Government Startup Grants and IPOs: Causal Evidence from Fiscal Year Timing

Government startup grants may provide both capital and credibility to early-stage ventures, yet their causal effects on long-run success are difficult to isolate due to selection bias. We exploit quasi-random variation in approval likelihood stemming from fiscal-year budgeting: startups applying early in the year, especially in January, face higher approval rates due to fresh funding availability. Using this timing as an instrument in a two-stage least squares framework, we find that grant receipt significantly increases the probability of a successful exit, particularly via IPO. Our findings suggest that the non-pecuniary signaling value of grants – through validation and visibility – can outweigh their financial support.