Ever wanted to know whether it was a good idea to apply for a grant? Is it worthwhile? Many people come up with sweeping conclusions that “all grants are a crap shoot” or “grants are good because they are free money.” But the truth is more subtle and I don’t think anyone has published work on this before.
There are many dimensions of whether a grant is worthwhile. What are the chances of winning? Is the prize worth the effort? Once you win will their be so much bureaucracy that the juice isn’t worth the squeeze, as they say?
I remember winning a grant for my biogas company several years ago. We were so excited. And then it took 18 to get the money. We were almost out of business by then. And we had only survived because I stopped taking a salary for a few months.
Whether to apply for a grant seems like more art than science. However, I think that we can quantify this.
Any time you take on a new project one way to think about it is ROI. If you spend $1,000 on ads, how many sales are you going to get. We can do the same for grants. I’m calling the metric of how worthwhile it is to apply for a grant the GrantROI.
Nuts and Bolts
I’ll explain the formula here. Feel free to skip to Results below if it is too detailed.
Let me dig into a few of these variables.
TimeDelay. Because time is money, you’d rather have the money now than 18 months from now when you might be out of business. This is the delay between the application deadline and the day the winner gets cash in the bank. There is a way to account for this using a Net Present Value calculation which you can read about on wikipedia.
To figure out how much to discount future cash flows you use an interest rate. Typically the prevailing bank interest rate (let’s say 16% in Kenya) plus an additional factor for the added risk you experience as a startup, perhaps an additional 10-20%.
The NonMonetaryGrantValue is usually zero, but in the case of a startup accelerator most of the value might be in the network you make rather than the cash they award you.
YourTime and GrantWriterTime is how long it will take to complete the application. I broke down each application into parts and figured out how many hours I would bill a client to complete the application and set YourTime to 10 hours for each application for general oversight and editing my proposal. Clearly this formula rewards grantors for having shorter applications.
ImplementationCosts is an especially important factor. If a grantor awards you $100,000 but expects you to conduct M&E activities and reporting that will cost you $90,000 the grant is obviously not worth it. That's just too many hoops to jump through.
Chances of winning can be derived from previous calls for proposals from the same Grantor or from their annual report where they say “we received x applicants and gave y awards.”
There are other features that I thought of including in the formula which might make it into the next version such as whether the grantor provides feedback on rejected applications (which is a non-Monetary value) and whether the grantor hosts multiple rounds which enables applicants to improve their application from one year to the next. Whether grantors respond in a timely manner was another factor I considered, but that can be part of the ImplementationCosts variable as timeliness should decrease ImplementationCosts. The general idea would be to reward all good behavior of grantors so that more are better to work with.
So what are the best grants to apply for and what are the worst?
The results are pretty clear. Some grants are clearly not worth applying to. For any grant with a GrantROI of less than 1 it means that the grantor is adding less dollars to the sector than it is sucking out in terms of applicants' time.
This GrantROI is only correct for the average applicant. Perhaps your application is an especially good fit or you have a personal connection that increases your chances. That would increase your GrantROI.
Furthermore, you are not a lottery ticket. Just because you submit an application doesn’t give you a fixed probability of winning; a lot depends on the quality of the application. So GrantROI is not a silverbullet solution to determine whether you should apply. But! I hope this is a useful tool as a first step.
Just as US News and World Report publishes an annual college ranking, I hope we can make a grantor ranking. This could create more accountability for grantors to have entrepreneur-friendly applications.
If you have data points for other grantors you’d like me to add let me know by email or by commenting on this post. If you know of a good place to publicly host a ranking wiki let me know as well so that other people can edit this list with more updated info.
To use this tool (and other tools I developed) click here.
4/11/2020 12:55:21 am
Thanks for sharing this amazing information
11/2/2020 03:21:02 am
1/17/2022 10:59:17 am
Gunther, great to hear from you and thanks for reading. I'm glad it was helpful :-)
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Kyle founded Grant&Co after running a biogas company in Kenya for 5 years. We raised a lot of grant capital there. And now we help other entrepreneurs raise capital.