Shutdown whiplash as Washington becomes startups' customer and shareholder

Startups, shutdowns, and industrial policy: what government professionals need to know now

The link between startups and the U.S. government has tightened. AI, automation, space, robotics, and climate tech are pulling young companies into defense and regulated markets where permits, approvals, and contracts define the path to revenue.

That comes with a tradeoff. When the government is operating, these ties help fund and validate new tech. When operations pause - as they did starting October 1 - the same ties can slow or stop progress, pushing risk back onto agencies and founders.

Why the risk is higher now

• More startups sell to agencies or rely on grants, SBIR/STTR, and Other Transaction agreements for runway.
• Deep tech needs certifications, site access, export approvals, and safety reviews that are time-bound.
• Payments are often milestone-based; delays in acceptance or obligation create immediate cash strain.
• IPO windows are active but fragile; stop-work and review backlogs ripple into capital markets.

Shutdown effects you can expect

• Awards and option exercises slip; obligation of funds waits for resumption of normal operations.
• Source selections, J&A approvals, and program reviews pause, extending cycle times.
• Security badges, facility access, and test range scheduling stall, pushing critical path dates.
• ATO and safety authorizations queue up; compliance deadlines get compressed post-shutdown.
• IPO and financing activity cool as SEC reviews slow and deal timing becomes uncertain.

Monetizing AI: pressure on vendors, scrutiny for agencies

AI companies are racing to convert pilots into paid seats and usage-based contracts. Expect heavier discounting, bundling with compliance features, and more aggressive claims of operational savings.

For procurement and oversight teams, the job is simple: demand clear deliverables, benchmark against baselines, and require proof of model provenance and content authenticity - especially as synthetic media (see the debate around the AI-generated actress Tilly Norwood) enters public workflows.

Government equity stakes signal a more active industrial strategy

The U.S. government recently took a 5% stake in Canadian miner Lithium Americas and another 5% in a Lithium Americas-GM joint venture to mine Nevada lithium. These positions come via no-cost warrants tied to a renegotiation of a $2.26 billion loan previously awarded by the Department of Energy's Loan Programs Office.

This follows similar moves involving Intel and MP Materials, pointing to a clearer pattern: public capital paired with ownership rights in strategic tech and materials. For program leaders, this means closer coordination between procurement, investment, and supply chain policy.

• Learn more about the DOE Loan Programs Office: energy.gov/lpo

Practical steps for government program offices

• Map contractor cash exposure: identify vendors with milestone-heavy payments and high payroll burn.
• Prioritize critical-path actions: pre-approve test windows, site access, and long-lead materials where permissible.
• Stage documentation: keep determinations, evaluations, and acceptance memos ready for immediate action post-resumption.
• Communicate contingencies: share likely restart dates, invoice priorities, and any provisional acceptance criteria.
• Protect competition: extend proposal deadlines fairly and document all schedule changes.

Practical steps for startup contractors

• Extend runway: prepare for slower obligations and milestone acceptances; line up bridge capital if needed.
• Sequence work: shift to tasks that don't require government access or approvals.
• Lock in data: preserve logs, test results, and deliverable evidence to speed acceptance later.
• Diversify revenue: balance federal work with commercial pilots to reduce single-point risk.

IPO season: expect a softer tape

• SEC review backlogs can delay listings, which hits late-stage startups counting on liquidity.
• Defense- and compliance-heavy companies face added questions on revenue timing and contract visibility.

Policy and procurement checklist

• Confirm which activities are essential and document status for vendors.
• Update risk registers with specific startup dependencies (permits, reviews, site access, data sharing).
• Standardize AI vendor requirements: data handling, audit trails, model update cadence, and red-teaming reports.
• Use existing vehicles and clauses where appropriate to maintain continuity once operations resume.

Helpful references

• Agency contingency plans and guidance: OMB - Agency Contingency Plans

Skill up your teams

If your office is evaluating practical AI use cases and controls, a focused curriculum can speed up safe adoption and vendor oversight.

• Curated AI learning by job role: Complete AI Training - Courses by Job

Bottom line: Deeper startup-government ties bring new capability and new exposure. Plan for pauses, document everything, and keep your funding and approval pathways ready to restart on day one.