Can you fund with government grants or donations?

In order to keep your share unchanged and avoid loans, could it be possible to think of setting up a foundation to get government grants and/or donations, and have the foundation's main project to be your startup?

Check out Mozilla Corp and Mozilla Foundation in Wikipedia, it seems that they do just that... I know of many other examples, including Ikea (look for Stichting INGKA Foundation in Wikipedia if you don't believe me!)

The state of Texas, for example, has an Emerging Technology Fund which invests in high-tech startups.

The ETF is a $200 million initiative created by the Texas Legislature ... A
17-member advisory committee of
high-tech leaders, entrepreneurs and
research experts reviews potential
projects and recommends funding
allocations...ETF has allocated more
than $119 million in funds to 95 early
stage companies...

I guess my point is that you don't need to set up complicated legal entities to get these grants.

Obligatory discalimer : I'm not a lawyer either

I generally found that the effort to research, apply and comply with these types of programs makes it very expensive and has a lot of opportunity cost - probably more than going for Angel money.

Unless you know someone who has worked with government grants or programs I'd pass on it as a primary source of capital.

It is too bad that it is not easier to work with though.

Eh?

It's reasonably common that a family owned business creates a foundation and places shares in this foundation, to ensure that future ownership remains in the family, and to use the foundation bylaws to regulate voting power within the family.

It's also reasonably common to have a charitable foundation, which is entitled to some of a given company's profits, and then gives away these profits to worthy causes.

Another possible use of foundations is takeover protection, i.e. placing a number of shares in a foundation, and using the foundation bylaws to ensure that a 3rd party cannot acquire a majority of a company's shares.

None of this implies that the government will give you free money. You can of course request grants and donations from well off benefactors. If these are given to a foundation with is approved as charitable and working for the betterment of mankind, then the people giving these donations may be entitled to a tax deduction.

I don't think this is feasible for regular startups, because:

• A foundation which simply owns a company and doesn't do significant charitable work should not be approved as a charitable, and would not gain tax-exempt status.
• Most startups will not find any donors who will give them donations.

Disclaimer: I'm not a lawyer, this is not legal advice, and you should go see a real lawyer about this.

Many small companies get started using SBIR funding. In fact many small companies use SBIR's as their exclusive long term source of revenue. These companies tend to remain fairly small if they don't develop a commercial product in parallel but it is a very viable business model.

You can't think of this as free money though. The government is providing these funds because they want specific research to be done and you have to propose project and deliver on these projects.

If you already have a commercial enterprise it is uncommon for you to find projects that are 100% aligned with what you are wanting to do commercially but often you can find good enough alignment that it make sense to pursue.

Note that this type of funding involves significant work writing proposals, working to get them approved and writing final reports. The process is not for everyone.