to prepare the proposal itself,” Cohen said. “But if a company doesn’t follow those exact instructions, many of the agencies won’t even bother to review the proposal. That’s why it’s helpful to have an outside consultant.”

Fortunately, UMKC’s Small Business and Technology Development Center (SBTDC) has resources to help local companies win SBIR and STTR grants. The center hosts workshops on these programs several times a year.

Jill Meyer is a senior technology development and commercialization specialist at the SBTDC. She works hand-in-hand with companies vying for a piece of the pie.

“An agency looks at several criteria when evaluating whether you’re going to receive the grant,” she said. “One of them is the commercial viability of the research. Another is societal impact.

“You may have an incredibly cool mobile app that is going to be a commercial success and make you billions of dollars, but if it doesn’t have a research component with a societal impact, then it’s probably not the best fit for an SBIR.”

Real Advice from SBIR-Winning Entrepreneurs

With help from the UMKC SBTDC, Mary Kay O’Connor was able to earn a $150,000 SBIR grant from the National Science Foundation for her company, PatientsVoices, which operates out of the University of Kansas’ Bioscience & Technology Business Center.

PatientsVoices’ proprietary technology analyzes and reports patient feedback on their health care experiences. This is especially valuable as the nation’s health care system shifts toward a results-based model, with the federal government using patient satisfaction ratings to calculate Medicare reimbursements for hospitals.

“The grant meant PatientsVoices was able to hire a very talented and committed technical team,” O’Connor said. “We’ve been able to build the prototype, demonstrate feasibility and create a customized dashboard for reporting client results.”

What’s her best advice for winning a grant?

“Do customers think your solution is significantly better than what they do today?” O’Connor said. “What evidence do you have that this is true? Know that the responsibility is on you as the business owner to communicate the value your company brings to the marketplace. You have to do this in a way that is easy for funders to understand.

“The second thing is persistence. When I was ready to throw in the towel, Jill Meyer [from the SBTDC] said, ‘Don’t you dare quit,’ so you’ve got to be willing to take a deep breath and go right at it when grant requirements seem overwhelming and the odds are not in your favor.”

When it comes to winning SBIR and STTR grants, InnovaPrep is a pro. The Drexel-based company devised a technology that allows users to quickly and accurately test the air and water for harmful particles.

CEO Dave Alburty said InnovaPrep has received more than $3 million in funding since the company was founded in 2009, with its latest grant coming from NASA. He worked at the Midwest Research Institute for 15 years before starting his own lab, so he was already familiar with the formalities of federal contracts.

“We already came from that background of ‘live or die by these proposals,’ so we do them all in house,” he said. “But if you’re trying to apply for the first time, unless you are really detail-oriented and can maneuver your way through a technical process like that, I would use an outside consultant or go to one of the classes put on by the local organizations. They are invaluable.”

Even with years of grant-writing experience under one’s belt, “It’s not often that you are rewarded on the first application,” Alburty noted. “Many of our proposals were rejected. We made changes based on that feedback and were eventually awarded. Our win rate is about 40 percent overall. What’s worked for us is getting really good letters of recommendation from universities or large companies in
the field.”

Opportunity Knocks

Thanks to Kansas City’s burgeoning tech scene, many of the startups here are ideal candidates for SBIR grants. We just need to keep spreading the word to new business owners, Meyers said.

That means getting Kansas City’s network of resource organizations involved in the education effort.

“One of the things we’d like to work on is to try to come up with a concise set of information that can be dispersed to all the different groups that work in this area so they can pass that information along to people in their own training classes,”
Meyers said. “That will start this fall. We are also working on raising awareness through social media.”

KCSourceLink’s “We Create Capital” report also suggested creating a community pool of matching funds that will help Kansas City compete for state and federal economic development grants. (These are different from SBIR and STTR grants.)

A lot of times, those grants require a one-to-one match from the applicant. For example, Kansas City was able to win a large Commerce Department grant for its Digital Sandbox KC program in part because local corporations and state agencies pledged their financial support.

“The government wants to invest in a project that the community is also interested in investing in because it demonstrates buy-in and partnership,” Meyers explained.

A standing match fund would give Kansas City a head start on the competition for both federal and state grants.

“When a large grant request comes out like this, you are going to have to rapidly find match dollars from anywhere to $100,000 to $1 million, and that requires going to a number of groups in the community to generate those dollars,” Meyers said.

“If we had a pool that could be triggered in the community to help support these kinds of requests, then we would stand a better chance of bringing in some of these federal dollars.”