From Grants to Equity: Government Innovation Agency Can Now Invest in Startups

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From Grants to Equity: Government Innovation Agency Can Now Invest in Startups

A significant change to the legal framework for government support of innovation has opened the door to direct public-sector investment in startups and innovation businesses. The National Innovation Agency (Public Organization), the government agency responsible for promoting and supporting innovation (the “NIA”), has been granted expanded statutory powers to hold shares, become a partner, co-invest with other persons or entities, and participate in certain venture capital structures. This marks an important shift from the NIA’s traditional role as a provider of grants and financial support toward a model under which it may participate as an investor and acquire an economic interest in the businesses it supports.

The change was introduced by the Royal Decree Establishing the National Innovation Agency (Public Organization) (No. 3) B.E. 2569 (2026). In addition to expanding the NIA’s objectives to cover the development of innovation beyond the research and development stage toward commercialization, the amendment expressly authorizes the NIA to hold shares, become a partner, or participate in joint investments with individuals or legal entities in businesses connected with its statutory objectives. It may also invest in trusts established to conduct venture capital activities. Importantly, however, the NIA’s principal purpose in holding shares or participating in investments must not be the pursuit of profit, and the exercise of these investment powers is subject to criteria prescribed by the Council of Ministers.

From Funding Agency to Investor:

The distinction between a grant and an investment is significant. Under the traditional grant model, government funding supports a project or business without the government ordinarily acquiring an ownership interest. Equity investment creates a different relationship: the government agency may become part of the company’s capital structure, with its interest potentially affected by valuation, dilution, subsequent financing rounds, corporate restructurings, and an eventual exit. The amendment therefore does more than create another source of funding. It establishes the legal basis for the NIA itself to participate in the investment relationship.

This development may be particularly relevant for startups that have progressed beyond the stage at which grants alone can support their growth but remain too early or risky to attract sufficient private capital. The financing gap can be particularly significant for deep-tech and other innovation-driven businesses, where substantial capital may be required for product development, testing, regulatory approvals, manufacturing scale-up, intellectual property protection, and market entry before sustainable revenues are generated. Government equity or co-investment can potentially help bridge this gap and, by sharing part of the investment risk, encourage private investors to participate.

The NIA has announced that it intends to implement its expanded investment role through an initiative referred to as “NIA Venture,” using government funding as catalytic capital to encourage additional private investment. The announced framework includes investment through PE Trust structures, strategic investment through holding companies and other fund structures, and Corporate Co-Funding alongside qualified private investors, particularly for Seed to Series A businesses. The NIA has also announced an initial allocation model of approximately 40% for PE Trust, 30% for Holding Company, and 30% for Corporate Co-Funding. These investment channels and allocations are implementation measures announced by the NIA and should be distinguished from the statutory powers established by the Royal Decree itself.

What This Means for Startups and Investors:

The new powers do not give the NIA unrestricted authority to invest public funds in any startup. Investments must relate to the NIA’s statutory objectives, its principal purpose in participating in an investment must not be profit-seeking, and the relevant investment activities are subject to criteria prescribed by the Council of Ministers. Accordingly, the Royal Decree establishes the legal authority to invest, while the practical availability of NIA investment will depend on the applicable eligibility requirements, investment limits, approval procedures, governance arrangements, and other implementing conditions.

For founders, having a government organization on the cap table may create opportunities but also raises issues that should be considered at the outset. The investment terms will need to address valuation and dilution, the class and rights of shares acquired by the NIA, governance and information rights, and the company’s ability to raise subsequent financing. This is particularly important because later-stage venture capital investors may require preferred shares, liquidation preferences, anti-dilution protection, board representation, reserved matters, and other investor protections. An early government investment should therefore be structured in a way that does not unnecessarily complicate future financing rounds.

Exit arrangements may also require particular attention. Unlike a conventional venture capital fund, a public organization operates within a statutory and administrative framework governing its investments and assets. The ability of the NIA to sell, transfer, or otherwise realize its investment may therefore need to be considered when drafting shareholders’ agreements and investment documents, particularly in anticipation of a trade sale, secondary transaction, restructuring, or public offering. Startups should also anticipate potentially greater due diligence, reporting, and compliance requirements where public funds are involved.

The amendment is equally relevant to venture capital funds, corporate venture capital investors, and other private investors. Co-investment with the NIA could allow public and private capital to be combined in transactions that might otherwise be difficult to finance. However, the parties will need to consider how valuation is determined, whether investors subscribe for the same class of shares, how governance rights are allocated, how follow-on rounds are handled, and how exit decisions are made. Any conditions attached to government investment should also be assessed carefully to ensure that they do not unnecessarily restrict the company’s future operations, restructuring, overseas expansion, intellectual property arrangements, or ability to raise additional capital.

A New Model for Innovation Financing:

The amendment reflects a broader shift in the government’s approach to innovation financing. Grants and other forms of financial assistance remain important, particularly during research and early product-development stages, but they may not provide sufficient capital to take successful innovation from research to commercial scale. Allowing the government innovation agency to use equity and venture investment structures provides an additional tool for addressing that financing gap and may enable public capital to attract rather than replace private investment.

At the same time, the framework deliberately distinguishes the NIA from an ordinary commercial venture capital investor. Its investment activities must advance its statutory objectives, and profit cannot be the principal purpose of its participation. The success of the new model will therefore depend on achieving a balance between protecting public funds and providing sufficient commercial flexibility for startups to raise capital, grow, restructure, and eventually provide an exit for their investors.

Key Takeaways:

  • The government innovation agency now has express statutory authority to hold shares, become a partner, co-invest with other parties, and participate in specified venture capital structures.
  • This represents a shift from a model centered on grants and financial assistance toward one that can also include equity and co-investment.
  • The investment authority is subject to important limitations: investments must relate to the agency’s statutory objectives, profit must not be its principal purpose, and the exercise of the relevant powers is subject to criteria prescribed by the Council of Ministers.
  • The announced NIA Venture initiative includes PE Trust, Holding Company, and Corporate Co-Funding channels, but these are implementation arrangements rather than investment structures prescribed by the Royal Decree itself.
  • Startups should consider the effect of government investment on their cap table, governance, future fundraising, reporting obligations, and exit arrangements.
  • Private investors considering co-investment should assess how public-sector investment conditions interact with conventional venture capital terms and future financing rounds.
  • The practical impact of the reform will ultimately depend on the implementing criteria and the investment structures adopted under the new statutory framework.

Author: Panisa Suwanmatajarn, Managing Partner.

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