Is State Funding Right For Your Startup?

For healthcare, life science, or biotech startups, raising capital is never easy. And today’s tougher fundraising climate makes it even more challenging. Yet one often overlooked source of early support is state funding. 

From direct research grants to incubator space, innovation funds and equipment sharing programs, many states are filling gaps that private investors won’t. Unlike venture or angel capital, some state programs even provide non-dilutive funding, letting founders build momentum without giving up equity. 

For instance, the California Breast Cancer Research Program (CBCRP), which receives its revenue through the state’s tobacco tax, offers funding for new companies pursuing breast cancer research or those who have novel ideas, said Katherine McKenzie, PhD, senior program officer for CBCRP. 

“We look at ideas that other investors may not consider funding because they are not far enough along—ideas that could lay the groundwork for larger studies,” said McKenzie. “We also look at specific research questions and pursue ideas [aimed] at preventing breast cancer as well as researching what causes it, and what are the modifiable factors we can do something about.”

But, applying for, receiving, and managing a grant comes with its set of challenges. It requires a deep understanding of the process, eligibility, and expectations of state funding. Grant management, in particular, can be a challenge for some startups, especially if they have little to no experience in this area, said McKenzie. 

Cure explored what it takes to apply for state funding, where to find help, and how to determine if it is the right fit for your organization or research.

What You Need to Know About State Funding

Every state is different in terms of the type of funding they offer and how they go about providing that funding, said Carla Reimold, PhD, Executive Vice President of Scientific Innovation and Strategic Investments for the Massachusetts Life Sciences Center (MLSC). The MLSC is focused on building a life sciences ecosystem and lasting infrastructure within the state. 

Reimold said some of the programs MLSC offers include internship programs to hire talent, cash prizes at pitch competitions, a grant to support underrepresented entrepreneurs, and numerous funding opportunities for startups. 

The MLSC also offers access to expensive research equipment on a fee-for-service basis, so that companies and researchers can conduct their research without buying the equipment. Plus, your startup doesn’t have to be a Massachusetts company to use this equipment, she said.

Other states take different approaches. Some provide direct grants, while others channel capital through dedicated investment funds. Certain programs are tailored to specific areas, such as  biomedical devices or commercialization support. 

Across the U.S., state funding models include:

• Matching public dollars with private investment to multiply the impact ( Connecticut Bioscience Innovation Fund and Wisconsin Investment Fund)

• Running research institutes (Indiana Biosciences Research Institute) or training pipelines (NCBioImpact)

• Building incubators and innovation hubs (Texas Medical Center Innovation)

• Awarding innovation grants to startups (Launch Minnesota)

In many cases, states provide valuable resources and opportunities for startups that other entities cannot provide. In Ohio, a program called The Ohio Third Frontier is an economic development initiative that supports technology entrepreneurship, such as  biomedical devices, digital health, and other technologies, and growing jobs across the state. 

“Ohio Third Frontier exists to help Ohio’s tech entrepreneurs and startups by fostering innovation of new technologies and products, providing early-stage capital to help promising companies grow, and supporting the workforce and talent needs of young companies,” noted the Ohio Department of Development website.

What Your Startup Needs to Pursue State Funding

While the specifics will vary from state to state, if your startup aligns with public health priorities in your state, answers an important research question that will advance science, or demonstrates strong potential for economic impact within the region, you may be a good candidate to pursue state funding. 

The key is thoroughly researching the entity you are pursuing and making sure your startup fits with the state’s particular funding opportunities and goals.

“I cannot speak for all state programs, but the end goal in most state programs is that you end up with something useful for the public,” McKenzie said. “Your research should show that it’s going to get to that end goal. And, maybe it goes without saying, but you also need the right resources—the right people need to be involved in putting together the research. For us, it’s important to think about the real world. If you are asking a question that is too specific to the lab or to the research setting that wouldn’t get out into public use, that’s not something we are too interested in.”

Also, McKenszie said one challenge with the CBCRP program in particular is that it requires advocates to be involved in the research, which may not be a component that all startups have in place. But, CBCRP wants startups to consider the implications of their research beyond their experience, which advocates or advocacy groups can provide. 

Other state funding programs may also come with specific requirements so it’s essential to understand expectations upfront. Doing your homework early helps you gauge whether your startup is a good fit, and whether pursuing a state’s support will be a productive use of your time and resources.

“Having good technology [or research], strong intellectual property protection, and a proof-of-concept will only get you so far,” according to the Ohio Department of Development. “Some characteristics of successful applicants include having a strong, well-developed business model, having an experienced team, and having a good and realistic understanding of the…opportunity and the potential market.”

Compelling Reasons Why State Funding Might Be Worth Pursuing

Securing the resources to move a  technology from idea to market can be challenging, according to the Ohio Department of Development. 

Startups often face unexpected hurdles, from technical setbacks and performance issues to research roadblocks and market uncertainty. Programs like Ohio Third Frontier aim to bridge those gaps by fostering innovation,  providing early-stage capital, and supporting the talent needs of young companies.

Here are four compelling reasons to look into state funding in your area, according to Reimold: 

• Access to Non-Dilutive Capital: Unlike VC or angel investments, state grants sometimes do not require equity or ownership allowing you more control over future profits.

• Financial Support: State grants often help cover research and development, product development, scaling and growth, and more—depending on the type of grant you receive and its intended purpose.

• Credibility and Validation: Securing state funding can boost your startup's reputation and credibility, making it more attractive to potential investors and partners down the road. It also can act as a catalyst, making it easier to attract future funding.

• Networking and Resources: Sometimes state funding programs offer access to valuable resources, including mentors and networking opportunities.

How to Avoid Common Mistakes Startups Make When Applying for State Funding

Because the application process for state funding can be extremely competitive and sometimes lengthy, do your necessary research upfront. 

The Ohio Department of Development noted that some applicants weaken their proposals by including information that doesn’t benefit the application, while others leave out critical details that could strengthen their case.

Here are some things McKenzie, Reimold, and the Ohio Department of Development agree on before applying for state funding:

• Read the Request For Proposal carefully

• Propose a project that fits with the funding goals and objectives

• Tailor your proposal to the guidelines, and do not re-use a proposal from another pitch

• Make sure your plan clearly explains your project or research with  enough detail to accommodate a thorough evaluation

• Acknowledge your competition

• Consider or involve other organizations when it makes sense, and avoid adding those that don’t add value

• Provide realistic, forecasted economic impacts

By carefully researching and understanding the grant objectives and eligibility requirements, you can ensure you are developing and submitting a strong, well-structured proposal that clearly outlines how the grant funds will be used. In turn, this allows you to leverage these resources so you can accelerate your startup’s growth, foster innovation, and help advance research, healthcare, and science.