Federal Government Successful at Identifying Successful Startups

The US government is constructively identifying and funding successful startup ventures. This is the finding of new research conducted by the University at Buffalo School of Management.

Federal Government Identifying Successful Startups

The study examined businesses that received Small Business Innovation Research (SBIR) grants. It revealed that the federal government is successfully selecting startups for its entrepreneurial program that make a significant impact.

The researchers looked at two set of businesses that received SBIR grants through the National Science Foundation (NSF). One set of ventures had been prioritized by NSF through its regular funding process. The other set was businesses that had been initially rejected by NSF. These ventures had gone on to receive funding through the American Reinvestment and Recovery Act (ARRA).

Funding Promising Applicants

This enabled the researchers to determine if the prioritized businesses outperformed the others. The outcome was that the innovation at the NSF-funded firms surpassed the innovation coming from businesses funded through the ARRA. Subsequently, the research confirmed that NSF prioritizes innovative venture with big payoffs.

Supradeep Dutta, assistant professor of operations management and strategy in the UB School of Management, commented on the research’s findings:

“The SBIR program has invested more than $25 billion in new ventures over the last decade, but nobody has answered the question of whether these agencies fund the most promising applicants — despite how important it is to economic growth and prosperity.

“Our findings contrast with a body of work suggesting that markets should be the exclusive source of venture funding. Whether governments can effectively identify and reward the most promising ventures is a topic of considerable debate. We empirically demonstrate that governments are capable of identifying and funding ventures with the most promising long-term outcomes,” Dutta added.

There are many different types of funding available to small businesses. In the wake of the Covid-19 pandemic and the subsequent economic turmoil, it’s more important than ever businesses receive appropriate funding.

It is also important that the government funds startups that offer favorable long-term results. The research shows that the US government can identify and fund the most innovative and promising of startups.

Image: Depositphotos.com