Federal grants, such as those available through the Small Business Innovation Research (SBIR) or Strategic Technology Transfer (STTR) programs offer significant funds for early-stage companies to assist with development research. These grants are extremely attractive because unlike loans they do not bear interest or require payback, and unlike equity they do not require the founders to give up ownership. The disadvantage of SBIR/STTR grants is the uncertainty of funding given the competitive nature of the federal award process and the relatively long amount of time from grant submittal to approval. Three grant programs are available through the University as well.
Angels in this context are high net-worth individuals who invest in privately-held companies. They are often people who are themselves entrepreneurs and earned their wealth through the success of a start-up venture. The motivation of angel inventors varies widely – they may want to help others achieve success or they may want to invest in a company that could potentially help solve a social problem. Whatever their underlying motivations, angels always invest for a high return. Also, because they enter the business at a very early stage, they take substantially more risk than later investors, and expect to be paid for that risk. Because angels are so individual, finding them can be difficult. They are often referred to a start-up company by friends or by the company's attorney (another reason to retain a well–connected attorney). Angel networks have evolved to bring angels together with companies needing early stage investment, two of which are listed below.
Venture capital companies possess pools of money managed by professional fund managers. They invest in high-growth companies that they perceive to show particularly high return potential in a reasonably short period of time. Often venture capital is the first source of funding an entrepreneur thinks of, but venture capitalists typically don't invest at the start-up or first money phase during formation of a new company.