Government Funding for Startups Really Does Exist, Uncle Sam Ponies Up $2.5B in Q3

BY: CHUBBYBRAINThu Nov 12, 2009 at 12:52 PM

Amid the spam, books, and late night TV infomercials promising inside information about little known government programs and free money, there actually is cash out there for your business. In fact, in Q3 2009, ChubbyBrain, which tracks venture capital, angel investment and several other types of investment in private companies, tracked $2.3B going to 65 young companies from various governmental or government-affiliated entities. These programs and government sponsored public-private partnerships offer funding via loans, grants and equity investments to promising young companies and technologies.

 

The average deal was $36.2M, but this aggregate number is misleading; several large fundings by the Department of Energy distort it. The more interesting highlight for early stage entrepreneurs is seen in the chart below. The great majority of investments are under $5 million, with the median across the 65 deals standing at $1.1 million.

Before getting too excited about Uncle Sam's deep pockets, considering government funding in relation to venture capital investment in Q3 2009. ChubbyBrain tracked $6.1 billion in venture capital investment over 680 deals in the quarter. Keeping things in perspective, it is clear that venture investment dwarfs governmental funding. But for an entrepreneur looking for capital to grow, these public funds may be worth considering as a supplement to the angel investment or venture capital funding sources that they may be pursuing. (Note: Download the 44-page Fast Company-ChubbyBrain Q3 2009 Venture Capital activity report for a quantitative view into VC activity in the quarter.)

Now let's take a closer look at government funding to startups in Q3 2009.

First, the 65 deals ChubbyBrain tracked in the quarter were spread across 12 sectors with seven sectors accounting for over 80% of the deals as shown below. The Energy and Health care sectors led among sectors, accounting for almost 50% of the deals.

 

In terms of where the government funding is going, it was spread across ventures in 21 different states. Interestingly, California and Massachusetts which are the top two destinations for venture investment also saw a large number of government funding deals representing 13% and 11% of such fundings (based on number of deals), respectively. Interestingly, however, Ohio took the top spot with 14% of deals. Rounding out the top five were Texas and South Carolina. Interestingly, despite the inclusion of perennial venture capital hubs California, Massachusetts, and Texas in the top five, the government funding does show activity in states which are not among the usual suspects, including the aforementioned Ohio and South Carolina but also states like Maine and Michigan.

 

 

Entrepreneurs may be interested to know that, unlike angel investors or venture capitalists who take a stake in the company, almost 70% of the government financings were in the form of grants to the startup companies.

 

Startups looking for money would be well-served to look at governmental funding vehicles in addition to the more traditional angel and venture capital investment sources. With federal stimulus money in play and local and state governments spurring entrepreneurship and economic development, such funding sources may continue to grow.

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Fast Company has partnered with ChubbyBrain, an information services company tracking the innovation economy, to provide a quantitative perspective on what is happening in the worlds of VC and angel investment. Look for additional posts leveraging ChubbyBrain data in the coming days and weeks.

 

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- Tan Yinglan