The Department of Defense, in collaboration with the Small Business Administration, issued licenses to the first group of investors through the Small Business Investment Company, Critical Technology Initiatives. This will funnel more than $2.8 billion to innovative startups and small businesses developing technologies deemed vital to the nation. safety.
The first 13 authorized funds approved under the SBICCT initiative are now eligible for government-backed loans from the SBA and will focus on technology across 14 critical technology areas, including microelectronics, space technology, and advanced computing. It can be used to invest in companies with Software and trusted AI and autonomy.
Each authorized fund participating in this initiative can borrow up to $175 million through the SBA. The new loan structure allows the fund to defer loan payments until it begins to generate income.
Secretary of Defense Lloyd Austin and SBA Secretary Isabel Casillas Guzman introduced the initiative in 2022, and the Defense Strategic Capital Office and SBA Office of Investment and Innovation, which support the initiative, began accepting SBIC applications in fall 2023.
But the SBIC program is nothing new. The SBIC program, launched in 1958 during the Eisenhower administration, was intended to foster the growth of venture capital to support technological innovation through early investments in start-up companies such as Fairchild Semiconductor.
At one point, nearly two-thirds of U.S. venture capital was backed by the government through this program. These funds helped launch several major companies including Apple, Intel, and Cray Research.
This long-running program provides loans to private investors rather than directly to companies, encouraging investors to reduce financial risk and pursue high-cost industries. In return, this approach helps companies struggling with late-stage funding and helps them overcome the valley of death that prevents companies from scaling their products from the lab to the field.
“For example, a semiconductor series startup costs investors between $20 million and $40 million.Investment costs for crypto companies and (financial technology) companies range from $5 million to $800 million per investor. Investing in one semiconductor company versus four to eight fintech or crypto companies is not a financially sound investment decision, OSC director Jason Razzie said last week. said.
“What this does is it changes the math. It lowers the cost of capital by providing financing for partnerships with private capital. So a $20 million loan is $10 million for an equity investor. So they’re going to make investments through agreements with us – they agree to invest in areas that they’re not currently investing in. And when the opportunity ends. We get our money back as taxpayers, but investors keep the profits.”
The program also complements the Small Business Innovation Research Program, with SBIR loans targeted at early-stage innovation, while SBIC loans targeted at later-stage growth.
“Fun fact, the cost to taxpayers is zero, because all of these loans are repaid. And the SBIC program has a 28-year history of loans that taxpayers have lent to these investors. Over the years, we have a record of investors repaying loans to investors.”We plan to invest in small and medium-sized businesses that are growing in this space,” Raji said.
Companies do not need to receive venture support to receive investment through SBIC. In addition to venture capital, debt financing is also available, giving companies more flexibility in obtaining funding.
The initial 13 funds and additional investments in the pipeline are expected to invest more than $4 billion in 1,700 portfolio companies. More than 100 funds have expressed interest in this initiative so far.
New applications are accepted quarterly. The next submission deadline is November 15th.
To date, the SBIC program has committed more than $130 billion, made nearly 200,000 investments in small and medium-sized businesses, and licensed nearly 2,400 funds, according to SBA data.
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