Every early stage startup always has one eye on their runway, and applying for a research grant is an attractive way of extending it.
But the applications process is slow, tedious and has a low chance of success. And for those startups who do succeed, grant funding introduces new challenges and can amplify existing problems.
In this guide, I'm going to help you figure out if an Innovate UK grant is right for you and your startup, and help you apply.
- How to know if your startup is ready for an Innovate UK grant
- What you should be thinking about when applying for a grant
- What you should be thinking about when managing an Innovate UK grant
- Tips for managing the grant money so you get the most out of it
- Why winning a grant is about more than cash in your bank
- Where else you could be looking for equity-free money to help fund your business
How to know if your startup is ready for an Innovate UK grant
Applying for a grant is no small task. You're about to commit several months and potentially thousands of pounds, with no guarantee of success. As such, it's worth taking some time to make sure it's the right thing to do for you.
The main question you want to ask is whether you need the grant to resolve a research question or a Product Market Fit (PMF) question.
You do not want to be applying for a grant if you're still early in answering the PMF question. That doesn't mean that you need to be a scale-up pulling in £1m ARR to even think about applying, it just means you need to at least be confident that your product idea works and can sell.
Why it's tempting to use a grant to solve your PMF problem
Every new venture struggles with PMF at some point.
Translating a founder's brilliant insight into something a user wants to use and a market wants to buy, is tough. It requires experimentation, iteration and patience. And no matter how you are funding yourself, you're likely to be watching your accounts excruciatingly count down to the end of your runway with mounting concern.
So, in order to push that runway deadline as far into the future as possible, it’s tempting to try to acquire whatever cash you can, wherever you can. And grants are attractive because, in some sense, it's 'free money'. It's equity-free and it doesn't need to be paid back.
But they're called research grants and not product market fit grants for a reason. Product development is not research (at least, in the Innovate UK sense) and it requires a different skillset and resources to accomplish.
One way to test if you have a research question is to ask the question: does R&D improve my product, or does my product require R&D to exist? If your product cannot exist without some R&D, then establishing PMF before you apply for grants is crucial. For some deep tech companies, it may be impossible to validate the product without some R&D, but these companies tend to emerge from universities where there is already support for the technology and a known market need for it.
The best place for your small business to be is with an existing, selling product that needs grant money to do R&D to either improve the product or to launch a new feature. To grow your business rather than establish it.
Why it's a bad idea to use grant capital to establish PMF
Applying for a grant is a time investment you make so that you can access more money (and time). But even with a successful application, you've now introduced admin, bureaucracy and rigid multi-month commitments into what should be a flexible, adaptive early-stage organisation. Plus, the capital introduces new constraints that can incentivise harmful behaviours:
- Tying yourself to objectives that may stop making sense to the business, but remain on your roadmap so that you can unlock the Innovate UK cash.
- In the 6+ months that can elapse between application submission and project start, the project may not even be viable anymore.
- Hiring researchers who make sense to the grant but not to your business.
- Increasing technical debt disproportionally faster than learning about your market.
- Spending money on tools and data for which you don't need, but which you feel obliged to acquire to avoid losing your budget.
Grant applications are a lot of work and have a low chance of success. The key point is, all of this is time and money you're not spending on establishing PMF as quickly and efficiently as possible. For a new business without PMF, any of these risks can delay your efforts sufficiently enough to kill your startup.
So, before committing to an Innovate UK application, it's worth asking yourself if you're honestly just trying to establish PMF. A lack of PMF is the #1 problem I see when people ask me to help with their applications.
What you should be thinking about when applying for a grant
Grant competitions are fairly frequent but have a low chance of success (anywhere from 5% to 30% according to these official figures), so make sure to prepare properly in order to minimise the time and cash you need to commit to winning one.
The first thing you should know is that Innovate UK publishes grant competitions throughout the year. They have smart competitions and challenge-led competitions. The smart competitions are open to any project and as a result are more competitive, so try to apply to a challenge-led one if you can. The challenge-led competitions are aligned around the type of R&D the government is interested in investing in at the time, so it's worth keeping an eye on the news for any announcements that may lead to a future competition. You can sign up to Innovate UK's mailing list to be told of upcoming grants.
Depending on the competition, there will be different grant sizes available for different project lengths. Typically, each competition will have a large number of small grants of £25k to £500k for projects between 6 to 18 months, and a small number of large grants of £500k to £2m+ for longer, bigger projects.
Once you've picked a competition, you'll need to complete the application process. Writing the application is a full-time job that can take weeks to get right. Get started at least a month before the deadline and be prepared to set aside a few full working days to get it over the line.
The application process is tricky to complete. Each competition usually publishes a guide that lays out its aims and talks you through the application process. The competition organisers also host seminars and webinars. These are worth attending as they give you vital clues for how best to pitch your project. It's also worth reviewing past winners to see what they did (you can usually find them online) or else try reaching out and asking past winners if they can share their documents and experience.
Some competitions require collaborations with universities or other businesses. Make sure that this is agreed in principle before starting your application as it can take a while to set up and cause problems down the road if done incorrectly.
If your grant is unsuccessful, then the assessors will share your scores and their remarks with you. Many applicants do not succeed first time, but you can make use of this feedback to reapply with an improved application.
What you'll need to know when writing your application
The application itself is a long form that needs to be filled in with:
- A project summary
- How the project fits the competition aims
- The business need for the project
- How the project will be completed
- The team
- The market
- How the project will change the business's route to market
- Wider impacts the project will have
- How the project will be managed
- Project risks
- Why the project needs a grant
- An overview of the costs
There are strict limits on the number of words that can be used on each section, so each statement needs to be carefully crafted to contain as much pertinent information as possible in the space available. In particular, grant assessors like to see specific statements and keywords. There's a certain art to writing the application that takes experience to get right.
On top of that, you're competing against established companies and grant writers who know exactly how to write the application - and in fact it's my recommendation that you should get help from a grant writer, particularly if it's your first grant. But, it will set you back thousands of pounds for the application, and usually a small percentage of the grant as a success bonus. We used a grant writer and I doubt we would have been successful without their help (feel free to contact me and I can recommend the one we used).
Bear in mind that a grant writer's job is not to write the whole application for you. You will still need to commit your time, because only you can come up with the project strategy and write all of the statements for the form. What the grant writer will do is help you plan your strategy and make it attractive to Innovate UK. The bulk of their work will be in editing the application form to say as much as possible in the allotted space, while retaining everything Innovate UK wants to see - which can be the difference between a failed and successful application.
Our grant was written over the course of a month, and probably took a full week or two's worth of research, meetings, writing, editing etc. We applied for a challenge-led competition with the help of a grant writer and were borderline accepted in our first attempt.
What you should be thinking about when managing an Innovate UK grant
If you've been successful with your grant application, it's essential that you set up a good plan and management practices so you can keep the Innovate UK Monitoring Officer (MO) satisfied (they are responsible for releasing your grant payments, so you'll need to keep them on-side otherwise they can cause problems for you).
Between being accepted for a grant and the grant start date, there is a period where you need to put together a comprehensive plan for the whole project. This plan contains:
- A detailed project plan outlining all of the key milestones, objectives and deadlines of the project
- A Gantt chart with a timeline of the project
- A risk log listing all of the known risks and mitigations
- A spreadsheet outlining all of the baseline costs
- An exploitation plan describing the commercialisation strategy that follows the R&D
The objectives outlined in the project plan are the most important thing to get right, because not achieving them may result in cash being withheld.
You need to set objectives that are achievable, but that don't look too trivial. Your plans will change as time progresses, so you'll want to set believable objectives that are vague enough that they allow for flexibility in your plans. Spread the objectives out, so that you can show steady progress during your quarterly MO meetings. Make sure that all objectives have a demonstrable way of proving that they are completed i.e. a document, a new product feature or some statistical results.
Objectives can be changed over the course of the project but preferably not significantly. Significant changes may need to be approved by the MO and, if unapproved, could block you from receiving any more cash.
These planning documents all need to be completed before you can sign the contracts for the grant. If your project requires a collaboration, you'll also need to coordinate with the collaborator including setting up an IP agreement. The project cannot start until all of these documents are ready. For instance, we suffered delays of several months to our project due to negotiations with our university collaborator over IP.
How to keep your monitoring officer happy
It's your MO's job to ensure that the Innovate UK cash is being spent wisely and that your company is on course to benefit from the grant. They are happiest when all objectives are being met according to schedule, with evidence to show progress, no surprises in the spending and all documentation is up to date.
An MO is typically a professional from your industry whose been contracted to keep an eye on your project (and others). They have different personalities and may want to see different things, so it's worth making efforts to get to know them at the beginning of the project and ask them up front what they'd like to see from you.
They will meet you quarterly for a 1 to 2 hour meeting where you present your progress. This meeting will usually consist of you reviewing the objectives for that quarter, updating them on the exploitation strategy and risks, answering questions, discussing plans and any changes for the next quarter. Here's the PowerPoint template I used which was well received by our MO.
You'll also need to update all the project documents, which should be sent to the MO in advance of the meeting. You always want to show that progress is being made and that you're learning over the course of the project. For instance, new risks will be discovered, other risks will become irrelevant, objective deadlines will need to be adjusted, market conditions may change, and so on. Help your MO by highlighting and making it clear what's changed in the documents each quarter.
We learned a lot of this by deciding to keep our grant writer on as a management consultant for the project. Their input was perhaps less critical than on the application itself, but nonetheless, for a first-time grant winner they helped us set up good processes that ensured we unlocked the full value of the grant.
But at the end of the day, as long as you are able to make your MO's job easy then they'll make your grant easy.
Tips for managing the grant money so you get the most out of it
Grant funding does not arrive in your business account as a straightforward cash transaction. There are checks, conditions and budgets to deal with first. Getting this wrong can mean not getting the full amount you applied for.
For cash-strapped small businesses, the most important thing to bear in mind is that Innovate UK payments are made in arrears. You will also need to contribute a percentage of the total grant fund (typically 30% for an early stage company). This means that you'll need runway until the end of the grant and some months after if you want to make sure your company is still alive by the time you receive all your payments.
We received our grant payments typically around a month after each quarter ended, but this can be delayed by compulsory, independent audits you need to go through (and organise, and pay for). It also means you won't get 100% of your spend back, so make sure you're happy with your runway being spent this way.
Good budgeting during the intermediary project planning stage is crucial.
One thing we did was to front-load most of our budget to the first two thirds of the project so that we could accrue most of the grant cash before the project ended. However, this meant we had to justify the budget by front-loading most of the work as well, which led to some tight deadlines and self-inflicted pressure.
To plan for this, we worked backwards from the budget to figure out the deadlines for the project objectives. We determined how much cash we wanted in each quarter, calculated how many man hours and resource costs would be required to justify the cash spend and then allocated an appropriate number of objective deadlines to those quarters. Remember that your MO might ask to see evidence of your expenditure during your quarterly meeting (timesheets, invoices etc).
Any budget that isn't used up in a quarter is lost, so try to slightly overspend. It is possible to move the budget between quarters, but this needs to be planned in advanced and approved by the MO. As such, expect to get away with this once or twice at most and ideally in the latter stages of the project where it's more likely to be justified.
As with your project plan, try to be reasonably vague when budgeting resources so that you have some flexibility with how the money ends up being spent i.e. budgeting £1k for software costs vs. £1k for Amazon AWS EC2/S3 etc.
Nonetheless, try to avoid spending for the sake of spending. We found ourselves buying data and software licences in order to meet our budget requirements, inadvertently adding technical debt to maintain and justify those resources after the grant had ended.
Be wary of using the grant to pay for patenting costs. Innovate UK do like to see efforts to protect IP, and the upfront costs are ideal for spending Innovate UK budget on, but the lifetime cost may become a burden to your startup long after the grant has ended.
Also, make sure that any new hires that are to be funded by the grant are ideally recruited before the grant starts. In our grant, we'd allocated budget to a new hire who wasn't able to start until halfway into the project. This meant we could not access the funds set aside for their man-hours until they started, which caused lots of re-budgeting and planning headaches.
Why winning a grant is about more than cash in your bank
Winning a grant isn't just about getting cash in the bank. By being mindful of the other benefits of winning, your business can extract additional value throughout, as well as beyond the lifetime of the project.
At the very least, the grant will enable your business to explore a risky R&D project that either leads to a new product or feature. Or else it won't, but instead will mitigate the risk of learning such a valuable lesson.
You will also build trust with Innovate UK and demonstrate competency in managing a project with them. You'll gain experience in their application process and management style.
You're more likely to be accepted for future grants.
For new businesses, the project will have forced you to think deeply about risks, future development and your business plan. You may have also built a relationship and co-developed IP with a collaborator which can lead to a partnership, investment or future acquisition.
Hopefully you'll have some new hires that continue to contribute to your success. You'll have earned some much-needed runway without losing any precious equity.
And there's a certain prestige that comes with having won a grant. It can be evidence that legitimises your business as being cutting edge to customers and investors. It looks good on a pitch deck and the grant total is often added by founders onto the amount they've raised in order to inflate their perceived value.
Where else you could be looking for equity-free money to help fund your business
Whether it be through Innovate UK or elsewhere, all early businesses need funding and it's best to keep your options open to maximise your chances of attracting it. Here are some of the other small business grants in the UK worth considering:
- Horizon 2020 - The EU's research and innovation programme which has €30b to invest. There are plans for an even more ambitious €100b programme to succeed it beyond 2020, although it's unclear with Brexit whether UK companies will be eligible to apply. With an average grant size of €1.76m, Horizon 2020 grants are typically awarded to larger projects than the projects eligible for Innovate UK.
- Eurostars - Targeted at SMEs doing R&D and funded by Horizon 2020 and other countries worldwide. Funding can be up to €360k.
- R&D Tax Credits - Any R&D SME in the UK should be taking advantage of this scheme, which refunds accrued R&D costs back to the business. While unlikely to be as significant a sum as a grant, it nonetheless can give valuable extra months of runway to a small company.
- Start Up Loans - Government backed loans of up to £25k which are targeted specifically at very early stage companies and come with mentoring and business support.
Will Brexit have an impact on funding?
With Brexit now formally in place, the grant funding landscape should start to become less uncertain. At the moment, small businesses in the UK can still apply for European grants, although it's unclear whether Brexit has had an effect on their success rate. However, UK businesses may become ineligible for future funds.
It's also unclear whether the government will make up for the £850m the EU currently invests into UK R&D. A recent proposal for an £800m DARPA style R&D agency was rejected by the government and no announcements have yet been made on significantly growing Innovate UK's budget. A likely consequence of this is that Innovate UK grants may become even more competitive over the coming years.
Summary
Winning an Innovate UK grant is a prestigious and potentially company-saving endeavour. However, the application process is arduous and the management of the project is not straightforward. Hopefully with this guide you'll be better informed about whether applying for a grant is right for you, and if so you'll be better equipped with handling the application. The Knowledge Transfer Network also have a great guide with more details about the application process.
Much of the advice in this post was gleaned from my own experience applying for and managing a £500k grant. The Innovate UK process does change over time so some of this information may become out of date.
Special thanks to Sarah Thickett, Tim Hanson, Andy O'Harney, Theo Saville, my grant writer and my MO who read this guide and provided helpful comments.
