In partnership with

Hey guys! This week we’re covering a super important topic for the early days of any start-up: funding.

The usual playbook has been written time and time again: build a prototype, pitch to VCs and angels, scale fast, raise more, scale more, IPO, yachts.

After having spoken to dozens of founders, we realised there’s one funding route that is often overlooked in the early days that might be the answer for a lot of the issues people have with VCs today (see: “in a rush”).

Two European deep-tech founders recently shared stories that challenge the VC-first orthodoxy. Robert Brüll from Fibrecoat and Carsten Brinkschulte from Dryad Networks both chose government grants over traditional venture capital in their early days. Their experiences reveal why sometimes the slower, less glamorous route might actually be the smarter play.

The traditional pitch (and for who it doesn’t work)

Venture capital has become synonymous with startup success. The narrative is compelling: experienced investors provide not just money but mentorship, networks, and the pressure needed to achieve rapid growth. For software startups with low marginal costs and network effects, this approach can (and has) create unicorns.

But what happens when your business doesn't fit the VC mold? What if you're building complex hardware that takes years to perfect, or developing materials science breakthroughs that require capital that isn’t looking for a 5-8 year exit?

Robert Brüll's journey with Fibrecoat illustrates the power of grant funding for deep-tech ventures. After completing their PhDs in Germany, Brüll and his co-founders received an EXIST grant (a government program specifically designed to support university spin-offs). The grant provided something that most founders dream of: three years of financial security without equity dilution.

"The grant gives you three years of no worries as a startup founder, which is incredibly valuable," Brüll explained during our interview. "You don't have to worry about money. You can focus on the business and make mistakes that are part of the deep tech ecosystem."

This freedom proved crucial for Fibrecoat, which develops high-performance fiber materials. When COVID hit just two weeks after the company's founding, forcing them to pivot from plastic coating to metal coating, they had the luxury of time and flexibility.

Mo’ dilution, mo’ problems

Beyond the (much needed) psychological benefits, grants offer zero equity dilution. While VCs typically demand 15-25% equity for seed rounds, government grants require no ownership stake. For Fibrecoat, this meant the founding team retained full control during their critical early development phase.

Carsten Brinkschulte from Dryad Networks, which develops IoT sensors for wildfire detection, echoed similar sentiments about their €1.6 million EU grant. The grant essentially doubled their VC investment power without any equity cost.

The psychological impact of grant funding is huge too. As Brüll noted, there's a fundamental difference in how failure feels when you're spending government money versus investor money.

"This peace of mind makes it easier to work for the company," he said. "It feels harder to use that money and fail than to work with government grant money."

So it’s just free money?

No, grant funding isn't a panacea. It works best for specific types of businesses and founders. Deep-tech companies with long development cycles, university spin-offs with proven IP, and businesses addressing societal challenges (like climate change) are often good fits for government support.

Neither founder suggests avoiding VCs entirely. Instead, they demonstrate how grants can provide the breathing room needed to reach VC funding from a position of strength. Fibrecoat used their three-year grant period to achieve product-market fit and revenue traction before raising their Series A. Dryad combined grant and VC funding to build a complete management team and scale globally.

The key is having a clear timeline and milestones. Brinkschulte used his EU grant strategically, combining it with early VC funding to extend the runway and prove market traction. By the time Dryad needed serious scaling capital, they had de-risked the technology enough to command better VC terms.

What this means for you

Of course, this approach doesn't work for every business. The grant-first strategy is particularly powerful for deep-tech companies, university spin-offs, climate tech ventures, and businesses addressing societal challenges. Software startups with immediate market traction and low development costs might benefit more from early VC involvement and the rapid scaling it enables.

This rule of thumb probably works well: grants if you need time, VCs if you don’t have any.

If you enjoyed this issue, please share it with fellow founders, operators, & investors and fill out our feedback form below:

See you next week!

Rahul & Aryaman