What a grant reviewer reads before they read your pitch

What was broken

An aerospace-and-defence startup with formal national startup recognition sought seed-fund backing to take a validated prototype toward a procurement-ready stage.

What we did

CapEasy prepared the seed-fund proposal — startup-recognition eligibility, a grant-permitted budget covering prototype and engineering work and R&D talent with no marketing or commercialisation spend, and a staged milestone plan. We modelled the projections and structured the application to the scheme’s compliance requirements.

Where it landed

Approved for a public seed grant through an incubator-backed program; disbursement is milestone-linked. A seed-fund approval is the incubator committee’s sanction; actual disbursement follows the scheme’s due-diligence and compliance milestones and is not guaranteed.

The right door: DoD SBIR/STTR, not a generic small-business grant

A US aerospace or defence-tech startup does not chase one grant — it chases a topic. The Department of Defense runs SBIR and STTR under a decentralised model: each component publishes its own solicitations through DoD SBIR/STTR, and the Air Force and Space Force route theirs through AFWERX and SpaceWERX, which run rolling "Open Topic" tracks alongside the traditional numbered-topic cycles on top of the government-wide listings at sbir.gov. The fundable unit is a topic with a stated Technology Readiness Level and a named transition sponsor, not a category of company — the same discipline the engagement applied when it matched the proposal to the funding scheme’s specific eligibility and spend rules rather than writing a generic pitch.

sbir.gov's own Course 8 accounting tutorial frames Phase I and Phase II as different orders of financial scrutiny: Phase I is feasibility money the government expects a "basic" accounting system to handle, while Phase II is roughly an order of magnitude larger and is where the government expects a system sophisticated enough to support a cost-reimbursement or cost-plus-fixed-fee award. The company that treats Phase I bookkeeping as a formality is the one that fails the Phase II accounting-system review before the science is even judged.

The budget justification is read like a reconciliation, not a pitch deck

DoD SBIR/STTR reviewers do not take a budget line on faith. sbir.gov's own budgeting-basics and indirect-rate tutorials walk the same questions a diligence reader asks of any grant file: which costs are direct versus indirect, what a defensible indirect rate looks like — the guidance is explicit that a company must develop its own rate and never borrow another company's — and how a labor-hour build-up backs each line. A budget that lists "engineering, $180,000" without that build-up behind it reads the same way an unreconciled ledger reads to an investor — a number nobody can defend.

The engagement’s budget was built the same way: prototype and engineering costs and R&D talent kept inside the scheme’s permitted categories, with marketing and commercialisation spend explicitly excluded because the scheme does not fund it. A DoD proposal fails for the identical reason when a founder folds business-development travel or sales collateral into a research budget the solicitation scoped to engineering and test.

DCAA is the accounting-system gate, and it starts at Phase I

The Defense Contract Audit Agency evaluates a contractor’s accounting system against the SF1408 standard — a pass/fail checklist of 14 attributes covering direct-versus-indirect cost segregation, cost accumulation by contract, and a labor timekeeping and cost-distribution system that accurately assigns labor to the right project. sbir.gov's own guidance is explicit that "the best strategy is to start planning for passing this audit when you receive your Phase I award," not when a Phase II cost-reimbursement contract is on the table. Timekeeping is the artefact reviewers return to again and again, because DCAA treats an inconsistent or after-the-fact labor-distribution system as a system failure regardless of how sound the science is.

A milestone-linked award — the same structure the seed grant used — makes this worse for an unprepared company, not easier: each disbursement tranche is itself a mini cost review, so a labor and expense trail that cannot be tied cleanly to the milestone claimed stalls the money even after the science has already been judged fundable.

ITAR and CUI hygiene are a diligence topic before they are a legal one

Defence work carries a control layer civilian SBIR topics do not. sbir.gov's own ITAR tutorial is blunt that silence in the contract is not clearance: a company must independently determine whether its technology sits on the US Munitions List, and disclosing controlled technical data to a foreign national — including someone on an H-1B, business or student visa, inside the US — is itself a "deemed export" under State Department rules administered by the Directorate of Defense Trade Controls (DDTC). Only green-card holders and US citizens get treated as domestic for that purpose.

Separately, any DoD contract or subcontract touching covered defense information carries DFARS clause 252.204-7012, which requires safeguarding that data to the NIST SP 800-171 standard — access logs, role-based permissions on technical files, and a documented incident-reporting path. A defence-tech founder who cannot show who had access to which technical file, and when, is showing the same gap the engagement closed on the finance side: a record that says who touched what, and on what authority. Legal determinations on ITAR jurisdiction and export licensing sit with export-control counsel; CapEasy’s part is the same as it was in this engagement — the cost file, the timekeeping trail, and the reconciliation that makes the file defensible when someone opens it.