Work & Economy
Funding today, entrepreneurship tomorrow. Or not.

Christina Pazzanese

Harvard Staff Writer

May 2, 2025 5 min read

Threat to research is a threat to U.S. innovation and growth, HBS analyst says

After Harvard rejected Trump administration demands related to hiring, governance, and the viewpoints of faculty and students, the government froze more than $2 billion in grants for research in science, medicine, and technology at the University. In all, the administration has targeted more than $9 billion in Harvard funding for review. The University responded with a lawsuit late last month.

The disruptive effects of cuts to research funding at Harvard and other institutions of higher ed have already been seen across the U.S. economy. Even if the total funding cuts end up being one-quarter of what has been threatened, gross domestic product will shrink by 3.8 percent (adjusted for inflation) over the coming years, a rate comparable to the 2008-2009 Great Recession, according to new research from economists at American University. Their analysis followed a March report by the nonprofit United for Medical Research that detailed $2.56 in U.S. economic activity for every dollar put into federal biomedical research in 2024.

Less immediately visible are the potential effects the funding freeze could have on a key engine of U.S. economic growth, the startups that help bring scientific innovation and breakthroughs to market.

In this edited conversation, Jeffrey J. Bussgang, senior lecturer in entrepreneurial management at Harvard Business School, discusses the role research universities play in the startup world and how disruptions to funding for science and medicine could reshape the future of entrepreneurship. Bussgang teaches the M.B.A. course “Launching Technology Ventures” and is co-founder and general partner of Flybridge Capital Partners, an early stage venture capital firm.

Jeffrey J. Bussgang.

Photo by Nabil Kapasi

How do research universities figure into the startup and venture capital ecosystem?

There are two critical pathways to bridge the university system and the startup ecosystem. One is through the faculty and the second is through the students.

On the faculty side, often we see commercialization pathways coming out of research in the labs. That can occur both in the computer science departments as well as in the biomedical arenas. And, of course, Harvard has many, many labs and many diverse vehicles, whether it’s the Wyss Institute or the Broad Institute, which operates in conjunction with MIT, as well as the electrical engineering, mechanical engineering, and computer science departments. Robotics, as well. Those tend to be very rich environments for startups.

Second, students benefit from an incredibly rich entrepreneurship curriculum. It’s the most popular field of study at Harvard Business School and the largest faculty unit at Harvard Business School. We consistently have dozens and dozens of startups that come out of our students’ work. As does SEAS — both graduate students and undergraduates.

Research universities seem to play an incubation role in that model. Why has it evolved that way — is it because of risk?

It’s less about risk and more about an intentional curriculum and launching pad for academics and for students. The school is engineered to help faculty through the technology licensing office and various entrepreneurs in residence and venture capitalists that surround the school. We have a very explicit objective of helping our students become company creators and entrepreneurs. So it’s not about risk; it’s more about opportunity and intentionality.

Historically, why is the federal funding of scientific research and development so critical to tech and biomedical startups and entrepreneurs? How does it foster U.S. economic growth?

The more heavily resourced the labs are, the more performative they can be in terms of generating novel ideas that can eventually become massively successful commercial companies. I would also say, the more of a magnet the school is for the best and the brightest internationally, the more likely it is to attract brilliant, aspiring entrepreneurs. And if their work is inspired not by necessarily the labs, but just because of the nature of the work and the quality of the educational system and the quality of the faculty, then that’s also an important magnetic force.

What impact has the federal funding freeze on NIH research and the halting of previously approved grant payments had so far?

We’re just seeing the beginning. There are hiring freezes. There have been initiatives canceled and there have been grants canceled. The pipeline for company creation takes time. The companies that are being created now and launching in 2025 were incubated over the last three years, so we won’t see a short-term effect. It’s going to be more of a medium- and long-term effect in the coming years. We’ll just see fewer promising startups come out of the system.

How long until we start to see the full effects of this situation, and could the damage be reversed?

It could be reversed, but I think it’s going to be a one-to-three-year ripple effect because of how long it takes for these ideas in the lab to come out and to become commercially viable companies.