Cleantech Startups with Federal Funding Were More Innovative Than Others

New research shows success from the Advanced Research Projects Agency (ARPA-E)
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AMHERST, Mass. – Government funding and support for clean energy technology gave startup companies an innovation advantage, according to a new paper and a policy brief published by two University of Massachusetts researchers.

This research, published in Nature Energy, makes the case that funding from the ARPA-E agency accelerated innovation in clean energy technology. Startups with ARPA-E funding in 2010 patented at twice the rate of other similar firms. This innovation advantage was not shared by cleantech startups funded by other government programs.

Lead author on the paper is Anna Goldstein, senior research fellow and director of the UMass Energy Transition Initiative (ETI). ETI is home to ELEVATE, a new program created with $6.3 million in grants from the National Science Foundation to study equity and sustainability of the electrical grid. Erin Baker, associate dean of the College of Engineering and professor of industrial engineering and operations research, co-authored the paper. Laura Diaz Anadon at University of Cambridge and Claudia Doblinger at Technical University of Munich were also authors of the study.

ARPA-E was established in the US Department of Energy (DOE), using a portion of funds from the 2009 American Recovery and Reinvestment Act. The agency was intended to accelerate energy technology innovation by funding “high risk, high reward” research in the model of DARPA, the Defense Advanced Research Projects Agency.

The researchers compared data from 25 startups that received ARPA-E funding with a range of similar companies, including some that applied and were not successful, and some that received funding from another DOE program. They found that startups supported by ARPA-E thrived in terms of patented inventions, but inventiveness alone did not translate into greater success with venture capital fundraising, survival, being acquired or going public.

“ARPA-E is a fantastic tool for stimulating invention, because they work at the interface of cutting-edge science and breakthrough ideas in energy technology,” said Goldstein. “Other programs need to step up as well and help these innovative companies develop their new technologies into commercially competitive products.”

Goldstein also noted that the Trump administration has frequently attempted to eliminate funding for ARPA-E, claiming that the private sector is better suited to funding disruptive energy technology research, but these new results contradict that view.

“Startups have a lot of exciting ideas for improving clean energy technology, but they struggle to find private investors who are willing to take a risk on R&D. Getting an ARPA-E award allows them to take a break from fundraising and advance their technology,” said Goldstein.

The authors call for additional government support to help cleantech startups survive the so-called “valley of death,” where many early-stage companies fail for lack of private investment. Policies such as “increased funding for demonstration and commercialization, in-kind support from national laboratories and targeted procurement programs” can help fill this gap, the researchers noted in their paper.

They also noted the need for ongoing research on the outcomes of energy innovation funding. “Observational studies cannot prove the effectiveness of any funding agency, but current evidence suggests maintaining or growing ARPA-E, given the large potential benefits from cleantech innovation,” the researchers wrote.

A policy brief on the research is also available in Nature Energy.