When Your Primary Customer Folds Overnight

Government shutdowns usually land in the headlines as political theater: national parks closed, passport offices jammed, TSA lines stretching into eternity. Annoying, sure, but not existential for most people. For startups, though, this October’s shutdown is different. When your primary customer is Uncle Sam and he suddenly closes his checkbook, that isn’t politics — it’s survival.

The U.S. government is the client for thousands of young companies, especially those in defense tech, climate tech, biotech and AI. A Pentagon pilot program, an NIH grant, an EPA loan guarantee — these aren’t just contracts. They’re lifelines that validate your product, unlock venture funding and keep the team paid.

But contracts don’t mean much without appropriations. If the agency you’re working with doesn’t have authority to spend, the invoices sit in limbo. The most dangerous thing about a shutdown is that startups can do everything right — sign the deal, hit the milestones, file the paperwork — and still get left holding the bag.

That plays out in the one metric founders obsess over: runway. Most early-stage startups don’t have a year of cash just sitting there. If a big federal payment is frozen, it’s not just an accounting hiccup. It can cut months off survival time. Payroll suddenly looks dicey, milestones start slipping and investors get jumpy.

One defense tech founder told me, “We can survive a late-paying Fortune 500 client. We can’t survive a silent Pentagon.”

That’s the difference: Corporate clients might be slow, but they don’t disappear overnight because Congress got stuck in neutral.

Government as gatekeeper

And this isn’t just about cash flow. The government is also a gatekeeper. Need an FDA green light for your trial? Need the SBA to guarantee your loan? Need the SEC to review your filing? If staff are furloughed, those processes stall. That delay ripples.

A biotech waiting on an FDA sign-off can lose an entire quarter of momentum. A climate startup waiting on a loan guarantee can watch investors walk. A fintech can’t move forward with an unanswered SEC question. In the startup world, where speed is survival, three months of dead air can be terminal.

If this all sounds familiar, that’s because it is. Back in 2018–2019, when the shutdown dragged on for 35 days, NASA suspended small aerospace projects, NIH froze grants and the SBA stopped processing loans. Startups that leaned heavily on federal programs got walloped. A few pulled through by grabbing bridge financing or deferring expenses, but a lot of promising young companies simply ran out of oxygen. The ones that survived weren’t necessarily the best products — they were the ones whose founders had already gamed out what a shutdown meant for their business.

That’s the reality investors are grilling founders on right now. If you’re pitching in October 2025, you’re going to get one question before anyone cares about your TAM or your roadmap: “How exposed are you to the shutdown?”

Hand-waving won’t cut it. VCs want to see the actual scenarios: What happens to your cash if this drags on one month, three months, six months? How much revenue is locked up in frozen contracts? Do you have any commercial customers or international deals to balance it out?

A lot of valuations in defense and climate tech are going to get haircuts not because the ideas aren’t good, but because the revenue dependency is too concentrated in Washington, D.C.

What startup founders can do

So what should founders do?

First, over-communicate. Investors, employees and partners would much rather hear you acknowledge the risk than pretend everything’s fine.

Second, conserve cash. Delay nonessential spending, stretch out hiring, get creative on expenses.

Third, read your contracts carefully. Too many startups assume a signed agreement means money in the bank. It doesn’t if appropriations dry up. Know whether you can legally pause performance or if you’re on the hook to keep delivering with no payments coming in.

And fourth, diversify where you can, even if it feels inefficient. The startups with at least some commercial or international revenue are the ones with a cushion when Washington freezes.

Shutdowns also put the spotlight on something founders don’t like to think about: political risk. It’s not just noise on CNBC. It’s as real as supply chain delays or product-market fit. 

If shutdowns become a near-annual bargaining chip, the whole pitch about the government being a “stable anchor customer” starts to crumble. For Lockheed Martin, a shutdown is an inconvenience. For a 12-person startup in Arlington, it’s life or death. And if startups start backing away from government deals because they can’t stomach the uncertainty, that’s bad for everyone — especially the government, which needs their innovation in defense, AI and climate more than ever.

This is where resilience comes in. A shutdown isn’t a founder’s fault, but surviving one is part of the job. The smart teams are treating this as both a financial and legal challenge. They’re cutting burn, talking openly with investors, stress-testing scenarios, and yes, even calling lawyers about whether they can file declaratory judgments or push agencies for clarity. None of that is fun, but it’s better than waiting around and hoping Congress figures it out.

The bottom line is simple: political risk is business risk. When your primary customer folds overnight, it doesn’t matter how brilliant your tech is or how slick your deck looks. What matters is whether you’ve built a company resilient enough to survive the silence until Washington switches back on.

For now, the shutdown is only days old. Courts are still open, agencies are quiet, and founders are refreshing their bank dashboards like always. But the lesson is already obvious. Startups can’t afford to treat shutdowns as background noise anymore. They’re a line item in your financial model, a question in every term sheet, and a reality you have to plan around. If you don’t, the government might not be the only thing shutting down this fall.

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 Aron Solomon is the chief strategy officer for Amplify. He holds a law degree and has taught entrepreneurship at McGill University and the University of Pennsylvania, and was elected to Fastcase 50, recognizing the top 50 legal innovators in the world. His writing has been featured in Newsweek, The Hill, Fast Company, Fortune, Forbes, CBS News, CNBC, USA Today and many other publications. He was nominated for a Pulitzer Prize for his op-ed in The Independent exposing the NFL’s “race-norming” policies.

Illustration: Dom Guzman