A Startup’s Guide to Working with the Government – Part 1

Collaborating with the government has immense potential to enhance lives and fuel innovation in critical areas, whether through disease detection, building critical infrastructure, or disaster response. Government spending also accounts for a quarter of global GDP, fueling industries like energy, space exploration, and defense. But startups often shy away from government collaboration due to perceived challenges, including opaque decision-making and lengthy sales cycles. It can seem overwhelming at first. After all, there’s always something going on in Washington D.C. Without a clear strategy, you’ll quickly find yourself immersed in endless meetings and networking events. If you want to be successful in working with the government, be crystal clear on your goal: what are you seeking to achieveand why? What are you not looking to achieve? Regulatory approval strategy, for instance, necessitates a completely different set of actions, tools, and stakeholders than winning government contracts. Having spent over a decade successfully collaborating with government officials in both startup and corporate environments, I’m sharing five concrete objectives to shape startup partnership with governments, as well as the strategies to refine your goals and achieve them: Objective #1: Secure regulatory approval for a new product or service Regulatory approval varies across industries and products, so hiring the right experts to help you understand the nuances is key. For example, in transportation, you not only need a “safety approval” to ensure your product is safe for public use, but specific geographical locations also require separate “operational approvals.” Autonomous vehicle (AV) technology needs safety approval from the National Highway Traffic Safety Administration (NHTSA), but a state’s Department of Motor Vehicle agency (DMV) needs to provide approval for specific AV companies to operate on public roads. Similarly, the Federal Aviation Administration (FAA) oversees type certification for advanced air mobility (AAM) technology, including electric Vertical Takeoff and Landing (eVTOL) aircraft and remotely piloted aircraft, but cities provide approval for AAM operations over public urban air space.It’s also critical to build relationships with relevant members of Congress, given the oversight role Congress has over regulatory agencies. Their support, direction, and input on legislative language can impact your success. Where needed, hiring legal advisors to interpret regulatory and legislative texts can also be advantageous. Government grants fund projects in the research and development phase, or those with uncertain payback periods that aren’t conducive to traditional financing. Grants are often structured in the form of reimbursements which occur on a milestone basis; meeting specific, pre-defined objectives is crucial for full reimbursement. This means you may need to fund these projects out of your own pocket until you get reimbursed. You’ll also need to develop a comprehensive plan months in advance and commit to it, which can be challenging in the fast-paced, ever-changing world of startups. Engage with funding officers — early and often — to crystalize terms and priorities. Many offices have dedicated staff to help you navigate their programs. Network, participate in informative sessions, and directly contact program managers to understand whether your project is the right fit for the program and stay abreast of their latest initiatives. In some cases, past successful proposals are available online or accessible through Freedom of Information Act (FOIA) requests. You’ll want to research past proposals, seek out experts to review your application, and look for innovative ways to stand out. Here are a few examples of startup grant programs across domains: – Several agencies have access to the “Small Business Innovation Research (SBIR)” or “Small Business Technology Transfer (STTR)” program, which funds research and development in specific areas of interest by the government. The and the regularly publish these lists of open calls.The Armed Forces within the Defense Department have their own research programs; for example, the Air Force Research Laboratory (AFRL) and Naval Research Laboratory (NRL) grants provide opportunities for air and naval tech and research respectively. The DOD also has research-focused agencies like the Defense Innovation Unit (DIU) and the Defense Advanced Research Projects Agency (DARPA) that are targeted for dual-use technologies and/or early stage technology exploration but have the potential to turn into longer procurement contracts. The also supports small businesses making a key part of a broader acquisition.– Healthcare and pharmaceutical companies should look at both government entities (e.g. National Institute of Health) grants, as well as foundations for medical and healthcare research.– The Office of Manufacturing and Energy Supply Chains announced a earlier this year. Under the Biden administration, major financing programs like those within the , Inflation Reduction Act (IRA), and Bipartisan Infrastructure Law (BIL) fast-track critical technologies pivotal to national industries. Federal financing programs like the DOE’s (LPO) or the (ATVM) Loan Program scale decarbonization efforts. were also recently announced by the Department of Commerce.Whichever program you focus on, the first step is to connect with the program office to understand the criteria for success:

• What does a successful project or application look like for them?
• How many projects are they looking to fund?
• What’s the average loan application period?
• What’s the required capital contribution from the business?
• Can your chances of success be enhanced by partnering with others like universities, state or local government agencies, or minority/veteran/women-owned businesses?

Ultimately, you’ll need to define the project: clarify how the funds will be used and what returns you anticipate. It may sound obvious, but loans — even low-interest ones — need repayment. For very large loans, consider forming distinct legal entities, like “TopCo” (housing IP and investor funding) and “ProjectCo” (dedicated to loan repayment) to delineate different rates of repayment by your debt vs. equity investors. For example, “BatteryCo” secures $100M in equity funding from venture investors for the development of cutting-edge battery technologies, but needs an additional $100M to build a new manufacturing facility. Instead of raising the second $100M from venture investors in the form of precious equity, BatteryCo can apply for a $100M loan from the LPO to finance construction. BatteryCo established ManufacturingCo as a distinct entity — called the “project entity” solely for the loan and generated revenue from battery sales, ensuring repayment of the loan down the line. I would recommend hiring a lawyer for such complex structures. Loan applications typically demand detailed financial records, business plans, feasibility studies, and guarantees. This can amount to a sizable time and resource effort from a start-up. For example, if three years of audited financial statements are required for the application, and your company has only been in existence for two, consider partnering with a corporate or strategic ally who can offer assurances or guarantees. Federal loans also often necessitate matching funds from non-federal sources — up to 80% of the loan amount can be provided from federal funds and the remaining 20% must come from private or non-federal sources, fostering shared responsibility. With loans spanning years and involving substantial funding, sticking to a predetermined schedule and meeting milestones is crucial; deviations could lead to penalties. Hiring a strategic or financial advisor with the application process is worthwhile for large loans. Firms like Clark Street Associates, Boundary Stone, and SMI have a track record of success helping their customers in the energy sector. Many similar firms can help strengthen your application. Objective #4: Win revenue contracts with government agencies Government contracts often represent the holy grail of sticky, long-term customer contracts, but it is notoriously difficult to get your foot in the door. Start by targeting agencies that share your startup’s mission and values. Develop compelling and tailored value propositions for those agencies — which ones have priorities that align with the solutions that your company provides? How can your solutions help these agencies do their jobs more effectively? Next, explore and track open contracts on or . Navigating these websites can be tricky, but it’s an effective way to get in front of upcoming deadlines. Find existing buckets of budget and target those line items. Sometimes, even the way your product is characterized (CapEx vs OpEx, software vs. hardware) may affect how easy and quickly it will be to obtain contracts. Are new budget line items required to be set-up? Government budgets follow annual cycles; missing one may mean waiting another year. I also find it helpful to have been spent in the past, and which companies have received contracts. Go the extra-mile to build enduring relationships. These are long sales cycles, and being persistent and finding ways to demonstrate commitment and value will ultimately allow you to win. Establishing a relationship with government agencies, even without immediate financial gains, can serve as a valuable endorsement for customers or investors, enhancing brand recognition and product credibility. You don’t need to win major grants or large loans to do this. For example, there are many small DOE grants that can provide validation by leveraging scientists and national laboratories to vet technologies in the clean energy space in their grantmaking process. Another approach is to secure a position on a pre-approved government vendor list, emphasizing alignment with priority projects. Partnering with original equipment manufacturers (OEMs) that are committed to fostering innovation within their supply chain strengthens validation. An example of this is the Additive Manufacturing Forward Program (), which includes major OEMs, such as Lockheed Martin, Siemens, GE Aviation, and Raytheon. Finally, engaging with respected think tanks or government-sponsored initiatives like the Center for a New American Security (CNAS) or the Center for Strategic and International Studies (CSIS) builds your reputation as a thought-leader. Showcase your product’s success through case studies and pilot programs, emphasizing alignment with government objectives and enabling a wider recognition and potential interest from non-governmental entities. Navigating governments can seem daunting at first, but getting crystal clear on your objectives is the first step. Each objective demands a unique strategy. Mastering these nuances — from securing regulatory approvals to devising effective financing strategies — can pay off enormously. Now that you know what you’re trying to achieve, what do you do next? Read