Do your 1099 contractors have their &#%!@? together?

  • August 11, 2022

We have done multiple posts on the importance of having a solid team when applying to SBIR/STTR or other funding or investment. Overall in our experience, this is still an aspect many applicants struggle with regularly.

Guilty by Association

Your team includes everyone who will be working on the product. This includes not only W2 personnel but also all subawardees, consultants, or advisors. We are not quite sure why but there seems to be a perception among those seeking funding that the credentials or lack thereof in 1099 employees will not be reflected in the perception of the overall project team. Oversight maybe? Or not recognizing that they represent the company too?

Remember that kid you used to hang around within school that was always getting into mischief? Those who associate with people of low reputability are putting their own reputation and credibility into question. This is called Perception by Association (aka “Birds of a feather, flock together!“). Perception by Association is the sub-conscious judgment of individuals based on whom they are socially associated with, or in English, “hang out” with.

Right or wrong, it happens. Funders and investors perform due diligence on everyone within a team that is asking for funding. This means that if people on your team have lackluster credentials or look sloppy in any way this perception will be applied to the entire team as a whole. This invites doubt, and in the highly competitive world of funding, the perception of the funder is the single determining factor of whether or not you receive the capital you need to grow your business. Knowing this, it is not worth collaborating with anyone but those who can meet credentialing and subject matter expert criteria, even if it means spending more time or money to find the right consultant.

From the Investor’s Perspective

At a recent Upstate Capital NY event, our founder heard a similar sentiment echoed by angel investors and venture capital firms. The sentiment is that a potential startup or small business seeking investment capital from angel investors and venture capital firms should have a rock-solid team (a rock-solid team is one of many elements that should be in place, but for this post – we are only focusing on the team). In their eyes – that team includes advisors, contractors, and any subcontractor or subawardees – essentially anyone that has a hand in the development and scaling of MVP. When that startup or small business seeks federal non-dilutive funding (e.g., a grant like SBIR/STTR) and wins funding, that win helps de-risk their investment. Some investors described it as akin to having a “badge” or a seal of approval that informs those vetting the company that the company is focused and legit may be worth pursuing.

The flip side of this is that when a startup or small business does not secure non-dilutive funding – often investors look at why. The first thing that they go to is the reviewer’s comments and feedback and then start looking at the team.

From the Funding Agency’s Perspective

The concept of a “badge” or a seal of approval is also essential to SBIR/STTR funding. Specifically, all potential applicants, as well as their contractors and subawardees, should complete any required registrations to receive government funding.

Being well-positioned to apply for and receive all types of funding (federal non-dilutive and equity-based investments from angel investors and VCs) is a way to show investors that you are worth the time and energy it takes to vet, let alone fund you.

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