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Startups tap advance grant financing to scale quickly and innovate faster

A new funding model aims to close the financing gap between established companies and young, ambitious ventures.

A graphic representing grant advance funding

Grant advance funding allows startups "to move much faster on a project than they had planned or anticipated." Source: Sophia Davirro/GreenBiz

In September, the U.S. EPA announced $4.6 billion in competitive grants to fund state, local and tribal programs to cut greenhouse gas emissions and deploy climate solutions. Recently, the DOE announced $6 billion in funding for 33 demonstration projects to decrease industrial emissions. Grant funding abounds in catalytic funding — investment (with potential concessionary returns that can be less than purely financially driven funding) for positive impact — for climate technology. 

However, it’s no secret that grant money is cumbersome to attain and the application process is typically complex and time-consuming. Depending on the grant, the federal or state grant may require approval processes before the money is spent and funding may come in stages. With money slow to allocate, so is progress for the receiving organization. This is especially true for startups who, with speed in their DNA, are built to achieve key milestones, raise more funding and repeat the cycle. 

As with any system that isn’t serving key stakeholders, this model is ripe for disruption. Sure enough, Enduring Planet, a loan financing group, now offers grant advances to climate tech startups

Startups benefit from this model because "one, it allows [startups] to more effectively manage their liquidity and cash flow across their whole business," said Dimitry Gershenson, CEO of Enduring Planet. "Two, it allows them to move much faster on a project than they had initially planned or anticipated. Three, the total amount of money they need to raise might say the same, but the amount of dilutive capital goes down because they're not raising part of their venture round to support work under a grant."

The grant advance model

With about 50 percent of climate tech still nascent yet necessary to reach climate goals by 2050, the current grant system doesn’t serve the speed and scale at which startups need this catalytic funding. To be fair, this allocation strategy makes sense for government officials. Since the money is coming from taxpayer dollars, the agencies handing it out want to de-risk allocation and keep it safe. The result is that more often than not, grants are won by well resourced and proven companies. 

With grant advances, startups don’t need to wait for grant funding to scale their projects. Instead, the companies get up-front financing and repay Enduring Planet once they receive the grant money. This early funding allows startups to move with speed, accelerating the advancement of meaningful climate tech necessary to achieve emissions targets. 

This model offers several key advantages:

  • Speed: Companies receive money up front to purchase equipment, hire contractors, lease land and other business investment. Hitting these milestones helps attract more funding, enabling startups to scale faster.
  • Liquidity: Startups can effectively manage liquidity and cash flow across the whole business.
  • Non-dilution: Grant funding is equity-free, allowing founders to maintain more control over their company.

Applying for a grant advance takes less than 10 minutes. Upon completion, startups will receive a term sheet in under a week with funding in less than 30 days. 

Drawbacks of grant advances

All capital has a cost and these grant advances are no exception. The grant advance is a loan, with flexible payback options — but startups must pay Enduring Planet regardless of the status of their balance sheet.   

Loan sizes range from $100,000 to $500,000 with interest of 16.5-18.5 percent APR. Enduring Planet currently works with only state or federal grants, with payback periods of six to 12 months starting when the grant money is deposited to the company’s account.

On the positive side, Enduring Planet doesn’t take any personal guarantees (no collateral), in contrast to traditional bank loans where assets can be seized by the lender for not making payments.

Other companies, such as Swoop, are offering grant advances for companies of all sectors — but most don’t lend themselves, but act as a broker for other lenders. Other grant advance groups include Leonid Finance and Legalist.

There's this almost equalizing element to the work that we do, because it allows anybody who has proven that they can win the grant to take advantage of it quickly.

Startups using grant advances

Sparkz, a lithium battery manufacturer founded in 2019, used a grant advance from Enduring Planet to purchase manufacturing equipment and achieve customer delivery deadlines. This non-equity cash injection allowed the startup to begin production on its battery materials and gain footing in the market. 

Fast money to achieve climate goals

Gershenson believes that the best climate tech ideas should have access to catalytic funding. 

"There's this almost equalizing element to the work that we do, because it allows anybody who has proven that they can win the grant to take advantage of it quickly. Then the faster and better that you do your first grant, the more it opens you up to other grant possibilities, and the better it positions you to raise additional bench, capital or other funding."

The gap between proven companies and startups remains wide. Channeling federal and state taxpayer dollars to ambitious ventures will accelerate innovation and bring climate tech to market sooner. And with billions of dollars of federal and state grant funding available, Enduring Planet is working to fill this gap.

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