UNTANGLING THE DYNAMICS OF INITIAL AND SUBSEQUENT CONCENTRATION OF GOVERNMENT GRANTS

This study investigates the role of government subsidies in facilitating the transition of startups from government funding to private investment, focusing on the timing and concentration of public grants. Using data from 614 startups in the aerospace and defense industries, we explore how the timing of a startup’s first government grant and the concentration of subsequent government funding influence the likelihood and speed of transitioning to private investments. We find that early government funding serves as a key signaling mechanism, enhancing the startup’s credibility and increasing the probability of attracting private investment. Additionally, while excessive reliance on concentrated government grants can hinder the transition, a balanced approach fosters the optimal conditions for attracting private investors. This research contributes to the understanding of innovation ecosystems by providing empirical insights into how government initiatives can catalyze private sector innovation. Implications for policy and future research directions are discussed, emphasizing the need for context-specific, timely, and strategically structured government funding programs.