Grants vs Equity in the Startup Ecosystem!

Early-stage startups raise funds both from grants as well as from investors. Ideally, grants should be used to help fledgling startups achieve product-market fit, so they can go on to raise equity from investors and become sustainable businesses.

The tragedy is that the grant-giving committees ( which usually consist of academics, nonprofits and bureaucrats) and investors seem to live in different worlds! Grant-givers are so focussed on measuring impact that they often end up funding startups who are never able to raise money from investors because they aren’t able to create a viable business model.

These startups fold because they run out of money or they become zombies who end up surviving by raising grants from other organisations! Interestingly, these founders seem to have an uncanny knack for raising grants which is what they keep on doing year after year and they never become a successful business. This is a tragic waste of precious money.

Sadly, there is little interaction between the people who give grants and investors which means they fail to see eye to eye. In fact, the communication gap between them can be so wide, that they fail to respect the value each adds to the ecosystem!

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