Blog Post

When Not to Jump on the Stimulus Bandwagon

The economic stimulus package opens up a world of opportunities to clean technology startups. With billions of dollars in grants, direct loans, loan guarantees and a host of incentives for smart grid and efficiency technology, renewable energy, and electric-car battery research, development and manufacturing, it might seem like there’s something for everyone. But despite its massive scope and staggering $787 billion size, the stimulus may be a source of financing best left untapped by some startups.

Most companies would be well advised to take federal aid if they qualify, according to Michael Omotoso, a J.D. Power and Associates analyst specializing in alternative-fuel vehicles and powertrains. “But there are some companies better off going their own way,” he said in an email, offering examples such as companies that have solid contracts in hand or hefty state-level tax breaks. “No strings attached, no need to answer to Big Brother (i.e. the government).”

According to Erik Straser, who leads cleantech investment for the Silicon Valley venture capital firm Mohr Davidow Ventures, loans and guarantees allotted for clean technology in the stimulus package are best suited to companies with one thing in common: strong balance sheets. While the legislation is friendlier to startups than many earlier federal programs, Straser said, young companies that are struggling financially will face an uphill battle getting through the evaluation process. That’s because stimulus is meant to accelerate growth at healthy ongoing ventures, Straser said, not bail out weaker companies on the brink of flaming out.

“It’s not, ‘I can’t raise any more money, give me a loan guarantee.'” he said. Rather, loans written into the stimulus can bridge the funding gap that exists for startups “between where venture capital can take you, and where project financing takes off,” Straser explained —  building large-scale demonstration plants, for example.

And if you need capital in a hurry? Unless you’re an investment bank, forget about the feds. “You’re dealing with the federal government,” Straser said. “There’s no easy process there.” It’s not uncommon for federal loans to be awarded months before the funds are actually appropriated. A loan guarantee may be granted quickly, but then the loan itself must be sought elsewhere (as the Department of Energy emphasized in its recent announcement about agency reforms). “We are in a turbulent financial time,” Straser wrote in an email, “so timeframes can extend.” As a result, he says startups seeking savior financing should turn to private equity markets.

Of course, there’s more to the stimulus than loans and guarantees. There are also block grants for states and local governments, which will also take some time to filter down from the Department of Energy. According to executives at the consulting firm National Strategies in Washington, D.C., having a narrow focus is key for these programs. “Align your projects by issue area and geography,” advises National Strategies President Tim Onoff. “Then identify specific opportunities to go after.”

In other words, take it one region at a time, and stick with what you know — rather than trying to become all things to all stimulus administrators. Kevin Matthews, vice president of National Strategies’ energy and environment practice, explained that this will allow companies to grease the wheels with local regulators, potential partners, residents and other groups, helping to speed the evaluation process when check cutting begins.  “Make contacts,” Matthews said, “so you’ll be ready when the money comes in the door.”

This article also appeared on