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Federal LPs to the rescue

May 31, 2022
Illustration of a tree growing from a column

Illustration: Natalie Peeples/Axios

Early-stage venture firms and accelerator programs are getting a boost from some unlikely LPs — federal agencies' investment programs.

Why it matters: Federal funding could help steady the early-stage climate technology sector as private groups and angels get more skittish due to the volatile market.

Driving the news: Elemental Excelerator, an early-stage accelerator program for climate startups, announced Wednesday that the Office of Naval Research invested in its program to the tune of $32.5 million over five years.

  • It is ONR's third investment in the program, bringing its total backing to more than $90 million.

By the numbers: Though data on LP commitments from the U.S. government is sparse, data from European venture firms in 2019 suggested that nearly one-third of all venture capital investments in a year, on average, came from firms with government LPs.

State of play: General partner investors are looking to bolster their war chests to outlast a downturn, without the pressures that come from traditional LPs like institutional fund-of-funds that require a certain return threshold.

  • The appeal of federal LPs is the institutional money piece without that added return pressure.
  • Federal LPs are especially appealing to early-state GPs that rely heavily on angel investors and universities. While those entities are pulling back amid the market rout, Uncle Sam is stepping in.
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