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 individuals and has contracts with the army, which is testing his software program. However its progress 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 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 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 army.
Staff 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 might be placing tech into warfighters’ fingers,” Giegel mentioned. “Shedding that cash turns into extra leg work to seek 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 price $173 million had been awarded to 71 California firms by means of SpaceWERX, an El Segundo-based arm of the Area Drive that distributes SBA funding to revolutionary protection startups.
The cash is also disbursed by different branches of the army and departments of the federal government, which don’t take stakes within the firms. Gambit obtained funds by means of the Air Drive.
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 out there by means of a companion SBA-funded program if the businesses can usher in different funding.
“I don’t know if I can title a single firm that I work with, or that I do know of, that didn’t begin with SBIR” funding, mentioned 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 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 army 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 firms and set up efficiency benchmarks. The invoice additionally would beef up due diligence to stop new know-how falling into the fingers of overseas adversaries and finish variety, 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 isn’t a assure SBA financing will probably be restored, although the army and different authorities businesses may fund startups by means of their very own budgets.
The SpaceWERX program, which has performed a essential 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 mentioned this system distributes a number of hundred million {dollars} in SBA funding yearly throughout the nation and has not had a difficulty with overseas affect or firms receiving repeat awards with out a lot to point out for it.
“Though it could 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 may should do layoffs, they may have to enter debt, or they may in the end not achieve success,” Grijalva mentioned.
Since September, $94 million in bigger contracts has been held up for greater than 25 firms, 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 improvement by first discovering capabilities within the business market earlier than the federal government makes an attempt to develop new programs. 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 mentioned it performs a useful function in attracting enterprise capital to firms 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 would like and wish,’” she mentioned.
A report this month by the Nationwide Academies of Sciences, Engineering and Medication discovered that one greenback of the funding distributed by the army attracts greater than 4 {dollars} of enterprise capital or different third-party funding.
Markey’s workplace mentioned final week he submitted a proposal to Ernst that features making the SBIR program everlasting, elevated allocations, a efficiency metric, overseas 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 essential packages to make sure America’s most nimble allies — small companies — usually are not decimated,” a Markey spokesperson mentioned.
A spokesperson for Ernst mentioned 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 mentioned that whereas he’s optimistic future SBA funding would possibly come by means of for Gambit, he’s not relying on it. He now assumes he should search for different sources of cash to develop the corporate, which already attracted undisclosed enterprise capital.
“We’re looking for operational relevance sooner,” he mentioned.
