Fusion technology startups are offering equity to the government in exchange for rewards. Is this a worthwhile trade-off?

The relationship between the U.S. government and the fusion energy industry has historically been inconsistent—at times positive, at other times strained. As of last week, however, that relationship has been fully restored.

Under the CHIPS and Science Act, passed in 2022, Helion and Commonwealth Fusion Systems (CFS) have been awarded a combined $260 million in grants from the U.S. Department of Commerce. While the Act was primarily designed to fund domestic semiconductor research and development, the grants are intended to support the creation of advanced semiconductors for powering and controlling fusion reactors. Of the total, Helion received $175 million, and CFS received $85 million.

Yet, as is the case with many recent government grants, there are strings attached. In exchange for the funding, both Helion and CFS have agreed to provide the government with non-voting equity stakes. Through these grants, the fusion industry has finally captured the government’s attention—though perhaps not in the way they had originally envisioned.

In the past, government support for startups typically took the form of non-dilutive capital—funding that provided companies with additional resources without reducing the ownership stakes of existing investors. Investors generally welcomed such arrangements, as they allowed the startups they backed to secure more capital without requiring further investment from the investors themselves. While the government’s allocation of funds was intended to foster American innovation, it also meant that, in most cases, the government did not stand to benefit directly from the success of the companies it helped to “pick as winners.”

The Trump administration has been working to change this dynamic.

Small Rewards, Big Implications?
For both companies, the total value of these awards pales in comparison to the capital they have each raised. CFS has secured approximately $4 billion, while Helion follows closely with $3.2 billion in committed capital. More importantly, perhaps, these awards signal that the U.S. government is re-engaging with the field of fusion energy—a sector that had seen years of budget cuts and dwindling investment.

Nuclear fusion—the process of generating energy by fusing atoms, much like the sun—is an immensely costly endeavor, requiring specialized materials, sophisticated computer modeling, and complex manufacturing processes. Progress over the past decade has drawn in a host of private investors, who have poured more than $14 billion into the sector, betting that one or more of these companies will ultimately succeed in building a fusion power plant connected to the electrical grid.

However, according to the Fusion Industry Association—a trade group for the sector—this remains insufficient to stay ahead of other nations in the global race. Last year, the association called on the federal government to provide a one-time $10 billion infusion into the industry, with $5.4 billion earmarked to support fusion startups.

“Other countries are aggressively advancing their commercial fusion industries, pouring billions of dollars into state-backed projects to gain an edge in the fusion energy race,” a spokesperson for Commonwealth Fusion Systems (CFS)—a member of the Fusion Industry Association—told TechCrunch. “The requested $10 billion is intended to bolster the research infrastructure outlined in the Department of Energy’s fusion roadmap and to help the domestic U.S. fusion industry compete with China.”

Until recently, federal investment in fusion technology has been quite limited. The Biden administration launched the “Milestone-Based Fusion Development Program”—a Department of Energy initiative designed to reward companies for achieving specific technical milestones—but the funding has been minimal, with less than $50 million distributed over the first few years. While recent awards have seen a slight increase, they remain far below the levels advocated for by the Fusion Industry Association.

Now, with $260 million in funding secured, it appears that lobbying efforts may be starting to pay off—though the capital did not come from the Department of Commerce as originally anticipated. Instead, it originated from a research budget sought by the Fusion Industry Association, and it comes with conditions regarding equity stakes.

According to a source familiar with the matter who spoke to TechCrunch, the Fusion Industry Association’s lobbying efforts did not include discussions about exchanging equity for government awards. Nevertheless, Helion stated that, based on its Series G funding round—which valued the company at $15.5 billion—the government will receive $175 million worth of non-voting equity, representing an approximately 1% stake. The government’s stake in CFS will also be non-voting and based on the company’s latest valuation; however, as CFS has not publicly disclosed this figure, the exact size of the government’s stake in the company remains unclear.

In a statement to TechCrunch, Helion co-founder and CEO David Kirtley noted: “This type of structure has become increasingly common in large-scale U.S. government investment projects in recent years. It aligns the interests of Helion and the American taxpayers with our commercial success.”

A spokesperson for CFS echoed this sentiment: “This U.S. equity investment allows American taxpayers to share in the upside of our commercial success, in exchange for their investment in critical R&D efforts that support the development of a commercial fusion industry in the United States.”

Not the Only Ones
Helion and CFS are the latest in a series of companies to receive government funding in exchange for equity stakes.

Last year, critical minerals supplier MP Materials granted the government a 15% equity stake in exchange for a $400 million investment, $150 million in loans, an offtake agreement (a guarantee to purchase its products), and a profit-sharing arrangement. Another critical minerals firm, USA Rare Earth, surrendered a 10% stake in exchange for $277 million in awards and $1.3 billion in loans. Intel, meanwhile, set a more awkward precedent: the Biden administration had previously earmarked $8.9 billion in grants for the company—funds that have yet to be disbursed—which were subsequently restructured into an approximately 10% equity stake in Intel. Examples like these are numerous.

Beyond the United States, Proxima Fusion—a fusion startup headquartered in Germany—confirmed to TechCrunch that both the German government and the European Union are among its shareholders. The company has also received equity investments from German government-backed funds, including SPRIND (the Federal Agency for Disruptive Innovations in Germany) and the DCTF (DeepTech & Climate Fonds).

Not all fusion startups that collaborate with the government have given up equity. Thea Energy and Avalanche Energy have both received federal grants and contracts, while Pacific Fusion has established partnerships with federal laboratories. Both companies confirmed to TechCrunch that they have not sold any equity to the government. Inertia Enterprises also told TechCrunch that it has not sold any equity to the government; the startup has formed a public-private partnership with Lawrence Livermore National Laboratory, aimed at commercializing fusion technology developed at the lab.

To date, only a handful of startups have agreed to exchange equity for government funding. Nevertheless, this could set a precedent for the entire industry.

Direct government investment in fusion startups signals that fusion energy is a strategic priority for the United States. While such support may boost investor confidence, it could also have a chilling effect on private investment. Venture capitalists must now weigh whether the equity dilution resulting from government ownership is worth it. In the event of a “pay-to-play” financing round or a company dissolution, how would the capitalization table be handled? Who would receive priority?

The fusion industry may have raised billions of dollars in recent years, but it will require billions more to deliver on its promises. In the past, federal grants were relatively easy to secure for scaling operations. Today, the landscape has become more complex. Are these new types of agreements worth it?