Key Takeaways:
- On September 29, 2023, the U.S. Small Business Administration and the Department of Defense announced a major policy initiative aimed to incentive private capital investment in U.S. small businesses developing critical technologies.
- As part of the initiative, the U.S. Small Business Administration has started accepting applications for Critical Technology Small Business Investment Companies which may qualify for low-cost leverage to encourage investment in these small businesses.
- U.S.-based small businesses developing technologies related to biotechnology, quantum science, future generation wireless technology, advanced materials, AI and autonomy, integrated network systems-of-systems, microelectronics, space technology, renewable energy generation and storage, advanced computing and software, human-machine interfaces, directed energy, hypersonics and integrated sensing and cyber may be attractive to private capital investments incentivized by this new program initiative.
On September 29, 2023, the U.S. Small Business Administration (SBA) and the Department of Defense (DoD) announced the rollout of the Small Business Investment Company Critical Technology (SBICCT) Initiative, a joint effort between the SBA and the DoD to increase private capital investment in critical technologies vital to U.S. national security interests.
According to the Investment Policy Statement for the SBICCT Initiative released by DoD and SBA, the mission of the program is to incentive investors to catalyze investment in critical technology areas such as biotechnology, quantum science, future generation wireless technology, advanced materials, AI and autonomy, integrated network systems-of-systems, microelectronics, space technology, renewable energy generation and storage, advanced computing and software, human-machine interfaces, directed energy, hypersonics and integrated sensing and cyber. Building off the existing Small Business Investment Company (SBIC) program, DoD and SBA will partner to license SBIC fund managers with a strategic intent to invest at least 60% of capital in portfolio companies directly involved in the development of one or more critical technology areas designated by DoD. Once licensed as a Critical Technology SBIC, the fund will have access to top-level sector guidance and the fund and its portfolio companies will have access to other program-related initiatives, such as technical expertise, certain cyber security support, controlled and security information access and cooperative research and development agreements.
In addition to the existing qualifications for applying as an SBIC, the DoD and SBA are targeting funds that have a track record of investment in critical technology areas and scaling technologies, and are diversified in respect of geography, asset class, stage and industry. SBA and DoD have indicated that experienced venture capital, family office, venture debt and growth equity investors would be ideal profiles for the SBICCT Initiative.
The SBICCT Initiative is meant to complement existing funding programs available to early stage companies in these critical technology sectors, such as the SBIR and STTR programs. Because of certain regulations applicable to portfolio companies of SBIC funds, in most cases an investment by a Critical Technology SBIC will not result in the company losing eligibility as a small business contractor eligible for certain government contracts. The initiative represents a significant investment in the push to modernize and strengthen national economic security and is expected to result in increased funding opportunities to U.S. small businesses operating in these critical technology areas.
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