Startup News Digest 06/05/26
The Big Story: Sweeping review of federal programs threatens innovation ecosystem
The Trump administration has kicked off a sweeping review of federal programs that could ultimately make it harder for startups and underserved communities to access programs that expand broadband access, support research, and help early-stage companies. Last week, the Office of Management and Budget (OMB) proposed new changes to federal programs that would apply across several agencies, including the Federal Communications Commission (FCC), the National Science Foundation, the Small Business Administration and others. The proposal could reshape how federal grants and programs are reviewed, awarded, and potentially terminated, creating new uncertainty for startups and users to participate in the innovation economy.
These proposed changes could significantly affect federal broadband and connectivity programs that help determine who can get online and participate in the digital economy. Although the National Telecommunications and Information Administration's Broadband Equity, Access, and Deployment (BEAD) Program is exempt from the proposal’s new discretionary termination authority, BEAD recipients could still be subject to restrictions on diversity, equity, and inclusion and disparate-impact policies, expanded risk reviews, and additional oversight of future awards. The proposal could be interpreted to apply to FCC-administered Universal Service Fund programs, including Lifeline and E-Rate, but because these programs operate differently from traditional federal grants, the resulting uncertainty could create legal, operational, and compliance challenges for providers, schools, libraries, and other stakeholders working to expand broadband access. For startups, reliable, affordable broadband is what allows founders to build outside major tech hubs, reach customers, hire workers, access digital tools, and participate in the innovation economy from anywhere.
The proposal also raises concerns for startups that rely on federal research and innovation funding, including those administered by the National Science Foundation and National Institute of Health. Federal grants are a vital source of non-dilutive capital for startups, but the proposed rule could make that funding more uncertain by giving political appointees the final stamp of approval on whether awards align with presidential priorities. For startups pursuing the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, or other federal research funding, adding new political review and broader termination authority could move the goalposts in an already difficult process, where long applications and limited feedback after denials can be out of step with a startup timeline. Policymakers should avoid changes that make federal funding harder for startups to navigate or weaken programs that help early-stage companies commercialize research, bring new technologies to market, and compete in areas critical to U.S. innovation.
Because the proposal applies across federal grantmaking agencies, its impact could extend well beyond broadband or research funding. OMB says the changes are intended to improve transparency, accountability, and oversight, but the proposal could also give political appointees more influence over grant decisions and add another layer of review to programs that many startups already find difficult, time-consuming, and confusing. Policymakers should ensure any effort to review federal funding does not make already difficult programs harder for startups to access, or weaken the government’s ability to support the full range of founders, workers, researchers, and communities that power U.S. innovation.
Policy Roundup:
Trump signs AI cybersecurity order. President Donald Trump signed a scaled-back executive order this week aimed at addressing cybersecurity risks posed by advanced AI models, after delaying a broader version last month. The final order asks some AI companies to voluntarily submit new models for government review 30 days before release, directs the Treasury Department to coordinate with AI companies and critical infrastructure providers on a cybersecurity clearinghouse, and creates a classified benchmarking process to assess national security risks. Also this week, OpenAI released a policy paper calling for an alternative approach that would mandate model evaluations by civilian agencies. Startups often build with frontier models, and policymakers should consider the downstream impacts of rules they write for foundation models.
Federal privacy bill gets a hearing. The House Energy and Commerce subcommittee on commerce, manufacturing, and trade held a hearing this week on the Securing and Establishing Consumer Uniform Rights and Enforcement over Data Act, otherwise known as the SECURE DATA Act, which would replace the patchwork of state privacy laws with a single national standard. This pro-innovation framework would create consistent obligations for companies, including startups, and protections for consumers. While the bill faced pushback from lawmakers during the hearing over the sticking points that have derailed previous attempts at a federal privacy framework—including preemption and whether the law is enforced through private lawsuits—the hearing also included conversation about the core protections in the bill, many of which are already enshrined in state laws and supported by policymakers on both sides of the aisle.
Lawmakers release bipartisan AI framework. Reps. Jay Obernolte (R-Calif.) and Lori Trahan (D-Mass.) released a bipartisan draft of the Great American Artificial Intelligence Act this week, outlining a national AI framework focused on frontier AI safety, transparency, workforce impacts, AI education, technical standards, cybersecurity coordination, and international leadership. The proposal would establish one national standard for certain AI requirements, including risk management plans for large frontier developers, safety incident reporting, and independent audits. It would also preempt the emerging patchwork of certain state AI laws for three years. As states continue advancing their own AI laws and proposals, a clear federal framework could help avoid a fragmented patchwork while giving startups, developers, researchers, and businesses more certainty.
Engine warns against California AI training data bill. Engine submitted a letter on Monday opposing a California AI training data transparency over concerns that it would create significant compliance burdens for startups. The bill would require developers to identify, track, and record registered copyright holders of works used to train generative AI models. The practical infeasibility of tracking potentially billions of data points, coupled with the threat of financial penalties, would hinder startups’ ability to compete and innovate in California.
CREATOR Act raises AI compliance concerns. A bipartisan group of lawmakers introduced the Creative Rights for Artists' Technique and Originality Are Reserved (CREATOR) Act on Tuesday, which would create a federal intellectual property protection for a visual artist’s distinctive style. The bill could impose liability on developers and platforms that enable the unauthorized commercial use of AI to imitate an artist’s style. For startups that develop AI tools or host user content, the legislation could increase legal and compliance obligations around AI-generated content.
On the Horizon:
TUE 06/09: The House Ways and Means Committee will convene a hearing to discuss legislation relating to the taxation of digital assets at 2:00 PM ET.
THU 06/11: The Senate Judiciary Committee will convene an executive business meeting to consider several bills, including the NO FAKES Act at 10:15 AM ET.
Startup Roundup:
#StartupsEverywhere: Marquette, Michigan. Kall Morris Inc (KMI) provides a "tow truck" capability for space, designed to grab and secure unprepared, uncontrolled satellites or space debris. We sat down with CEO and co-founder Troy M. Morris to talk about KMI’s journey from Michigan to the International Space Station, the critical role of the Small Business Innovation Research and similar government grant programs, and the policy hurdles facing the next generation of aerospace innovators.