Match Funding Explained: Why Grants Don't Cover 100% of Costs

Grants don't cover 100% of costs – here's what you need to know

Unlike venture capital, angel investing or corporate loans, grants give your business a cash injection without asking for equity or the money back at a later date. However, business grants aren’t “free money.” ‍

Most grant funders require you to have skin in the game by funding part of the project yourself.

This is called “match funding.” If your grant submission is successful, they cover a sizeable portion of total project costs, and you contribute the rest.

The percentage the funder provides, which varies by organisation and grant, is called the “intervention rate.” 

Your contribution is the “Great… now how can we rustle up the other 100 grand?!” rate. 

(Hopefully not, but we’ll get to that later.)

At first glance, match funding might seem like a fly in the ointment. But it serves several important functions.

• Right message: Aligned risk/investment makes all parties financially and emotionally invested.
• Right business value: Pushes you to build a streamlined plan managing both funding parts.
• Right motivation: Nudges you to continuously validate market potential, ensuring wider impact.
• Right diligence: With your own finances partly invested, your due diligence will be far greater.
• Right balance: Match funding allows limited grant funds to assist more good ideas and ventures.‍
• Right rewards: Incentivises you to deliver maximum outcomes and minimise delays and cost blowouts.

Far from being no-strings-attached prizes, innovation grants are more akin to mutually aligned financial partnerships.‍

However, unlike securing investment from an individual or private firm, these funding collaborations don't require signing over an equity stake in your company. The public funder receives no claim to future profits or control.

Their "return on investment" comes indirectly through the economic growth and activity your success generates – from job creation to environmental benefits to elevating British research and technology on the global stage.

First, it’s worth noting that public grants aren’t a viable option if your business is in financial difficulty. (Funders do financial viability checks to ensure you’re suitable for public funding.)

Funders like to see that you’ve tried other routes before considering public funds, such as bank loans, equity investment and crowdfunding. Seeking a grant should be your last, best option.

In your grant submission, you’ll need to explain which alternative funding routes you’ve explored and why they weren’t a good fit for financing the entire project. 

Critically, your explanation shouldn’t shake the assessors’ confidence in your project. Rather, it should give reasonable reasons why other funding options aren’t suitable right now.

The most appropriate way to part-fund your innovation project depends on your idea, your business status (e.g., are you already trading and making a profit?), and how you plan to go to market and monetise your product or service.

Importantly, you must show during the grant application process that you’ll be able to fund your side of the project costs if your submission is successful.

Here are some funding methods with tech-focused examples.

The founder and CEO of a FinTech app startup takes out a £50K personal loan for match funding, which the business will repay through future subscription revenue.

The creators of an AI platform self-fund the match costs from their own savings plus freelance income to retain complete control.

An angel investor in a biotech startup contributed £50K to the business prior to it seeking public funding for its new project.

A healthtech wearables company allocates existing cash reserves from its smartwatch sales over the past two years towards meeting match funding requirements.

Five hundred pre-order sales secured for a new genomic analysis device cover the match funding component required to prototype and test it.

An insurtech company directs revenue from its insurance audit software suite into match funding development of a new blockchain fraud detection tool.

An IoT-focused VC firm offers a sensor tech company funding if it wins the innovation grant.

If you don't have the reserves to cover your side of the costs, you could consider reallocating the grant money itself from director salaries and overheads to cover it.

Every grant has its own intervention rate based on your business size and project type. 

Let’s look at Innovate UK’s Smart Grant, which is investing up to £25 million in ambitious, disruptive research and development (R&D) projects with a high potential for commercial success. 

Projects lasting 6 to 18 months should have total costs ranging from £100,000 to £500,000 and can be either individual or collaborative. For longer projects of 19 to 24 months, the total costs must fall between £100,000 and £1 million, and these projects must be collaborative.

So, let’s say you’re a small business wanting a grant to fund industrial research that will develop a prototype. Your project will take 12 months and cost £200,000. Here’s an example of how you might fund it.

Our experienced team and AI-powered platform have helped thousands of businesses craft compelling, best-practice grant applications in a hyper-competitive arena.

In fact, in a recent round of government funding, 64% of all winners were produced by the Grantify platform. And they submitted their grant applications 7X faster than if they’d applied solo. 

Check out some of the thousands of business owners we’ve helped get the financial backing they need.