Can an Israeli Startup Get U.S. Federal and State Grants?

Can an Israeli startup get U.S. Federal and State grants?

Yes for most State and local programs, and no for the largest Federal research grants while your company stays Israeli-owned. State money is tied to jobs, payroll, and capital spending inside State borders, so who owns your shares is usually not a gate. Federal research money applies an ownership test first and looks at your science second.

This split matters because it changes the order of your work. Founders who start with the Federal route spend three months on registrations, then learn they were never eligible. Founders who start with the State route get a shorter list, faster answers, and programs tied to hiring they planned to do anyway.

There are three realistic pools for an Israeli company:

• State and local incentives, which pay for jobs, training, equipment, and buildings.
• The Israel-United States Binational Industrial Research and Development (BIRD) Foundation, which funds joint projects between an Israeli company and an American company.
• State programs run with the Israel Innovation Authority, where the American partner applies on the American side.

TLDR: State and local grants are open to you now. The main Federal research grants are not, unless your ownership changes. Read our guide on how to find State and local grants.

Why does the Small Business Innovation Research (SBIR) program reject Israeli-owned companies?

Because the rule is about ownership, not location. The Small Business Innovation Research (SBIR) program and its sister program, Small Business Technology Transfer (STTR), require the applicant to be a for-profit American business at least 51 percent owned and controlled by United States citizens or permanent residents, or by other American small businesses majority owned by such individuals.

Founders get this wrong the same way every time: opening a Delaware company does not fix it. If your Israeli parent holds the majority of that Delaware company, the subsidiary fails the test, because the parent is not an American small business majority owned by American citizens or permanent residents.

Two more conditions sit on top: 500 employees or fewer, and the funded work performed in the United States, with only narrow waivers.

One door stays open. Several agencies, including the National Institutes of Health (NIH), the National Science Foundation (NSF), and the Department of Energy (DOE), allow companies majority owned by multiple American venture capital firms, hedge funds, or private equity firms to apply. If your cap table is already American-led, check that route before you rule out Federal money.

TLDR: An Israeli parent company blocks eligibility for its American subsidiary, but majority ownership by multiple American investment firms can reopen the door at some agencies.

Which U.S. grants are actually open to an Israeli company?

The open list is longer than most founders expect, and almost all of it sits at State level. State agencies are measured on job creation inside their own borders, so a foreign-owned company that hires locally is exactly the customer they want.

Here is what is realistically available:

• Job creation credits and grants. Paid per new job, usually against a wage floor set by the county average.
• Workforce training money. Some States, such as Georgia with its Quick Start program, deliver custom training at no direct cost to a qualifying company.
• Research and development credits at State level. Separate from the Federal credit, with their own rules, and refundable in some States.
• Capital and equipment grants. Tied to a signed lease, a building, or machinery you can prove you bought.
• Utility and site incentives. Often negotiated with a local economic development organization rather than a State agency.
• The Israel-United States Binational Industrial Research and Development (BIRD) Foundation. Built for Israeli and American companies working together.

Program pages age badly and windows close without notice, so confirm the current window with the agency before you write anything.

TLDR: Job creation, training, State research credits, and equipment grants are open to a foreign-owned company that hires locally. See our note on Federal grant cancellations and State alternatives.

What does a State want in return for a grant?

Jobs it can count, payroll it can verify, and spending inside its borders. Nearly every State incentive is performance-based, which means the money arrives after you deliver, not when you sign. Plan your cash flow around that gap.

A typical State package asks for four commitments:

1. A job number and a deadline. For example, 25 full-time jobs within 24 months.
2. A wage floor. Often a percentage of the average wage in that county, so the same program pays differently in two cities.
3. A capital number. A lease, a building, or equipment, with invoices as proof.
4. Reporting. Payroll records, usually once a year, sometimes tied to State unemployment insurance filings.

Then there is the clause founders skip: the clawback. If you miss the job target, the State can reduce the award or ask for money back. The scope is negotiable, so read it before you sign and model the downside at 60 percent of your hiring plan.

Also check whether a credit is refundable. A non-refundable State income tax credit is worth nothing to a company with no State tax liability yet, which describes most startups in year one.

TLDR: State grants pay for delivered jobs and verified spending, with clawbacks if you miss. A non-refundable credit is worthless without State tax liability.

Do you need a U.S. entity before you apply?

For State programs, yes in almost every case. Agencies pay a legal employer with a payroll record in their State, so you need an American company, a tax identification number, and the right to do business locally before an application means anything.

The short setup list looks like this:

• An American company. A Delaware C corporation is the common choice for venture-backed startups, though the State where you operate may suit a first office better.
• An Employer Identification Number (EIN) from the Internal Revenue Service (IRS).
• Foreign qualification. If your company is registered in Delaware but hiring in Ohio, you register in Ohio too, usually through a Certificate of Authority, and appoint a registered agent.
• An American bank account and a payroll provider that can file State taxes.
• For any Federal award: registration in the System for Award Management, which issues a Unique Entity Identifier (UEI) at no cost.

Budget four to eight weeks, longer if banking takes time for a foreign-owned entity. Start it in parallel with your State conversations, not after them.

TLDR: You need an American company, an Employer Identification Number (EIN), and local registration before a State grant is real. Federal awards also need a free System for Award Management registration.

How does the Israel-U.S. Binational Industrial Research and Development (BIRD) Foundation work?

It funds one Israeli company and one American company working on a shared product, and it pays up to 50 percent of the joint project budget. This is the most natural fit for an Israeli startup, because your nationality is a requirement rather than a problem.

The structure is simple to describe and harder to execute. You need a real American partner with skin in the game, a defined product that both sides need, and a plan that reaches the market rather than a paper. Each side covers its own half of the cost, and support is conditional, which means repayment through royalties if the product sells.

What gets applications rejected is usually not the science:

• The American partner is a customer, not a development partner.
• The project is research with no clear product at the end.
• The two work plans do not depend on each other, so there is no real joint project.

Treat partner selection as the main task. The paperwork takes weeks. Finding an American company willing to commit engineering time and matching money takes months.

TLDR: The Foundation pays up to half of a joint project with an American partner, and repayment is tied to sales. The partner, not the form, is the hard part.

Can you claim the Federal research credit for work done in Israel?

No. The Federal research credit under Section 41 of the Internal Revenue Code only covers qualified research performed inside the United States. Work done by your team in Tel Aviv does not count, no matter who pays for it.

This is worth understanding early, because it changes where you put your next engineers. Once you have American research staff, two things become useful. First, the credit itself offsets Federal income tax. Second, a qualified small business, broadly one with low gross receipts and a short history, can apply up to $500,000 of the credit against Federal payroll taxes each year instead of income tax. That matters when you have no profit, which is the normal state of a Seed company.

The rules on how research costs are deducted changed again in recent Federal tax legislation, and the treatment of domestic and foreign research is different. This is exactly the point where you stop reading blog posts and ask a Certified Public Accountant (CPA) who handles cross-border startups. Ask two questions: what qualifies as research in our case, and can we use the payroll offset this year.

TLDR: The Federal research credit only covers work performed in the United States, and a qualified small business can push up to $500,000 against payroll taxes. Confirm current rules with an accountant.

Which States are realistic beyond California, New York, Florida, and Texas?

The States that want you most are the ones you have not considered. California, New York, Florida, and Texas do not need to compete for an Israeli startup, and two of them carry the highest operating costs in the country. Other States are actively courting Israeli technology with trade missions, bilateral research agreements, and incentive programs.

Four examples that come up often in our work:

• Ohio. Strong manufacturing and semiconductor base, plus a well funded development corporation that runs job and equipment grant programs.
• Georgia. Cybersecurity and financial technology cluster around Atlanta, a major airport, and a State workforce training program that is genuinely useful.
• Colorado. Aerospace and defense adjacency, a State office that runs international trade programs, and job growth credits.
• Illinois. Corporate customers in Chicago, a Midwest manufacturing corridor, and a job creation credit program for growing employers.

None of these is right for everyone. Sector fit decides it, then customer location, then cost. A cybersecurity company selling to banks does not belong in the same State as an agricultural technology company selling to growers.

TLDR: Ohio, Georgia, Colorado, and Illinois compete hard for Israeli technology, and sector fit should pick between them. Read our review of Israeli companies in the Southeast.

When should you apply, and why does timing beat paperwork?

Apply 3 to 6 months before the budget year resets, because that is when money is still unassigned. A strong request at the wrong time competes with money that is already committed. A decent request at the right time has a chance to be written into the plan.

The calendar is public, so use it:

• The Federal fiscal year ends September 30. Agencies spend down in the summer.
• Most States end their fiscal year on June 30, so budget formation runs roughly from January to April.
• Some States differ. Texas ends August 31, New York ends March 31, and Alabama and Michigan end September 30.
• School districts and universities mostly follow the June 30 pattern, with purchasing surges in May and June.

Two practical moves follow. First, put your State conversations in the window where a budget line can still be created. Second, watch the year-end period, because unspent money looks for a home.

Grant windows and incentive rules also change with each budget, so a program that paid last year may be closed or capped this year.

TLDR: Ask 3 to 6 months before a fiscal year reset, and know that most States reset on July 1. See our guide to building a grant process inside a for-profit company.

What paperwork will slow you down, and how do you plan for it?

Registration, verification, and reporting. None of it is hard, and all of it takes longer than founders plan, because each step depends on a document from the step before.

Expect these items:

• Registrations. State business registration and a registered agent, plus Federal award registration if you ever go that route.
• Job verification. State agencies check payroll records, often against unemployment insurance filings, before they release performance-based money.
• Annual reports. Job counts, wages, and capital spending, usually on the anniversary of the agreement.
• An audit for large Federal spending. If you spend $1,000,000 or more of Federal award money in one year, an independent Single Audit is triggered. That threshold rose from $750,000 for fiscal years starting on or after October 1, 2024, so confirm the current figure with your accountant.
• Wage rules on construction. If your project involves building work with Federal money, prevailing wage requirements may apply.

The honest fix is boring. Assign one internal owner, keep a single tracker, and store every agreement with its deadlines in one place. Two people sharing the job means nobody has it.

TLDR: Registration, payroll verification, and annual reporting drive the calendar, and Federal spending above $1,000,000 in a year triggers an audit. One owner and one tracker prevent most of the pain.

How is selling to State and local government different from getting a grant?

A grant funds your company. A contract buys your product. If you sell software or hardware, the second pool is often larger, faster, and less competitive than the first, and your Israeli ownership does not block it.

Public buyers, known together as State, Local, and Education (SLED) buyers, work on evidence they publish themselves. Budgets are approved in open meetings, capital plans are published, and purchase orders are often posted online. That gives you three openings:

• Meeting records. A city council or school board that discusses a need on the record is telling you the budget conversation has started.
• Discretionary thresholds. Below a set dollar amount, a public buyer can purchase without a formal request for proposal. This is the fastest path to a first reference customer.
• Cooperative contracts. Vehicles such as ValuePoint from the National Association of State Procurement Officials (NASPO), plus OMNIA Partners and The Interlocal Purchasing System (TIPS), let one buyer ride a contract another agency already competed.

This is a different motion from grant work, with a different owner on your team. Do not hand both to the same person and expect either to move.

TLDR: Public buyers publish their intentions, so meeting records, discretionary thresholds, and cooperative contracts open doors that grants do not. Ownership nationality is not a barrier to selling.

What should you do in the next 30 days?

Decide where your next 10 to 20 American hires will sit, then match that plan to programs. Do it in that order, because a grant that requires jobs in a State you will not enter is not an opportunity.

A workable 30 day plan:

1. Week 1. Write down the sector, the funding stage, and the next American move: research site, manufacturing, or a sales office. One page is enough.
2. Week 2. Rule the Federal research route in or out. Check your cap table against the 51 percent ownership rule, and check whether the Israel-United States Binational Industrial Research and Development (BIRD) Foundation route fits.
3. Week 3. Get the named State and regional programs that match your profile, with the benefit and eligibility note for each. That is what our paid report delivers on screen.
4. Week 4. Pick two States and open one conversation in each, timed to the budget window you identified.

What to avoid: applying everywhere, treating a program list as a strategy, and waiting for a perfect entity structure before you talk to anyone.

TLDR: Fix your hiring plan first, rule the Federal route in or out second, and only then collect programs. Start with the free preview and the paid report.

What questions do founders ask about U.S. grants?

Can an Israeli-owned startup apply for a Small Business Innovation Research (SBIR) grant?

No, not while an Israeli parent or Israeli founders hold the majority of the shares, because the program requires at least 51 percent ownership by United States citizens or permanent residents. Companies majority owned by multiple American venture capital firms can apply at some agencies, including the National Institutes of Health (NIH), the National Science Foundation (NSF), and the Department of Energy (DOE).

Does opening a Delaware company make us eligible for Federal research grants?

No. If your Israeli company owns the majority of the American entity, that entity still fails the ownership test, because the parent is not an American small business majority owned by United States citizens or permanent residents.

Are State grants open to foreign-owned companies?

Yes, in almost every case, because State programs pay for jobs, wages, and capital spending inside the State rather than for who owns the company. You will need an American legal entity, an Employer Identification Number (EIN), and registration to do business in that State.

How much can the Israel-U.S. Binational Industrial Research and Development (BIRD) Foundation fund?

The Foundation supports up to 50 percent of the budget of a joint project between an Israeli company and an American company. Support is conditional, so repayment comes through royalties if the resulting product sells.

Can we claim the Federal research credit for engineering work done in Israel?

No, the Federal research credit only covers qualified research performed inside the United States. Once you have American research staff, a qualified small business can apply up to $500,000 of the credit against Federal payroll taxes each year instead of income tax.

When is the best time to ask a State for money?

Three to six months before the State fiscal year resets, which is July 1 for most States, because that is when a new budget line can still be created. Texas, New York, Alabama, and Michigan run on different dates, so check the State you are targeting.

What happens if we miss the job targets in a State agreement?

Most State incentives are performance-based, so you simply receive less money for fewer jobs. Many agreements also include a clawback clause that allows the State to recover money already paid, which is why you should model your hiring plan conservatively before signing.

How do we find out which State programs fit our startup?

Start with the Grant Fit Score preview on the IsraeliLeads homepage, which costs nothing and shows program count, region fit, and an estimated funding range. The paid Grant Fit Score Report names the matched programs with the benefit and eligibility note for each, plus a shortlist of two to four States.