When people think of capital going into small businesses, minds often wander to big-name venture capital (VC) funds or Shark Tank tropes. While it is true that made-for-TV “negotiations” and headline-grabbing investments get attention, only 0.05% of startups access venture capital, according to data from CB Insights. In fact, a Kauffman Foundation study found that venture capital ranks well below the typical capital sources for entrepreneurs: personal/family savings, business loans and personal credit cards.
Let me be clear: Venture capital serves an important purpose in the startup funding ecosystem. In 2023, Dayton-region startups have raised nearly $90 million in venture capital, most of which is late-stage capital to fuel growth and job creation, according to Pitchbook. But this article is about another source of capital, one sometimes overlooked but powerful in its ability to fuel research and development and help founders retain their ownership.
In Dayton, non-dilutive funding is a real strength. In part, this is out of necessity. While the region’s venture capital ecosystem shows signs of strengthening, the region continues to lack sufficient venture capital to meet the demands of our high-growth startups. But more significantly, the Dayton region has talent and research institutions tailor-made for the following key non-dilutive funding programs.
Federal Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs
In the last 10 years, companies in the Dayton region have heavily accessed the SBIR program. Ohio had 2,678 awards in 2012–2022, with companies in the Dayton region capturing 1,252 (nearly half of the total), according to SBIR.gov.
Look at it another way — the Dayton region accounted for nearly 2% of all SBIR awards during this time period, even though the region is home to less than .4% of the total U.S. population. We’re punching far above our weight.
Of course, Dayton is well known for its ties to the Department of Defense, but these aren’t just DoD awards. We also led all other regions in the state for non-DoD, non-NIH agencies, according to SBIR.gov. But the exciting element isn’t our past success — it’s the direction the program is taking:
- AFWERX has increased the amount for open topic Phase 1 awards (from $50,000 to $75,000). Open-topic awards are directed explicitly to companies that haven’t traditionally engaged with the SBIR program but might have technical solutions for DoD problems.
- In 2024, expect the other branches of the DoD to roll out their open-topic solicitations (required as part of the SBIR reauthorization last year).
- The average non-DoD, non-NIH SBIR award continues to trend upwards — traditional Phase 1’s topped $190,000 in 2022 (compared to only $138,000 back in 2013).
Ohio Third Frontier’s Technology Validation Startup Fund (TVSF)
The TVSF program launched in 2012 and offers grants to companies looking to license (and commercialize) technologies developed at research institutions.
- The program underwent a substantial change in October 2023: The award amount increased from $100,000 to $200,000. This increase makes the award more aligned with other offerings, like SBIR.
- Dayton’s access to the program has increased dramatically in the last few years. During the program's first six years (2012–2017), there were a mere eight proposals from Dayton companies, with only a single success. But in the last six years (2018–2023), companies supported by Entrepreneurs’ Center (EC) have submitted 59 proposals with 24 successes.
At Entrepreneurs’ Center, we are experts in helping companies access non-dilutive funding programs. We train our startup clients on how to pursue these capital sources so they can fuel their R&D and build great products that solve critical problems and can get on a pathway to the market.
Want to learn more about how to become an EC client? Connect with us.
Scott Koorndyk is president of the Entrepreneurs’ Center (EC), a modern economic development organization that powers progress and prosperity through entrepreneurship. The EC supports more than 1,000 innovation-focused startups and small businesses through a variety of programs. Clients are primarily in the concentrated sectors of technology, lifestyle and research.