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SBIR Grants Boost Successful Outcomes for Clean-Energy Startups

Many clean energy startups face a challenging funding environment because their development cycles are long, risky, and capital-intensive.

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The absence of a carbon price stymies commercialization.

High-tech entrepreneurs, especially in the clean energy sector, often rely on government grants. A recent study by NYU Stern Professor Sabrina T. Howell estimates the effect of the U.S. Small Business Innovation Research (SBIR) program on startups’ innovation activity, external financing, and commercialization outcomes.
 
In “Financing Innovation: Evidence from R&D Grants,” forthcoming in the April 2017 volume of the American Economic Review, Professor Howell used data from the Department of Energy (DOE) between 1995 and 2013. Application and scoring data from two large DOE offices,  Fossil Energy and Energy Efficiency and Renewable Energy, permitted causal evaluation. The SBIR grant program, authorized by Congress in 1982, is the largest single provider in the US for high-tech entrepreneurs, disbursing around $2.5 billion each year.
 
Many clean energy startups face a challenging funding environment because their development cycles are long, risky, and capital-intensive.  Further, the professor noted, “The absence of a carbon price stymies commercialization.” A majority of the firms analyzed by Professor Howell were early-stage startups, many less than a year old.  
 
Professor Howell’s analysis yielded clear results. She found that early stage grants make a significant difference to young clean-energy firms and increase clean innovation. “The initial SBIR grant is most useful in sectors likely to have large positive spillovers: hydropower, carbon capture and storage, building and lighting efficiency, and automotive technologies,” she wrote. There was no measurable effect for conventional energy technologies, like natural gas and coal, suggesting that they are not as financially constrained.
 
The author found that early stage grants have large, positive effects on subsequent venture capital investment, firm revenue, survival, and successful exit (IPO or acquisition). However, a larger, later stage grant did not have measurable effects. “To the extent public funds are used to subsidize applied private sector R&D,” she concluded, “the findings in this paper suggest that more grants to small, young firms on a onetime basis may be more effective in stimulating innovation than fewer larger grants that follow firms through multiple stages of technology development.”