Why National Interest Startups Should Prioritize Government Contracts Over Grants

With the increasing relevance of national interest technologies like cybersecurity, data analysis, satellite systems, and biometric weapons, startups are finding government contracts to be an attractive and stable revenue source. As government spending on technology, particularly in defense, continues to rise, startups with dual-use applications are pivoting toward securing long-term government partnerships.

Tapping into a Lucrative Government Market

For startups seeking dependable revenue, government contracts, especially with agencies like the Department of Defense (DOD), can be game-changers. The DOD’s budget request for 2025 is projected to be nearly $850 billion, including $143.2 billion for R&D and $167.5 billion for procurement. This budget aims to fund innovations in AI, quantum computing, autonomous systems, and space technologies. Startups can get a foot in the door with the DOD through programs like Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR).

However, securing these contracts isn’t straightforward. Gevalt emphasized the need for an experienced partner to help startups move from the prototype phase to commercialized, revenue-generating contracts. She noted that only 16% of DOD SBIR-funded companies make it to commercialization, as per a 2023 Defense Innovation Board report.

Beyond Defense: Government Needs Across Sectors

Startups don’t need to develop defense-specific technology to secure government contracts. Gevalt highlighted that government interest extends into areas like data management and cybersecurity. “By law, the government cannot delete any of its data, so it’s going to be a continually growing problem for them to manage it and to drive insights out of it,” Gevalt said, also noting the government’s urgent need for advanced cybersecurity solutions.

Navigating Political Changes and Building Lasting Relationships

With the upcoming U.S. election, some might wonder whether startups should prepare for shifting priorities in national interest spending. Gevalt and Haddad, however, advised against overhauling business strategies based on political changes. Gevalt pointed out that interest in areas like data, AI, and cybersecurity tends to persist across administrations. She encouraged startups to focus on building relationships with non-political, long-term federal employees who are instrumental in purchasing decisions. These relationships provide stability as they remain relevant despite political transitions.

Why Domestic Production Matters for Government Contracts

U.S.-based manufacturing and operations are often preferred by government agencies, particularly for companies working with sensitive technologies. Kloepfer explained that Biofire’s U.S.-based production aligns with Department of Commerce export regulations, ensuring sensitive technologies stay within the U.S. This preference for domestic production also appeals to investors as it helps with quality control and speeds up iteration cycles.

Finding the Right Market Fit

For startups entering the government space, success requires understanding government needs and priorities. Gevalt recommended using resources like Bloomberg Government (BGov), GovTribe, and GovWin IQ to identify potential customers within the government and analyze competitor activities. Additionally, government strategy documents can provide insights into priority areas, such as AI, and help startups align their products with federal initiatives.

Strategic and Tactical Approaches to Working with Government

To succeed in securing government contracts, startups should take both strategic and tactical approaches. Strategically, companies should understand the administration’s overarching goals, like the Biden administration’s AI initiatives. Tactically, they need to identify specific agencies that are actively purchasing the technology and examine how they’re doing it, such as through partnerships with firms like Deloitte or Booz Allen.

Gevalt summed up the approach as essential for securing repeatable revenue in a space where startups can scale by becoming indispensable partners to the federal government. For national interest startups, a robust strategy focused on government contracts can unlock a new realm of funding, credibility, and long-term growth.