SoCal’s defense startups secure vital funding boost

A bill restoring crucial federal funding for defense startups in Southern California is on its way to the president’s desk after passing Congress on Tuesday.

The Small Business Innovation and Economic Security Act was passed after months of impasse over funding for Small Business Innovation Research (SBIR), Small Business Technology Transfer (STTR), and related programs.

The dispute jeopardized funding deemed critical to the resurgence of Southern California’s defense and aerospace sectors.

The bipartisan bill, which extends the programs through 2031, passed the Senate this month and, after delays due to the war in Iran, was approved by the House on Tuesday.

President Trump has pledged not to sign any legislation until Congress approves the SAVE America Act, which would require proof of citizenship to vote – a measure strongly opposed by Democrats.

However, the SBIR reauthorization bill may become law before the end of the month without his signature. The White House did not respond to a request for comment.

SBA programs provide more than $4 billion in seed funding to private startups in diverse industries that provide valuable services to government and the public, grow the economy, and help maintain the nation’s competitive advantage.

The money is awarded by several agencies, including the Departments of Health and Human Services, Energy and NASA, with the military doling out the largest portion. Funding for the SBA ran out on September 30 as lawmakers clashed over proposed reforms.

The money helped launch defense and aerospace startups in Southern California, founded by SpaceX alumni and other entrepreneurs.

In 2024, 71 California companies received $173 million in SBA funding awarded by SpaceWERX, an El Segundo-based arm of the U.S. Space Force that supports defense startups, as well as aerospace startups that also have defense operations.

Local recipients of SBA funding include Costa Mesa-based standalone weapons maker Anduril Industries, now valued at more than $30 billion, and satellite platform makers K2 Space in Torrance and Apex Space in Los Angeles.

Sen. Joni Ernst (R-Iowa), chair of the Senate Committee on Small Business and Entrepreneurship, delayed reauthorization of the program due to concerns that some startups have become too dependent on money instead of developing viable business ventures. She proposed a bill that would provide a lifetime funding cap of $75 million for sole proprietorships.

Sen. Ed Markey (D-Mass.), the committee’s top Democrat, opposed his bill, saying it would harm innovation. Several Massachusetts businesses were also reportedly hit hard by the funding limits.

The compromise bill does not include a lifetime cap, but requires departments to set limits on the number of times businesses can apply for SBA funding each year, prioritizing startups that are new to the programs.

The bill also establishes a Strategic Breakthrough Allocation program that awards up to $30 million in SBA funding to a single business provided it can provide matching funding.

It is intended to help startups become commercially viable after exhausting their SBIR or STTR funding, both of which are intended to fund feasibility studies and prototypes. (STTR funding also requires a partnership with a research institution.)

Other provisions of the bill include new due diligence standards to prevent any technology from falling into the hands of adversaries such as China — another concern of Ernst.

“Having worked across the aisle, these necessary reforms will strengthen the integrity of America’s seed fund while paving the way for new innovations,” Ernst said in a statement. “Now, thanks to these common-sense changes, America’s Seed Fund can serve our real small businesses. »

Markey praised the bipartisan agreement but said he was disappointed in the “unnecessary suffering” caused by the longest-ever shutdown of the programs.

“This much-improved reauthorization has come a long way from early proposals that would have immediately excluded dozens of American small businesses from the programs and severely limited the ability of hundreds more to grow and prosper,” he said in a statement.

David Rothzeid, principal at Shield Capital, a Silicon Valley venture capital firm that invested in Apex Space, said the bill would foster innovation in government.

“This is a recognition of the SBIR program to advance new and exciting technologies,” he said. “Businesses can get back to work. »

Former SpaceX engineer Josh Giegel said he was encouraged by the bill’s passage.

In 2023, he launched the North Hollywood technology company Gambit, which developed software that allows autonomous drones, vehicles and other military equipment to communicate during battle without human intervention.

After receiving $3.3 million in SBIR from the Air Force early on, he expected to request $5 million in additional funding from the SBA, before the impasse shut down the program.

In recent months, Gambit has been able to secure additional military funding to field test its technology. But Giegel still plans to seek SBA funds for new research and development, assuming the bill becomes law.

“It could add fuel to the fire,” he said.