Off-topic: why I discourage use of a broker in startup funding

I know this is completely off topic of design but its related to funding a startup, so I thought I'd share.

In tough economic times, when so many small business owners seek additional funding, there's often the temptation to engage funding groups or brokers to apply for small business grants on our behalf.

One of my consulting clients was recently approached by Las Vegas Funding Group. For a fee of $3,000, these brokers offer services related to "assisting and aiding clients to identify and apply for small business grants." I can just imagine these guys working out of a trailer in the middle of the desert and driving away when things get hairy. But I digress....

Here's a quick summary, (besides the aforementioned trailer desert scene), why this can be a bad idea.

• In addition to charging the small business an up-front processing fees ($1,500 - $3,000), these brokers also charge the Foundation or Governmental agency a broker fee of 3% to 5% of the grant amount!
• Although the fee is not a direct expense to the small business, the cost comes in the now very small pool of Foundations that the small business can approach. Why? Most Foundations will not work with brokers.
  

• With fee-based broker assisted applicants, money leaves the Foundation and a sizable portion doesn't reach the target beneficiary. Keep in mind that Foundations need to justify grant allocations and total costs related to recipients.

• Example: Startup X requests and receives a grant for $50,000: in addition to the flat up front processing fee paid by Startup X, the brokers also also earn 3-5% of the grant. The greater the grant, the greater the broker's fee. e.g. a $500,000 grant garners a fee of $15,000 to $25,000!!!!
• At a time when foundations have lost so much of their portfolio value and are at the same time faced with increased demand for grants, the pay-out of sizable brokers fees or commissions doesn't make economic sense.
  

• Government grants specifically prohibit the build-in of a finders fee or brokers commission as part of grant applications.
• Last and VERY Important, grant funding brokers require clients to sign a "non-circumvent agreement." This agreement prohibits clients from independently seeking grants from other sources during the contract period (usually 12 months). Buyers Beware!!!
  
  

Check into these alternatives for grant writing and funding assistance:

1. Your local SBA office has tons of resources
   
2. Organizations like Skoll Foundation and the Kauffman Foundation invest in social ventures as well as provide references for other funding sources
3. Grant writers/consultants will work for an hourly fee or a flat cost per grant (no hidden fees)
   
4. Try connecting other small business owners who have been successful in the grant-writing process.