L.A.'s defense industry is booming. Federal funding crunch could change that

When erstwhile Space X technologist Josh Giegel launched his North Hollywood tech institution Gambit successful 2023, helium had a imaginativeness for the battlefield of the future, 1 with less soldiers and much AI-driven assets.

His bundle would let unmanned tanks and swarms of equipped drones to pass and accommodate successful existent clip — without quality intervention.

The institution present employs much than a twelve radical and has contracts with the military, which is investigating his software. But its maturation has been clouded due to the fact that of a backing quality connected Capitol Hill implicit the Small Business Innovation Research (SBIR) program, which provides companies effect superior to make caller exertion that tin assistance the government. Funding for it and related programs expired successful September.

The effect money has been captious to galore section tech startups. Gambit received $3.3 cardinal from the programme aboriginal connected and was hoping to get different $5 cardinal of the Small Business Administration money, which is allocated by the military.

Workers astatine K2 Space successful Torrance, wherever the startup is gathering high-capacity satellites for Medium Earth Orbit. (K2 Space)

(K2 Space)

“That backing truly helps companies similar ours that are putting tech into warfighters’ hands,” Giegel said. “Losing that wealth becomes much limb enactment to find different sources.”

Gambit’s predicament is wide shared crossed Southern California, which has experienced a proliferation of tech startups launched by SpaceX alumni and different entrepreneurs with the enactment of SBA money.

In 2024, 124 contracts worthy $173 cardinal were awarded to 71 California companies done SpaceWERX, an El Segundo-based limb of the Space Force that distributes SBA backing to innovative defence startups.

The wealth besides is disbursed by different branches of the subject and departments of the government, which bash not instrumentality stakes successful the companies. Gambit received funds done the Air Force.

Other section recipients of SBA backing see Costa Mesa autonomous weapons shaper Anduril Industries, present valued astatine much than $30 billion; and outer level manufacturers K2 Space successful Torrance and Apex Space successful Los Angeles.

The funds are allocated successful phases, with archetypal feasibility awards up to astir $300,000 and arsenic overmuch arsenic $2 cardinal for the improvement of prototypes. A maximum of $15 cardinal is disposable done a companion SBA-funded programme if the companies tin bring successful different funding.

“I don’t cognize if I tin sanction a azygous institution that I enactment with, oregon that I cognize of, that did not commencement with SBIR” funding, said Maggie Gray, a spouse astatine Silicon Valley task superior steadfast Shield Capital, which invested successful Apex. “We spot SBIR arsenic a important portion of the defense-tech ecosystem. It’s benignant of the mode to get your archetypal ft successful the doorway with the government.”

Established successful 1982, the SBA programme provides much than $4 cardinal to authorities departments, with the subject receiving the lion’s share. But SBA backing ran retired connected Sept. 30 arsenic lawmakers clashed implicit projected reforms.

Sen. Joni Ernst (R-Iowa), who chairs the Senate Committee connected Small Business and Entrepreneurship, introduced a measure that would acceptable a $75-million beingness headdress connected funds for idiosyncratic companies and found show benchmarks. The measure besides would beef up owed diligence to forestall caller exertion falling into the hands of overseas adversaries and extremity diversity, equity and inclusion preferences successful funds distribution.

The legislation, however, has faced stiff absorption from Massachusetts Sen. Ed Markey, the ranking Democrat connected the committee, who contends the reforms spell overboard and would crimp innovation. A bipartisan House measure that would person reauthorized SBA backing for a twelvemonth failed successful the Senate amid absorption by Ernst, who is leaving Congress successful a year.

While negotiations person restarted connected Capitol Hill, determination is nary warrant SBA financing volition beryllium restored, though the subject and different authorities agencies could money startups done their ain budgets.

The SpaceWERX program, which has played a captious relation successful Southern California’s resurgent abstraction economy, was established successful 2020, conscionable 1 twelvemonth aft the Space Force was founded.

Director Arthur Grijalva said the programme distributes respective 100 cardinal dollars successful SBA backing annually crossed the federation and has not had an contented with overseas power oregon companies receiving repetition awards without overmuch to amusement for it.

“Even though it mightiness beryllium tiny [funding] for a truly large company, it’s truly impactful for these tiny companies, these startups, wherever if they don’t person this funding, they mightiness person to bash layoffs, they mightiness person to spell into debt, oregon they mightiness yet not beryllium successful,” Grijalva said.

Since September, $94 cardinal successful larger contracts has been held up for much than 25 companies, which travel backing for feasibility studies and prototypes, according to SpaceWERX.

The impasse comes astatine an inopportune clip for the Trump administration, which has been overhauling weapons procurement.

Secretary of Defense Pete Hegseth announced successful November a argumentation to velocity up weapons improvement by archetypal uncovering capabilities successful the commercialized marketplace earlier the authorities attempts to make caller systems. Last week helium visited respective L.A.-area defence companies, including Torrance startup Castelion, a manufacture of hypersonic missiles that received SBIR funding.

Kirsten Bartok Touw, managing spouse of New Vista Capital, which invested successful Castelion, agreed the programme whitethorn person flaws but said it plays an invaluable relation successful attracting task superior to companies that person drawn the funding.

“That is an important awesome to the market, which says, ‘You should put successful much of these, due to the fact that this is simply a exertion we privation and need,’” she said.

A study this period by the National Academies of Sciences, Engineering and Medicine recovered that 1 dollar of the backing distributed by the subject attracts much than 4 dollars of task superior oregon different third-party investment.

Markey’s bureau said past week helium submitted a connection to Ernst that includes making the SBIR programme permanent, accrued allocations, a show metric, overseas owed diligence standards and fellowships for underserved tiny businesses, among different provisions.

“This measure is [his] 2nd effort astatine breaking the logjam and restarting these captious programs to guarantee America’s astir nimble allies — tiny businesses — are not decimated,” a Markey spokesperson said.

A spokesperson for Ernst said past week that the legislator “remains focused connected ensuring payer investments successful R&D bash not payment China and really present cutting-edge exertion for our warfighters.”

Giegel said that portion helium is optimistic aboriginal SBA backing mightiness travel done for Gambit, helium is not counting connected it. He present assumes helium volition person to look for different sources of wealth to turn the company, which already attracted undisclosed task capital.

“We’re trying to find operational relevance faster,” helium said.