Thinking Clearly .

We’re a bootstrapping startup focused on “semantic technology infrastructure”: Pellet, OwlSight, XACML-DL, Pronto, Owlgres, etc. We’re bootstrapping for two reasons: first, I stubbornly insist on running the company, despite not having formal biz training or tons of biz experience—something that would put a big target on my back with VCs. Second, exactly because we’re a startup “focused on ‘semantic infrastructure’...”—that is, VCs don’t really fund infrastructure plays. At least, Silicon Valley VCs don’t. I don’t really know about East Coast or other VCs, since I didn’t take the time to ask them.

But even if they wanted to fund an infrastructure play, which is unlikely, they’ll still want to get rid of me at some point, and I’d rather not be gotten rid of. (Yes, I realize this is a generality, but it’s a well-studied one that appears to also be true; google “founder succession” if you’re curious.)

Okay, so we’re bootstrapping, which is an obvious alternative to VC, especially when no one involved is, or knows anyone who is, filthy rich.

But what I want to say a word about here is some of the bootstrapping techniques. I won’t say anything about customer work or consulting or the like, since that’s terribly obvious and people have talked about it enough. Needless to say, we do plenty of that, and I think it helps rather than hurts. Yes, it does slow us down, but if you find the right kind of customer work, it may not slow you down much; and it can be very useful to focus one’s efforts on actual problems.

I want to talk about public funding for R&D efforts, primarily the SBIR system. SBIR is a US government mechanism for funding small businesses to do R&D. They are very competitive and often focused on areas that aren’t very attractive to IT startups. But a good percentage of them are focused on IT, though not usually Web 2.0 or web site-style startups. Which is just as well since that’s a very crowded space.

The primary virtue of SBIR funding is that you get to retain ownership of your company and of the IP that results from the funding. The primary vice of SBIR funding is that they are very, very competitive; though I have no idea how competitive compared to securing VC funding, which is a relevant comparison. (That would be very useful data, if anyone has a pointer.)

The other vice is that is may be impossible to find any government entity that’s willing to fund work in the area where you want to make a startup. In which case you are basically S.O.L. until or unless you can convince a Project Manager to put out an SBIR solicitation in your area.

Funding levels can vary widely between different parts of the government, but range from $400,000 to $1,500,000 if you get Phase 1 and Phase II funding—so it’s roughly comparable to angel or modest early stage VC funding, I suppose. And there’s no reason that you can’t follow SBIR funding with VC funding, since, as I said, the government doesn’t own the IP that you create (here we’re primarily concerned, of course, about software)—the government does get a royalty-free license to use the software, but that’s not necessarily a problem.

To date we’ve prepared two SBIR proposals, one of which is pending review and the other of which wasn’t submitted, a decision made at the last minute. We’re presently preparing a new SBIR proposal for an area of semantic technology that we haven’t talked about publicly yet. I’ve found that the proposal process is a lot of work, but it’s not awful. And there are SBIR consultants who will offer advice, tips and tricks, etc.

In sum, SBIRs aren’t a panacea but they can be useful in some cases where a startup is bootstrapping. Frankly, I hope under the next administration that the US reinvests more in innovation and business development, and I hope that the SBIR mechanism is part of that reinvestment.

In our area—semantic technology, which Gartner Group recently named one of the 10 disruptive technologies of the next 5 years—the US is perilously close to falling far behind the EU and Asia (the Chinese are putting tons of funding into semantics)—and, as much as I love the EU, I’d like the US to retain its lead in this regard.

This entry was posted on Wednesday, June 4th, 2008 at 11:10 am and is filed under CandP. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.