Government spending has been a burr in the American skin since the colonies. We don’t like it when the government spends money, and we go into a rage when we hear news stories about grand-scale boondoggles and $400 hammers.
And it’s true — federal, state, and local governments spend a lot of money on things that do not pan out. But they also spend a lot of money on things that do. Like Princeton.
We know Princeton as the pharma capital of the world, and we’re seeing it develop into one of the world’s great high-tech science capitals. But that didn’t just happen. It happened because the federal and state governments routinely pour millions of dollars a year into companies, either through grants or by contract, that develop cutting-edge technologies and next-generation medicines here. Without the hundreds of millions of dollars — tens of billions over the past 30 years — that the government has invested in promising businesses on and around Route 1, Princeton would be little more than a university town. Like it was 30 years ago.
In the greater Princeton area, there are some obvious examples of government money at work — the Geophysical Fluid Dynamics Laboratory and the Princeton Plasma Physics Lab are entirely funded by the federal government. In New Brunswick the state Economic Development Authority operates the Technology Center of New Jersey, an incubator for high-tech startups that often got their starts at the university level (where some level of research was almost certainly funded by the federal government).
From Trenton to Princeton, companies small and large seek and earn government contracts — particularly from the military and the federal Department of Energy — for all manner of products and services. Hutchinson Industries in Trenton is a favored customer of military buyers that need the company’s tires to keep their emergency vehicles moving after a blowout over harsh terrain. Sarnoff Corporation is another major military customer, claiming 90 percent of its substantial revenues come from government patronage. Mathematica Policy Research at 600 Alexander Park routinely uses government money to help fund its research into the American character. And dozens of specialized labs, from Universal Display (maker of LED equipment) to Ocean Power Technologies (maker of an at-sea generator powered by the movement of the ocean itself) land government contracts for their research and products.
Is it safe to say that the Route 1 corridor would not look the way it does without government money? Greg Olsen, CEO of GHO Ventures on Nassau Street, himself a veteran of government financing for businesses, says simply, “Oh yeah.”
Olsen’s GHO Ventures oversees six tech companies, Princeton Power Systems (201 Washington Road) being the most directly tied to government money. Princeton Power, founded by a group of Princeton University seniors during an entrepreneurship class in 2001, has grown into a favorite of the federal Department of Energy. As a developer of energy systems, including efficient solar and alternative power systems, Princeton Power has built itself into a multi-million-dollar company in less than 10 years.
Princeton Power’s first contract, says board chairman Ed Zschau, was for $75,000. These days the company is established and respected enough to win multi-million-dollar contracts, like the $2.7 million Solar Energy Grid Integration Systems (SEGIS) Stage III contract that it received just last week from the DOE. The grant is earmarked for PPS technology intended to develop lower-cost solar energy.
So how exactly does a company become a government contractor? Michelle Hermelee, president of BH Sky Associates at 3490 Route 1, can explain the process in more detail (see page 34), but the gist of it, says Zschau, is that a state or federal agency decides it needs something it does not have and puts out requests for proposals (RFPs) to have it made. Companies that feel they can meet those requirements apply for the contract and, if they win, collect the money (usually over time) and get to work on the project.
Sounds easy enough, right? Well, if you’re an established company that has worked with the government and it, in turn, knows you can pull off the job for a reasonable price, it is easy. But a lot of finesse goes into getting state and federal money.
Olsen, whose first venture into government contracting dates back to 1984, when he sought federal money for his company Sensors Unlimited, says the biggest mistake newbies make is offering something no one in the government has any interest in. The government will ask for what it wants, and new companies eager to cash in on the billions lying in wait often will throw their names into the proverbial hat without really checking to see if what they have is what the government wants.
The second mistake, says Olsen, is that most companies new to the financing and contracting game assume that the government is the faceless bureaucracy described in author Stanislaw Lem’s futuristic world of empty halls and immense desks.
Believe it or not, there are people in those winding hallways and they are eager to help you.
“There is nothing like personal contact,” Olsen says. “These people will call you back.” Entrepreneurs, he says, are often taken in by today’s technology. Applications are done online, removing yet another layer of personal contact. And in that absence of personal contact, people assume the decisions being made about an RFP are too far removed for the average person to benefit.
Olsen’s advice: call the agencies. Talk to actual people who work there. The process is no different now than it was 50 years ago, he says, and it certainly is no different than 26 years ago when he couldn’t figure out why application after application from Sensors Unlimited met with rejection.
Olsen finally ran into a guy from the National Science Foundation at an event. When he asked the man why Sensors kept getting turned down, the man asked Olsen “What does your company do?” The ensuing conversation left Olsen with an new outlook and a lot more information than he had come in with.
Personal contact aside, Olsen admits that the process of getting a government agency as an investor can be overwhelming. The rules that come with any government contract, he says, can be rigid, but the easy solution is to just follow them.
Deadlines are especially important. If a proposal says that it has to be in by 11 a.m., don’t think submitting it at 2-ish will work. With the amount of proposals received, reviewers start by looking for reasons to eliminate, he says. And if you’re late, you’re already out of contention.
If you manage to get your proposal in before deadline, make sure it is to the point and engagingly written, Olsen says. Having read numerous proposals, Olsen says he begins with the abstracts. If they’re no good, not engaging, uninspired — out they go. This is why he puts so much effort into the abstracts when he writes proposals.
“I’m a science guy,” Olsen says. “And tech people make the mistake of thinking the world is all numbers.” Remember, if you want to work with the government, you need to work with the people who work in the government.
Other pitfalls, Olsen says, include mis-estimating your operations costs. Government contracts are fairly uniform in how they can be spent — they almost never allow marketing, for example.
Contracts are designed to pay the costs of actual research and development of a project, and that includes everything from salary and supplies to paying the heating bill. If you can convince the government that your overhead rate (what it costs in toto to research and develop what is being requested) is reasonable, you stand a better shot at getting the money you are after.
And there is a lot of money to be had. This year alone the federal government has made $150 billion available for small business grants, $95 billion in research grants, and $100 billion to nonprofits. Meanwhile, the state — particularly through the EDA — offers millions in loans and small business grants.
The alternative is to return to the days when the government offered no assistance to businesses. “We could always go back to being a third-rate nation,” Olsen says. “It wouldn’t cost us a thing.
