We live in uncertain times. Between the global pandemic, an ongoing climate crisis, turbulent markets, and endless political turmoil both foreign and domestic, it’s now more important than ever that America’s entrepreneurs have access to the funding they need to solve our nation’s toughest challenges. This requires new ways of thinking about how to channel financial resources to startups in order to align public goals and private sector incentives.
In practice, the best way to reclaim American dynamism is by providing founders with non-dilutive capital that supports technological innovation in the public interest. Historically, the United States has been the undisputed leader of global innovation, a position it maintained through the strategic deployment of public funds to entrepreneurial scientists and engineers. But in a globalized world where founders have access to unprecedented amounts of capital from sovereign wealth funds and foreign investors, the government can’t take it for granted that our brightest minds will decide to build the next world-changing company in the United States.
Fortunately, the US government has spent decades developing financial infrastructure designed to support our nation’s innovators and direct their talents toward solving problems of vital interest to our national security. The US military, the national labs, and standalone initiatives like the Small Business Innovation Research program all represent deep pools of non-dilutive capital meant for startups working on deep tech. Yet for many founders, accessing this funding can be a mystifying process that saps time and energy that could be spent building. Here are five reasons why improving access to this funding is more important than ever:
- It Will Attract the World’s Best Talent to the US
Ideas and technological know-how are the most precious resources a country has in the 21st century. The countries that are willing and able to support the entrepreneurial endeavors of scientists and engineers with public funding will attract a disproportionate share of the world’s brainpower. Whereas other sources of funding from foreign investors require entrepreneurs to sacrifice much of the asymmetric upside of a technological breakthrough, the US can distinguish itself by not forcing entrepreneurs to make a choice between personal gain and ambitious technological achievements. This will simultaneously bolster America’s competitiveness on the world stage while undermining the strength of our adversaries.
- It Will Unlock a Latent Pool of Technological Talent at Home
There is no shortage of innovators in the United States, but for veterans and other founders from non-traditional backgrounds it can be difficult to tap into the funding they need to bring their ideas to life. Even if they do have access to venture capital, many of these non-traditional founders may lack an Ivy League pedigree and are naturally suspicious of the old boys club in Silicon Valley and Wall Street. By offering them an alternative source of funding that doesn’t make them feel like they’re giving up all their hard work to investors, we can create a launchpad for a whole new generation of founders and unleash their incredible talents. - It Will Align Public and Private Sector Interests
The challenge with funding deep tech startups is that the problems founders are trying to solve typically don’t align with investor timelines. The problems facing our country and the world are hard, and they require sustained investment of time and money to find a solution. This doesn’t sit well with investors looking to turn a quick profit on the next big SaaS IPO and as a result hard tech investments have floundered. By helping investors pick up the tab, government funding helps startups strike a balance between commercial imperatives and achieving technological breakthroughs. - It Will Bolster America’s National Security
New technologies are the primary threat vector to America’s national security. Whether it’s encryption-breaking quantum computers, or geospatial imaging, our current national security apparatus is ill-equipped to handle these emerging threats. The biggest dangers are the ones we aren’t even aware of yet and the best way to prepare for them is to give America’s entrepreneurial technologists the resources they need to deeply explore the problem space. This will give the United States a significant economic, military, and political advantage that will enable resiliency in times of crisis. - It Will Improve the Lives of Everyday Americans
Technology doesn’t exist in a vacuum. While many deep tech startups are building technologies that are explicitly for national security purposes, the technological breakthroughs that happen along the way inevitably result in new consumer products that improve the lives of everyday people. One only needs to look at the incredible technology transfer programs at NASA and our national laboratories to see this in action. Non-dilutive government funding for entrepreneurs can activate a similar process in the private sector by incentivizing the creation of deep tech startups that will benefit both the government and consumers.
An abundance of non-dilutive funding is arguably the single most important differentiator the United States has in the war for innovation. It incentivizes founders to work on new solutions to increasingly difficult problems by ensuring they can capture the asymmetric upside if they’re successful, while mitigating the time or budgetary constraints of purely public or private financing. At a time when defense budgets are increasing to meet a litany of geopolitical threats posed by Russia and China, it’s crucial that we lower the barriers to accessing these resources and unleash the vast reserves of American talent. We have a unique lever for innovation. Now it’s time to use it.
At Scout, we pride ourselves on providing the founders we work with access to non-dilutive funding to help support our mission of making the world a better, safer place.
