By Veena Rao, Director of Business Development (North America), XeleratedFifty
The United States has built one of the most effective innovation systems in modern history. For decades, it has powered economic growth, set global technology standards, driven breakthroughs in medicine and healthcare, and supported national security priorities. That track record is impressive, but it is also a product of specific, deliberate choices. At a moment of increasing global competition and industrial fragmentation, the resilience of this system is no longer guaranteed. It did not happen by accident, and it will not sustain itself without continued stewardship.
There are two ways in which this system is frequently misunderstood. The first is the belief that innovation is automatic; that if a technology is good enough, it will naturally find its way into the sectors that need it. The second is the assumption that the system requires no active stewardship, that it is somehow self-sustaining. Together, these myths create the illusion that the American innovation engine runs on autopilot. It does not.
In reality, it depends on a carefully constructed ecosystem where players with very different incentives: research scientists, private investors, government agencies, large industrial companies, interact through a shared set of rules and institutions. When those rules come under pressure, the whole system feels it. Recently, two of those tools have come under serious pressure.
American innovation benefits from significant advantages of scale. The U.S. accounts for nearly 30% of total global R&D spending and attracts approximately 50% of global venture capital funding, concentrations of resource and talent whose impact extends well beyond American borders. But inputs are not outcomes. What converts research spending into real-world products and companies is the institutional architecture underneath, or the “rules of the game”.
The single most important piece of that architecture is a 45-year-old law that many people outside the innovation world have never encountered.
Before 1980, there was a fundamental flaw at the heart of American research. The federal government was funding enormous amounts of scientific discovery at universities across the country, but it retained ownership of the resulting patents. And because the government lacked the resources and commercial expertise to do anything with them, most of those patents simply sat in archives, unused. Public money was generating breakthroughs that never reached the public.
The Bayh-Dole Act, passed in 1980 with strong bipartisan support, fundamentally changed this dynamic. Named after Senator Birch Bayh, a Democrat from Indiana, and Senator Bob Dole, a Republican from Kansas, the Act gave universities and research institutions the right to own and license the patents arising from federally funded research. It was one of the rare pieces of legislation that both sides of the aisle agreed on, because the logic was straightforward: if you want discoveries to become products, give the people closest to those discoveries a stake in seeing them commercialized.
The results were transformational. As Joe Allen, Executive Director of the Bayh-Dole Coalition and a staffer who helped shepherd the Act through Congress, has said, it “started the greatest renaissance of technology in human history.” That is not hyperbole. The biotech industry as we know it was largely built on patents licensed under Bayh-Dole. Hundreds of drugs and vaccines, including mRNA technology, trace their origins to university research that this Act allowed to move from lab bench to market. Google’s search engine, now foundational infrastructure for the global economy, would not have been possible without the patent rights Bayh-Dole guaranteed to its academic inventors.
The Act did three things that still matter enormously today:
Critically, small businesses are the primary channel through which this bridge is crossed. Around 70% of inventions from universities and federal research labs are licensed by small businesses and startups. The Bayh-Dole Act was never just a policy for big corporations, it was, and remains, the engine of the American startup ecosystem.
Despite this track record, the Bayh-Dole Act is currently facing a serious challenge. A recent proposal by Commerce Secretary Howard Lutnick would tax the royalties that universities earn from patents by as much as 50%. On the surface, this might sound like a technical tax matter. In practice, it would fundamentally undermine the incentive structure that Bayh-Dole created, reducing universities’ ability to reinvest in commercialization and limiting the number of startups able to access foundational intellectual property.
If universities face a punishing tax on the returns from commercializing research, they will invest less in technology transfer. Startups and small businesses, who depend on affordable, accessible licensing from those universities, will find fewer doors open to them. Private investors, who rely on the predictability of IP rights to justify backing deep-tech ventures, will think twice. The pipeline from discovery to deployment, which Bayh-Dole spent four decades building, would begin to run dry.
We do not need to speculate about what that would mean. We can look at what the system looked like before 1980. The question that policymakers need to ask is not “how do we tax this?” but “how do we protect the engine that made this possible in the first place?”
Bayh-Dole establishes the legal framework. But a framework alone does not fund companies. That is where the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs come in. These are competitive federal grants awarded to small businesses and startups to fund early-stage R&D. They are how a scientist with a breakthrough idea, but no commercial backing gets the resources to prove their concept, run their trials, and attract follow-on investors. Together, SBIR and STTR award around $4 billion in grants each year, which is why they are sometimes called “America’s Seed Fund.”
Bayh-Dole and SBIR/STTR work in tandem. The Act gives innovators the IP rights to make commercialization worth pursuing; the grants give them the capital to get there. Remove either leg and the stool falls over. On 30 September 2025, funding for the SBIR and STTR programs lapsed. Due to a breakdown of negotiations in the Senate, the programs were not reauthorized for over five months. In March of 2026, reauthorization legislation passed both the US Senate and the US House of Representatives and was signed into law on April 13, 2026. The reauthorization resolves the immediate funding gap, but does not eliminate the structural fragility the lapse exposed – nor the risk of future disruption.
The consequences are already being felt. Biotech firms that win SBIR/STTR awards have been responsible for 12% of new drugs and 16% of “priority review” drugs approved between 1996 and 2020. According to the National Venture Capital Association, many companies in the pipeline (including in defense technology, clean energy, and advanced manufacturing) are “starting to feel the burn.” The grants also have wide geographic reach, funding innovation clusters in rural and non-coastal states that rarely benefit from coastal venture capital. Their absence is not just a problem for startups. It is a problem for the regional economies and the national supply chains that depend on them.
Reauthorizing SBIR and STTR is not a partisan ask. These programs have enjoyed broad bipartisan support for decades. They represent exactly the kind of government investment that returns multiples, in jobs, in tax revenue, in sovereign capability - and that no private market would replicate on its own. Regardless of timing, the disruption highlights how dependent the U.S. innovation system is on consistent policy support, and how quickly gaps in that support can affect commercialization pathways.
Even with the right legal framework and the right funding mechanisms in place, there is a third challenge that is less visible but equally real: getting new technologies adopted in the sectors that need them most.
In industries designed for stability and safety: defense, energy, advanced manufacturing, healthcare - innovation does not flow automatically. These sectors were built to resist rapid, unplanned change, because the consequences of failure can be severe. When a new technology approaches a large engineering firm or a government procurement office, it often triggers what we call a “corporate immune system”, a set of institutional responses designed to detect and neutralize risk.
In our work at XeleratedFifty, we see this play out in consistent patterns:
Innovation is hard not because people resist it, but because the systems around them were never designed to absorb it while they are running live. Bridging this gap, between technical possibility and operational reality, is where a significant amount of work still needs to happen.
The stakes here extend well beyond economic growth. We are in a period of significant global reconfiguration. The assumptions that underpinned the post-Cold War era: frictionless trade, stable global supply chains, technology developed anywhere and deployed everywhere, are being replaced by a more fragmented and contested reality.
In this environment, the ability to build, maintain, and modernize within your own sphere of influence is not merely a competitive advantage. It is a prerequisite for sovereignty. A nation that cannot translate its own research into deployable capability is not truly independent, it is dependent on the willingness of others.
This is why protecting the foundations of the American innovation system matters beyond any single sector or technology. It is why the Bayh-Dole Act, and the SBIR/STTR programs it works alongside, deserve to be treated as strategic infrastructure, not as line items to be taxed or allowed to quietly lapse.
The American innovation engine is a remarkable system, but it is a system, not a force of nature. It was built through deliberate policy choices, sustained by consistent investment, and made real by thousands of researchers, entrepreneurs, and companies who had the right incentives and the right tools to act.
Recently, two of those tools have come under serious pressure: the Bayh-Dole Act faces proposals that would hollow out its core incentive structure, and the SBIR/STTR programs that fund the next generation of startups experienced a lapse in authorization for several months before reauthorization was signed into law. However, the disruption highlights how dependent the innovation system is on consistent policy support, and how quickly gaps in that support can affect commercialization pathways.
At XeleratedFifty, we work every day at the intersection of capital, capability, government, and industry. We help innovation find its footing in complex and critical sectors, acting as a catalyst, bridging gaps, and joining dots that the market alone will not connect. We have seen firsthand that when the right conditions are in place, breakthroughs scale. When they are not, they stall. Our mission is to ensure those conditions exist, and to speak truth to power when they are at risk.
Veena Rao is the Director of Business Development, North America at XeleratedFifty, where she helps governments and corporates scale breakthrough technologies in sectors critical to national resilience. In her previous role at Boeing, she worked across Commercial Airplanes, Defense, Space & Security, and Global Services before going on to lead Portfolio Management at Aerospace Xelerated. Today, as part of the XeleratedFifty team, Veena focuses on aligning capital and capability in the aerospace, maritime, energy, and defense sectors around the world.
