Unfortunately your suggestion will lead to a flood of scam phony prototypes to scoop up grant money. It'll be like the worst of Kickstarter on a larger scale.

Deploying capital with discernment is extremely hard. VCs put a lot of effort into it and often fail pretty badly, and VCs are probably better at it than the government bureaucrats who would administer the program you're suggesting.

Part of what makes it really hard is that there's often an inverse relationship between appearance and reality. Fakes, delusional nuts, and con artists usually appear more polished than the real innovators. The real innovators are spending all their time and energy innovating while the phonies are spending all their energy on flash and self-promotion.