How federal cleantech-specific funding impacts Midwest startups

It’s no secret that startups struggle to land enough funding to launch their product or service. A recently released study determined that federal funding from Advanced Research Projects Agency-Energy (ARPA-E) gives cleantech startups an advantage in innovating and achieving business success. Those that received ARPA-E funding filed patents in the years after launching at nearly double the rate of other cleantech startups.

Gilbert Michaud
Gilbert Michaud

I contacted Gilbert Michaud for insight on the study and its implications for Midwest entrepreneurs. He is an assistant professor of practice at Ohio University with expertise in renewable energy policies and economic and workforce development.

The federal funding study compared 25 startups that received ARPA-E backing in 2010 with other cleantech startups, including those that were rejected for ARPA-E funding and those funded by other government programs.

The conclusion that ARPA-E gives clean energy technology startups an advantage “is, perhaps, not necessarily a surprising outcome, but it’s always useful, in studies like this and many others, to confirm a hypothesis and quantitatively show a relationship between variables,” Michaud said.

“I believe that clean energy, relative to other types of startups, is underfunded, so this is an important finding with obvious federal policy and funding implications,” he said.

The federal government established ARPA-E in 2009 to boost advanced clean energy technologies such as biofuels, smart grids, and solar power at a time when venture capital for that sector was lagging. The study found that startups funded through ARPA-E achieved greater success, especially with patents, but they do not fare better or worse than other cleantech startups that had the same amount of patents and private funding before 2010. Therefore, the researchers suggest that ARPA-E is certainly beneficial but not enough to fully overcome the “valley of death,” when startups fold between initial funding and revenue generation.

Key conclusion: ARPA-E helps high-risk, high-reward cleantech startups compete with less risky, less disruptive cleantech businesses. “An important implication here is that actually allocating and distributing funding to these types of companies is, in fact, a successful approach to stimulating innovation in the clean energy sector,” Michaud said.

Midwest implications: I’ve spoken with dozens of startup founders over the past eight months, and nine times out of ten they bring up a common refrain: Landing adequate funding is more difficult for Midwest startups than those based in Silicon Valley or other areas on the coasts. ARPA-E is a resource that can bridge the funding gap.

“There seems to be an obvious implication for companies in our region to encourage them to go after ARPA-E funding,” Michaud said.

The study results also imply that Midwestern startups should leverage funding from non-federal level government sources as well. Plus, state or regional groups might want to consider developing or expanding programs to support local cleantech businesses, especially those specializing in topics that already have a foothold in the Midwest.

“This could be scaled down to the micro level to think about ways, maybe at the state level or something, to implement similar funding for clean energy innovation. This could play up some of the regional advantages we have in things like batteries, PV [solar photovoltaics] manufacturing, etc.,” Michaud said.

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