Suspension of federal funding to universities— and to the agencies that sustain their research— risks cutting off a significant source of startup formation.
For industries like biotech, quantum computing, and life sciences, university labs are a major pathway for new founders to create startup ideas and build products using non-dilutive funding.
Just this week, Princeton University said that US government agencies had frozen dozens of its research grants, while the Trump administration said it’s reviewing $9 billion in federal grants and contracts to Harvard.
“The question is: is that runway still as solid as it’s been?” said Gus Warren, managing partner at Red Bear Ventures, a VC firm that invests in startups born from the Cornell University ecosystem.
In 2023, federal sources accounted for $59 billion out of the total $108 billion that U.S. academic institutions spent on R&D.
The Department of Health and Human Services, the Department of Defense and the National Science Foundation accounted for the vast majority of it, dedicating tens of billions of dollars to biotech, medicine and quantum computing research. Cuts to those agencies could significantly diminish VCs’ pipelines of research-born startups.
“Most universities do not have the resources—by far—to weather the storm,” said Bryn Rees, associate vice-chancellor of innovation and partnerships at University of Colorado-Boulder.
Funding on the line
Universities are facing an uncertain future for funding on multiple fronts.
The Trump administration is investigating nearly 100 colleges, including Johns Hopkins, MIT, Columbia and Stanford, over issues involving DEI or antisemitism policies.
In addition, the administration has also been cutting funding to federal agencies responsible for large chunks of R&D. This week, the Department of Health and Human Services, the single biggest source of federal R&D grants, began an effort to cut 10,000 full-time jobs.
The NIH, which falls under the HHS, awarded over $36 billion in research grants in 2024, including for clinical trials in the life sciences. “There’s a real fear that if those clinical trials stop and [researchers] are not able to say to their patients, ‘we’re working on that’, then what does that mean?” said Christy Wyskiel, head of Johns Hopkins Technology Ventures.
NIH-funded research at Johns Hopkins has spawned Pylarify, a new diagnostics imaging agent for prostate cancer, for example.
The administration has also said it has plans to significantly reduce the budget of the National Science Foundation, the federal agency with the third-largest annual contribution to R&D at universities.
If major sources of federal funding are pulled out, some universities will be hit harder than others.
While many leading research institutions have large endowments, those are typically earmarked for specific uses such as scholarships, and also could not see substantial withdrawals without sacrificing future investment returns.
Some universities rely more on federal funding than others. At MIT, a highly research-intensive institution, over 50% of revenue in 2022-2023 came from federal sources.
Lab-grown unicorns
MIT is also one of the leading birthplaces of lab-grown unicorns: Moderna, Commonwealth Fusion Systems and Ayar Labs all began in MIT labs.
“It’s a huge source of American competitiveness,” said Pete Sonsini, managing partner at Laude Ventures, a new firm with close ties to UC Berkeley. “We’ve seen how massive shareholder value is created from these projects out of research,” he added.
Sonsini was an early investor in Databricks, which UC Berkeley researchers founded.
Work by Venture Partners at CU Boulder, which manages the tech transfer process that licenses out innovations to startups, generated an economic impact of $8 billion and 39,000 new jobs between 2018 and 2022, according to a study from CU’s business school. “Times that by 100, and that is a devastating blow for economic impact and the venture investing community across the country,” said Rees.
Increasingly, universities have developed networks of support for researchers to commercialize and capitalize on their scientific work, and new funds have cropped up on campuses to provide early-stage funding.
One such fund, the MIT-backed Engine Ventures, raised nearly $400 million for its third fund last year and has invested in over 50 companies.
And as the future of federal funding remains murky, universities like Johns Hopkins are trying to connect researchers to VCs sooner and sooner, hoping to keep the research-to-venture pipeline intact.
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