Private equity never needed non-dilutive capital more than it does now. According to PwC, fundraising has slowed sharply as capital concentrates in a small number of large, established funds, leaving mid-size and new managers to compete for a shrinking share of commitments.
As a result, pressure doesn’t disappear even after the deal closes. It remains with the portfolio company during the holding period and determines how much equity a fund needs to deploy and how quickly it can return capital to investors.
The firms outperforming this market are not raising more capital. They are using less of it. They are layering federal grants, state tax abatements, workforce development funding, and local economic incentives into a single, coordinated capital stack that reduces the private equity required per deal, and in many cases, increases the value of the business at exit.
Government funding does not come from one source. It’s a well-built strategy divided into four layers.
The federal government spends a large amount of its yearly budget on grants that help commercialize businesses and technologies, led by agencies including the Departments of War, Health and Human Services, and Energy.
In addition to grants, the Joint Committee on Taxation estimates that businesses receive close to $624 billion each year in special tax credits provided by the federal government, much of which goes unclaimed by businesses due to lack of awareness or the ability to claim them.
States actively compete for investment through payroll tax incentives, sales tax exemptions on machinery purchases, and property tax abatements tied to job creation. States such as South Carolina and Georgia offer some of the most competitive incentive environments in the U.S., with each allocating millions of dollars annually to deal-closing incentive funds.
The federal government spends over $28 billion a year on workforce training, while states layer in their own subsidized recruiting and training pipelines. For portfolio companies scaling headcount after acquisition, this funding can materially offset the cost of hiring, retraining, and retention.
Municipalities offer site preparation grants, fast-tracked permitting, donated land, and infrastructure support to attract employers. According to the Reshoring Initiative, manufacturing incentive packages have averaged roughly $75,000 per job, and a competitive project creating 100 jobs can realistically capture $5 million to $8.5 million in combined state and local incentives.
None of these layers are mutually exclusive. The firms capturing the most value are the ones applying for all four, rather than settling for whichever incentive their real estate broker happens to know about.
Amkor’s $7 billion semiconductor packaging facility in Peoria layered $407 million in direct CHIPS Act funding from the Department of Commerce on top of a fast-tracked local land agreement, combining federal and municipal support into a single deal structure.
JetZero’s $4.7 billion aircraft factory in Greensboro secured more than $1.45 billion in state incentives, the largest state-level package ever given to a startup in U.S. history, built from payroll tax breaks stretched across 37 years combined with direct state appropriations.
Hitachi Energy’s transformer manufacturing expansion in South Boston combined a state employment and investment grant with county-level workforce housing funding, addressing both the capital need and the labor shortage in a single coordinated package.
Each of these deals reflects the same principle: no single incentive program was large enough on its own to move the needle. Stacked together, they meaningfully changed the equity required to get the project built.
Non-dilutive capital does more than reduce the check size at close. It can improve the durability of the business itself. Portfolio companies with steady government-linked revenue streams, whether through contracts, incentive-backed expansions, or regulatory-approved products, are viewed differently by the market.
According to RSM, businesses with diversified, sticky government sector revenue often command a meaningfully higher EBITDA multiple than comparable consumer-facing businesses, because that earnings stream is treated more like an annuity than a cyclical revenue line.
The effect can extend beyond the revenue itself. Government-backed projects can strengthen customer relationships, reduce reliance on a narrow customer base, and create greater visibility into future cash flows. For a buyer assessing an acquisition, that predictability can reduce perceived risk and make future earnings easier to underwrite.
That is the real opportunity for private equity. Non-dilutive funding is not just a way to close a gap in the capital stack. Used strategically across a portfolio, it becomes a lever for lowering acquisition cost, accelerating expansion timelines, and increasing the multiple a business commands at exit.
The challenge is not that this capital does not exist. It is that most private equity firms and their portfolio companies are not structured to find it, apply for it correctly, or layer it effectively across federal, state, and local levels simultaneously. Traditional accounting firms and in-house business development teams are rarely equipped to manage this process, which is precisely why so much available capital goes unclaimed every year.
Shepherd Strategies works directly with private equity firms and their portfolio companies to identify, apply for, and stack these programs across every level of government, turning available public capital into a real reduction in equity deployed and a real increase in portfolio value.
To see the full data behind these numbers, including additional deal breakdowns and program-by-program funding thresholds, request the complete whitepaper from Shepherd Strategies.
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