startups and the us government: it’s getting complicated

The Evolving Relationship Between Startups and the U.S. Government

In recent years, the connection between startups and the U.S. government has become increasingly strong. This development is largely driven by governmental interest in leveraging advancements in areas like AI, automation, space exploration, robotics, and climate technology for defense applications.

Government Contracts: A Double-Edged Sword

A growing number of startups now count the U.S. government as a client, or are actively pursuing government permits and defense contracts. This connection can offer a significant financial boost and revenue stream when governmental operations are running smoothly.

However, disruptions to government functionality, such as the shutdown that began on October 1st, can significantly impede or even halt the progress of these startups due to their reliance on federal funding and approvals.

Equity Podcast Discussion: Risks and Trends

This week’s episode of Equity, featuring Anthony Ha, Max Zeff, and Kirsten Korosec, explores how a prolonged U.S. government shutdown presents greater risks to startups than in previous years. The discussion also addresses the potential impact on the current IPO market.

The panel also delved into other key topics, including the strategies AI companies are employing to generate revenue, and the U.S. government’s increasing efforts to acquire ownership stakes in the technology and industrial sectors.

A Shift in the Startup Landscape

“The current situation reflects the evolution of the startup ecosystem over the past decade, and particularly in recent years,” noted Ha during the Equity podcast. He pointed out that the focus was previously centered on consumer internet startups.

“There’s now a much greater emphasis on defense tech and deep tech, often requiring various forms of regulatory clearance,” Ha continued. “Consequently, a broader range of startups now depend on the government in diverse ways, a situation that wasn’t as prevalent ten years ago.”

Government Investment and Ownership

Beyond simply contracting with startups, the U.S. government, continuing a trend initiated during the Trump administration, is also expanding its direct investment and ownership within the tech industry.

Recent Loan Renegotiations and Equity Stakes

The government has recently renegotiated another federal loan – its third in recent months, following agreements with Intel and MP Materials – and secured an equity stake as part of the revised terms.

Specifically, the U.S. government has taken a 5% stake in Lithium Americas, a Canadian mining company, and another 5% ownership in a joint venture between Lithium Americas and GM focused on lithium mining in Nevada. These equity stakes will be obtained through no-cost warrants, granting the government the right to purchase shares at a predetermined price.

The revised loan terms stem from a renegotiation with the Department of Energy’s Loan Programs Office regarding a $2.26 billion loan initially awarded to Lithium Americas under the Biden administration.

Further Insights from the Equity Podcast

To gain a more comprehensive understanding of the government’s relationship with startups and tech companies, as well as discussions on the entertainment industry’s response to AI-generated actress Tilly Norwood and a substantial seed round for Periodic Labs, watch the full episode.

Equity is TechCrunch’s premier podcast, produced by Theresa Loconsolo, and is released every Wednesday and Friday. Subscribe on Apple Podcasts, Overcast, Spotify, and other podcast platforms. Follow Equity on X and Threads at @EquityPod.