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 property.
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 offers firms seed capital to develop new expertise that may help the federal government. Funding for it and associated applications expired in September.
The seed fund has been very important to many native tech startups. Gambit obtained $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 firms like ours which can be placing tech into warfighters’ arms,” Giegel stated. “Dropping that cash turns into extra leg work to seek out different sources.”
Gambit’s predicament is broadly 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 firms by means of SpaceWERX, an El Segundo-based arm of the Area Pressure that distributes SBA funding to progressive 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 firms. Gambit obtained funds by means of the Air Pressure.
Different native recipients of SBA funding embrace 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 means 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 an important a part of the defense-tech ecosystem. It’s type of the best way to get your preliminary foot within the door with the federal government.”
Established in 1982, the SBA program offers 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 might set a $75-million lifetime cap on funds for particular person firms and set up efficiency benchmarks. The invoice additionally would beef up due diligence to forestall new expertise 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 might have reauthorized SBA funding for a yr failed within the Senate amid opposition by Ernst, who’s leaving Congress in a yr.
Whereas negotiations have restarted on Capitol Hill, there is no such thing as a assure SBA financing will probably be restored, although the navy and different authorities companies may fund startups by means of their very own budgets.
The SpaceWERX program, which has performed a crucial position in Southern California’s resurgent area economic system, was established in 2020, only one yr after the Area Pressure 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 problem with international affect or firms receiving repeat awards with out a lot to indicate for it.
“Although it is likely to be small [funding] for a very large firm, it’s actually impactful for these small firms, these startups, the place in the event that they don’t have this funding, they could must do layoffs, they could have to enter debt, or they could finally not achieve success,” Grijalva stated.
Since September, $94 million in bigger contracts has been held up for greater than 25 firms, which observe funding for feasibility research and prototypes, in accordance with 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 improvement by first discovering capabilities within the business market earlier than the federal government makes an attempt to develop new techniques. Final week he visited a number of L.A.-area protection firms, together with Torrance startup Castelion, a manufacture of hypersonic missiles that obtained 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 position in attracting enterprise capital to firms which have drawn the funding.
“That is a vital sign to the market, which says, ‘You must put money into extra of those, as a result of it is a expertise we wish and wish,’” she stated.
A report this month by the Nationwide Academies of Sciences, Engineering and Medication 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 crucial applications 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 centered on making certain taxpayer investments in R&D don’t profit China and really ship cutting-edge expertise for our warfighters.”
Giegel stated that whereas he’s optimistic future SBA funding may come by means 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 sooner,” he stated.
