In today’s competitive startup landscape, founders are constantly looking for ways to fuel growth without giving up too much equity. One often overlooked path to help scale is through government grants and incentives. While these funding sources are primarily designed to support innovation and economic development, they could also offer opportunities for investors backing private companies. This blog will explore how startups use government grants and incentives to scale, and how investors can strategically leverage startups using these programs.

Incentives in Private Investing

What are Startup Grants and Incentives?

Government grants and incentives for startups are typically funded by governments, nonprofits, or international organizations. These programs offer non-dilutive capital, meaning the startup doesn’t have to give up equity in exchange for funding.

Here are a few types of startup funding incentives:

Government Grants: Programs like the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) in the U.S. offer funding for startups engaged in federal research and development with commercialization potential.[1]
Tax Credits: The Research & Development (R&D) Tax Credit allows startups to offset payroll tax liabilities, providing immediate cash flow benefits.[2]
Regional Incentives: State and local governments offer various incentives, such as tax abatements and infrastructure support, to attract and retain businesses. For example, Texas provides economic development incentives to promote job creation and capital investment.[3]
Export Assistance: Agencies like the U.S. Export-Import Bank provide resources to help startups expand into international markets. The State Trade Expansion Program (STEP), funded by the U.S. Small Business Administration, offers grants to help small businesses expand into international markets.[4]

These programs are designed to lower the barriers to innovation, but they also could present opportunities for private investors.

Why Should Investors Pay Attention?

From reducing capital risk to signaling credibility, startup grants can create a ripple effect that benefits investors in several ways.

Less Equity Dilution

One of these advantages is a smaller amount of equity dilution. Since grants are non-dilutive, startups can extend their runway without needing to tap into additional equity rounds. This may help preserve the value of early-stage investors’ ownership.

Third-Party Validation

Securing a competitive grant often requires rigorous vetting. For investors, this can act as an external stamp of approval, validating the startup’s technology, business model, and growth potential.

Capital Leverage

Some grant programs are structured to match private capital. Investors who participate in these rounds may effectively co-invest alongside government funding, amplifying the impact of their capital.

Improved Exit Potential

Startups that receive public funding may have a smoother path to achieving milestones, making them more attractive for acquisition or follow-on funding. This enhanced visibility can contribute to potential exit opportunities.

Alignment with Strategic Sectors

Public grant programs are often aligned with national priorities, like clean energy, healthcare innovation, or artificial intelligence. Investors looking to capitalize on these macro trends can gain exposure through startups receiving sector-specific support.

How Investors Can Leverage These Programs

While grants and incentives are awarded to startups directly, investors can play a strategic role in helping their portfolio companies identify and secure these opportunities. Here are some ways an investor could find opportunities and offer support:

Stay Informed

Keeping up with local, national, and international grant programs can give investors a competitive edge. Many funding opportunities are tied to specific industries, technologies, or regions, so staying current may help investors anticipate capital access points for portfolio companies.[5] Regularly reviewing government portals, economic development agencies, and industry newsletters can help investors spot relevant programs early.[6]

Encourage Applications

If investors are invested in a startup with a strong R&D or innovation focus, consider suggesting grant applications as part of the company’s capital strategy.[7] Many founders are unaware of the grants they may qualify for, or they might assume the application process is too complex. An investor’s encouragement, and potentially even introductions to grant experts, can help unlock non-dilutive capital that could help reduce reliance on future equity rounds.

Provide Strategic Guidance

Investors don’t need to be a grant expert to provide value. Instead, they may be able to offer strategic support by connecting their portfolio companies with experienced grant writers, compliance consultants, or public funding advisors. Additionally, investor guidance around budgeting and financial planning can help the startup become well-positioned to meet the criteria and reporting requirements of these programs.[8]

Map Incentive-Friendly Regions

Not all startup ecosystems offer the same level of support. Some regions provide generous tax credits, cash incentives, or subsidized facilities to attract high-growth companies. Investors can help portfolio companies evaluate these options when planning expansion, hiring, or relocating operations. This geographic lens can reveal hidden value and boost capital efficiency over time.

For instance, the European Commission’s “Choose Europe to start and scale” strategy aims to boost the growth of tech startups by creating a “Scaleup Europe Fund,” a public-private investment initiative expected to exceed €10 billion.[9]

Final Thoughts

Startup government grants and incentives are more than just “free money,” they’re strategic tools that can help support growth. As public and private sectors continue to prioritize innovation, these funding programs could play a growing role in the startup ecosystem. Investors who learn to navigate and leverage these incentives may be better positioned to support companies as they scale.

Want to learn more about investing in private markets? Check out the following blogs to learn more:

Are you looking to invest in startups? Sign up for a MicroVentures account to start investing!

SIGN UP FOR FREE

[1] https://www.g2gconsulting.com/strategies-for-raising-non-dilutive-government-funds-for-your-business/

[2] https://us.fi-group.com/benefits-of-claiming-rd-tax-credits-for-startups/

[3] https://gov.texas.gov/business/page/incentives

[4] https://grow.exim.gov/blog/step

[5] https://www.sba.gov/business-guide/plan-your-business/fund-your-business

[6] https://www.uschamber.com/co/run/business-financing/small-business-grants-and-programs

[7] https://news.crunchbase.com/policy-regulation/startup-rd-tax-credit-leon-burkland/

[8] https://www.jpmorgan.com/insights/investing/investment-strategy/how-to-get-a-business-grant-for-your-startup

[9] https://www.reuters.com/world/china/eu-plans-tech-scale-up-fund-narrow-gap-with-us-china-2025-05-28/

*****

The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.

MicroVentures Blog

How Government Grants and Incentives Impact Private Investing