Startups typically focus on creating an amazing product, developing a customer base, and attracting investors. If government outreach comes into play…it’s often after it’s too late.
Startups should talk to government because governments are actively setting policy right now that will impact startups in clean energy, climate mitigation, artificial intelligence (AI), and transportation, just to name a few. Whether your startup succeeds or fails will depend in part on how governments choose to regulate, promote, or hinder development in your chosen sector.
Facebook’s famous early motto, “move fast and break things,” may guide how people approach innovation, but it is not the last word when it comes to government and policy issues.
(Read our article here for how to think about your broader public affairs strategy.)
Governments offer funding, partnerships, and lab use
Are you looking for federal funding, tax incentives, or access to new markets? Government policymakers can only include your specific product in rules and regulations if they know it exists. Policymakers rely a lot on industry input to follow new technological trends – so make sure you have a seat at the table.
Governments can be excellent resources for early stage companies. Pre-seed companies can receive small business grant funding (like the SBIR and STTR programs in the U.S.), while state and local governments often provide services and clinics at low or no cost. For larger companies, governments offer an array of non-dilutive grants, loans, and tax credits.
These opportunities offer benefits beyond the financial. Access to world-class equipment at U.S. national labs, for instance, can speed up your product development. Partnerships with other companies – often encouraged as part of the grant process – can help you embed with a customer on a research project. Presenting at a government conference like the ARPA-E Summit can help raise your profile.
Here’s the thing: Government entities can’t fund what they don’t know about, and allocating and then awarding funding takes time. Meeting early with program offices to discuss your technology, or even offering a demonstration or a tour, can show decision-makers the potential of what you’re working on before they finalize their priorities (and budgets!). Like venture capital firms, they will want a clear story about how your technology can be transformational. Unlike venture capital firms, they won’t make decisions quickly. Give them time to get to know your company and your offerings.
Government regulations often define which technologies thrive
When technologies are developed, government regulations often set guardrails or determine incentives, which can predetermine the specific technologies or products that succeed or fail in a particular sector. Once the regulations are in place, they can be incredibly hard to change or adapt, so helping shape them at the outset is often the only way you can ensure your product offering survives.
The good news is that new regulations are governed through a public comment process, which allows for input. The bad news is that a lot of stakeholders can get involved. You know the saying, “A camel is a horse developed by committee?” Yeah. It’s like that.
Here’s an example of why you should say your piece anyway: the Renewable Fuels Standard (RFS). At a high level, the RFS requires transportation fuel in the U.S. to include a certain minimum amount of renewable fuel. An individual company’s success in supplying fuel under the RFS is determined by 1) the pathways (types of fuel production) that qualify and 2) the quotas for each type of fuel (biofuel, cellulosic biofuel, biodiesel, etc.).
Based on these two factors, and the way the regulation details were written, the end result is that corn producers specifically, and row crop growers more broadly, are the big winners according to RFS policy. The losers are other types of biomass feedstocks (such as wood producers), conventional oil producers, and potentially makers of batteries for electric vehicles (EVs). How did this happen? It was sold as a way to increase domestic energy production and reduce greenhouse gas emissions, an argument helped along by successful lobbying from the corn industry.
Now there’s a new fight brewing. Under the RFS, corn growers win. Under the U.S. government’s new EV subsidies, battery makers win. The issue hasn’t been completely resolved yet, because government agencies are taking the time to assuage concerns from all parties. The reassurances haven’t been very effective, as everyone still believes that there will be only one winner when the regulatory and budgetary dust settles. You can see why advocates for both solutions will devote a lot of energy to this fight.
This dynamic is also playing out right now with clean hydrogen, regulations governing AI, and sustainability and carbon reporting requirements, just to name a few. Startups need to stay aware of the policy dynamic and advocate for their technology significantly earlier than they may anticipate.
A good government affairs strategy can help your company advance
Directing some of your limited attention to policymakers ahead of regulation is important. So is determining how your company will respond – and be treated – when it comes to public scrutiny around the rules (or lack thereof) governing your sector.
Look at internet privacy, especially for minors, which has received renewed attention since the Facebook (now Meta) whistleblower leak of 2021. In 2023 alone, a raft of bills taking wildly different approaches to protecting children surfaced in Congress, with several passing in the House or Senate. The apparent lack of concern about government action in the sector has come into sharp relief as leaders of major tech companies have had to defend their actions in a public forum time after time, with the newest CEO-studded hearing coming January 31, 2024. These developments have not only affected and complicated the companies’ regulatory requirements, it has had a detrimental impact on their public reputations as the companies and their leaders looked unprepared, defensive, and disconnected when called to explain themselves.
A great example of companies being really smart about government engagement are defense startups like Anduril Industries. These companies are actively trying to change the most complex bureaucracy in the world – the U.S. Department of Defense – while still complying with existing rules and regulations. Not all startups are as exposed to government policies as these companies, but these defense startups are still a good model for anyone who wants to take risks and try new things without being forced on the defensive when public scrutiny of company behavior arises.
Understanding existing rules and regulations can help you choose your risk profile
Whether you’re just prototyping or already piloting a new product, worrying about regulations may seem beside the point. But think very carefully before you commit your company to a specific path to commercialization. You may actively choose to disrupt the status quo – and understanding existing rules and regulations allows you to make an informed choice about the risk you’re taking on. You may also decide it isn’t worth the fight, and choose a path to commercialization that avoids possible costly lawsuits or federal prosecution.
An oldie but a goodie that illustrates this point: In the late 1990s, growing internet access made electronic downloads of music increasingly popular. (Your humble author shared many an mp3 with friends back in the day.) Top song-sharing platform Napster closed its doors in 2001 after a federal court ruled it had committed copyright infringement, leaving it bankrupt. This ruling, and others against Napster’s competitors, killed the peer-to-peer music sharing industry. In 2003, Apple swooped in with iTunes. iTunes obeyed all laws and charged users an affordable $.99 cents per song. By 2013, iTunes accounted for 69% of all U.S. music sales – partially because it had a great interface and design, and partially because its business model had full government support. Napster either misunderstood or misjudged the risk it faced and it went under. Apple found a way to play by the rules and dominate the market.
The opposite approach can be illustrated by YouTube, which launched in 2005, only a few years after Napster shut down. When Lonely Island’s video, “Lazy Sunday,” went viral on the platform in 2006, NBC Universal (owner of all Saturday Night Live content) filed a series of copyright-infringement lawsuits against YouTube. “Lazy Sunday” both cemented YouTube’s popularity and opened it up to years of intellectual property lawsuits. Despite this, the company chose to take the lawsuits on, believing they could either win and/or adapt their product to overcome these regulatory challenges. Their gamble paid off. Google Video had been trying to compete as a video-streaming platform at the same time, focusing on legally obtaining licenses for everything on their platform. Working through licensing deals and intellectual property agreements was moving too slow to compete with YouTube’s growth, so Google Video decided to stop competing. They simply bought YouTube instead.
The U.S. government rulings against cryptocurrency behemoths like FTX and Binance in 2023 show that companies who run afoul of government regulations continue to land in court today. And you know we’re keeping a close eye on the myriad lawsuits OpenAI is facing. A loss in any of those cases may have devastating repercussions for the company, with the potential to drop its current valuation of $80 billion plus to…zero.
Knowing the relevant rules and regulations enables startups to make an accurate assessment of the landscape, and choose a risk profile that fits their goals. Failure to do this can have long-lasting, potentially permanent, impacts.