When former Area X engineer Josh Giegel launched his North Hollywood tech firm Gambit in 2023, he had a imaginative and prescient for the battlefield of the long run, one with fewer troopers and extra AI-driven belongings.
His software program would permit unmanned tanks and swarms of armed drones to speak and adapt in actual time — with out human intervention.
The corporate now employs greater than a dozen folks and has contracts with the navy, which is testing his software program. However its development has been clouded due to a funding dispute on Capitol Hill over the Small Enterprise Innovation Analysis (SBIR) program, which supplies corporations seed capital to develop new know-how that may help the federal government. Funding for it and associated packages expired in September.
The seed fund has been very important to many native tech startups. Gambit acquired $3.3 million from this system early on and hoped to get one other $5 million of the Small Enterprise Administration cash, which is allotted by the navy.
Employees at K2 Area in Torrance, the place the startup is constructing high-capacity satellites for Medium Earth Orbit. (K2 Area)
(K2 Area)
“That funding actually helps corporations like ours which can be placing tech into warfighters’ arms,” Giegel stated. “Dropping that cash turns into extra leg work to search out different sources.”
Gambit’s predicament is extensively shared throughout Southern California, which has skilled a proliferation of tech startups launched by SpaceX alumni and different entrepreneurs with the help of SBA cash.
In 2024, 124 contracts value $173 million had been awarded to 71 California corporations by way of SpaceWERX, an El Segundo-based arm of the Area Drive that distributes SBA funding to modern protection startups.
The cash is also disbursed by different branches of the navy and departments of the federal government, which don’t take stakes within the corporations. Gambit acquired funds by way of the Air Drive.
Different native recipients of SBA funding embody Costa Mesa autonomous weapons maker Anduril Industries, now valued at greater than $30 billion; and satellite tv for pc platform producers K2 Area in Torrance and Apex Area in Los Angeles.
The funds are allotted in phases, with preliminary feasibility awards as much as about $300,000 and as a lot as $2 million for the event of prototypes. A most of $15 million is obtainable by way of a companion SBA-funded program if the businesses can herald different funding.
“I don’t know if I can identify a single firm that I work with, or that I do know of, that didn’t begin with SBIR” funding, stated Maggie Grey, a associate at Silicon Valley enterprise capital agency Defend Capital, which invested in Apex. “We see SBIR as a vital a part of the defense-tech ecosystem. It’s sort of the way in which to get your preliminary foot within the door with the federal government.”
Established in 1982, the SBA program supplies greater than $4 billion to authorities departments, with the navy receiving the lion’s share. However SBA funding ran out on Sept. 30 as lawmakers clashed over proposed reforms.
Sen. Joni Ernst (R-Iowa), who chairs the Senate Committee on Small Enterprise and Entrepreneurship, launched a invoice that will set a $75-million lifetime cap on funds for particular person corporations and set up efficiency benchmarks. The invoice additionally would beef up due diligence to stop new know-how falling into the arms of international adversaries and finish range, fairness and inclusion preferences in funds distribution.
The laws, nevertheless, has confronted stiff opposition from Massachusetts Sen. Ed Markey, the rating Democrat on the committee, who contends the reforms go overboard and would crimp innovation. A bipartisan Home invoice that will have reauthorized SBA funding for a 12 months failed within the Senate amid opposition by Ernst, who’s leaving Congress in a 12 months.
Whereas negotiations have restarted on Capitol Hill, there is no such thing as a assure SBA financing will likely be restored, although the navy and different authorities businesses may fund startups by way of their very own budgets.
The SpaceWERX program, which has performed a vital function in Southern California’s resurgent house financial system, was established in 2020, only one 12 months after the Area Drive was based.
Director Arthur Grijalva stated this system distributes a number of hundred million {dollars} in SBA funding yearly throughout the nation and has not had a difficulty with international affect or corporations receiving repeat awards with out a lot to indicate for it.
“Though it is perhaps small [funding] for a extremely massive firm, it’s actually impactful for these small corporations, these startups, the place in the event that they don’t have this funding, they could need to do layoffs, they could have to enter debt, or they could in the end not achieve success,” Grijalva stated.
Since September, $94 million in bigger contracts has been held up for greater than 25 corporations, which observe funding for feasibility research and prototypes, based on SpaceWERX.
The deadlock comes at an inopportune time for the Trump administration, which has been overhauling weapons procurement.
Secretary of Protection Pete Hegseth introduced in November a coverage to hurry up weapons growth by first discovering capabilities within the industrial market earlier than the federal government makes an attempt to develop new techniques. Final week he visited a number of L.A.-area protection corporations, together with Torrance startup Castelion, a manufacture of hypersonic missiles that acquired SBIR funding.
Kirsten Bartok Touw, managing associate of New Vista Capital, which invested in Castelion, agreed this system might have flaws however stated it performs a useful function in attracting enterprise capital to corporations which have drawn the funding.
“That is a vital sign to the market, which says, ‘It’s best to spend money on extra of those, as a result of it is a know-how we wish and wish,’” she stated.
A report this month by the Nationwide Academies of Sciences, Engineering and Drugs discovered that one greenback of the funding distributed by the navy attracts greater than 4 {dollars} of enterprise capital or different third-party funding.
Markey’s workplace stated final week he submitted a proposal to Ernst that features making the SBIR program everlasting, elevated allocations, a efficiency metric, international due diligence requirements and fellowships for underserved small companies, amongst different provisions.
“This invoice is [his] second try at breaking the logjam and restarting these vital packages to make sure America’s most nimble allies — small companies — aren’t decimated,” a Markey spokesperson stated.
A spokesperson for Ernst stated final week that the senator “stays targeted on guaranteeing taxpayer investments in R&D don’t profit China and really ship cutting-edge know-how for our warfighters.”
Giegel stated that whereas he’s optimistic future SBA funding would possibly come by way of for Gambit, he isn’t relying on it. He now assumes he must search for different sources of cash to develop the corporate, which already attracted undisclosed enterprise capital.
“We’re looking for operational relevance quicker,” he stated.
