Startups and the U.S. government: It’s getting complicated

The tie between startups and the U.S. government have strengthened in recent years, a shift buoyed by an interest in using AI, automation, space, robotics, and climate tech for defense. And while that has provided another welcome path to capital, the relationship is getting complicated.

A growing share of startups have the U.S. government as customers, or are aiming for permits and defense-related contracts. When the government is operational, that connection can provide a needed boost and revenue to startups. But when the government ceases to function, as it did starting October 1, those close ties can stifle or even halt progress for startups.

This week on Equity, Anthony Ha, Max Zeff, and I (Kirsten Korosec) talk about how a prolonged U.S. government shutdown poses more risk for startups than in the past — not to mention put a damper on an active IPO season. The three of us dug into a few other topics too, including the how AI companies are trying to monetize and the U.S. government’s latest push to take ownership stakes in the tech and industrial sectors.

“This also feels like a reflection of how the startup landscape has changed in say the last decade and especially over the last few years,” Ha said during the Equity podcast, adding the focus was on consumer internet startups for a long time. “Obviously there’s a lot more going on in defense tech, a lot more in deep tech where you maybe need various kinds of regulatory approvals,” he continued. “And so, it feels like much broader swaths of the startup landscape now depend on the government in various ways, in ways that wasn’t necessarily true 10 years ago.”

But it’s not just startups. The Trump Administration has also continued to extend its reach, and ownership, into the tech industry, too.

The Trump Administration has renegotiated yet another federal loan — it’s third in recent months followed by one with Intel and rare earth miner MP Materials — and taken an equity stake as part of the newly hashed out deal.

The U.S. government took a 5% stake in Canadian miner Lithium Americas and another a 5% ownership in a Lithium Americas-GM joint venture to mine lithium in Nevada. The equity stakes will be acquired through no-cost warrants, which are financial instruments that give the government the right to purchase shares at a set price. The new terms came out of a renegotiation with the DOE’s Loan Programs Office of a $2.26 billion loan that was awarded to Lithium Americas under the Biden Administration.

Watch the full episode to hear more about the government’s relationship with startups and tech companies as well as the entertainment industry’s reaction to AI-generated actress Tilly Norwood, and an eye-popping seed round for Periodic Labs.

Equity is TechCrunch’s flagship podcast, produced by Theresa Loconsolo, and posts every Wednesday and Friday. Subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts. You also can follow Equity on X and Threads, at @EquityPod.