Oodles.com founder Steve Sherlock has set himself the goal of raising a multimillion dollar Series A funding round by early 2010. He is documenting his trials and tribulations and seeking feedback from readers on AnthillOnline.com. This is the ninth post in his series.
Week 9: Money for nothing
I can never figure out if that Dire Straits song goes “money for nothing and your chicks for free” or “money for nothing and your cheques for free”.
Let’s stick with cheques for this post, because everyone knows you don’t get chicks for free unless you play the guitar on the MTV. Plus, getting cheques for free is in context with what I want to talk about.
Up until now I’ve only spoken about my experiences trying to raise capital by working with VCs, Angels and, most recently, ASSOB. What I haven’t covered is a source of funding that we at Oodles have found both accessible and beneficial. A funding source that didn’t require any equity dilution or require us to take on debt.
Sounds like money for nothing. Not quite.
I’m referring to the various grants made available to businesses in Australia by all levels of government.
We’ve already raised $340k by tapping into these grants and we hope to qualify for up to $290k more before the end of this financial year.
In themselves, these grants are not enough to really grow a business, but they can buy you some breathing space in which to further develop your product and business model, making you more attractive to value-adding investors. In effect, they help fatten the cow while you continue to seek capital from commercial sources.
The grants we’ve secured have come from a variety of sources, including Melbourne City Council (startup grant), AusIndustry (COMET Grant* and R&D Tax Offset**), Austrade (EDMG***) and Commercialisation Australia (CA)****.
The CA grant — which effectively replaces the COMET and (controversially dumped) Commercial Ready grants — supports skills and knowledge, proof of concept and early stage commercialisation. Grants can range from $50k up to $2 million, and several require the company to match the amount.
How to secure grant funding
Now for some advice gleaned from my own experiences.
First, you need to focus on getting the right grant. There is nothing worse than spending time and money only to see your application rejected because you didn’t meet the criteria. That happened to me with an MCC grant. We sucured a startup grant and subsequently applied for an expansion grant, but the grant contained some technicalities I neglected to address and my application was rejected. Doh!
That’s where grant application assistance companies have a role to play, because they know the right questions to ask and the right information to provide. We use GrantReady and “lemme tell ya them guys ain’t dumb”.
Here are the five steps that I take when talking to the grant application assistant company:
- Find out what sort of companies are applying for the grant you have in mind.
- Find out the reasons companies are being told they are not eligible.
- Find out the criterion that leads to successful applicants being accepted.
- Find out what the government body providing the grants is saying about the type and stage of applications being accepted.
Only then should you put forward what you are thinking of applying for and why. That way, without revealing anything about your own circumstances, you learn what the organisation is looking for and you can then try and mould your application to fit.
It’s no different really to an investor saying, “I’ll invest but you’ll need to focus on this area of the business first”. Of course, not every business will be capable of being so flexible, but if you are, the incentives are there.
We are currently in the process of applying for a CA grant and our application needs to cover commercialisation of a post R&D project.
In our case, I think our Oodles VIP Cloud system fits the bill given we’ve done the R&D and have successfully tested the product in the Australian and NZ markets. Our VIP membership has also doubled over the last three months and booking metrics are very encouraging towards expanding it to other countries.
The fact that we’ve already received lower level grants could also work in our favour because Government wants to see that you’ve successfully used previous grants to grow your business through its life cycle and that you are ready to further commercialise your business. They also know that your operation has already been put under microscopic scrutiny.
If you know of any other grants worth applying for or have any questions about the grants or advice I’ve mentioned, start “bangin’ on the bongos like a chimpanzee”!
* This grant has now ceased to take new applicants. The Commercialisation Australia grant is effectively its replacement.
** This grant captures much of software development and research, potentially refunding up to one-third of your R&D expenditure in your annual tax return.
*** An EDMG grant can help cover overseas sales trips, conferences, and marketing campaigns, including Google Adwords spend (provided you can prove it was an overseas client clicking the ads and making the booking).
**** Anthill recently published an article about the Commercialisation Australia grant.