SBA and Department of Defense Celebrate Successful First Year for the Small Business Investment Company Critical Technology Initiative

More Than a Dozen Private Funds to Invest $2.8 Billion in Over 1,000 Critical Technology Startups and Small Businesses

Yesterday, Administrator Isabel Casillas Guzman, head of the U.S. Small Business Administration (SBA) and Secretary Lloyd J. Austin, head of the U.S. Department Secretary of Defense (DoD) announced 13 funds approved to be licensed by the SBA under the Small Business Investment Company Critical Technology Initiative (SBICCT), a joint DoD and SBA initiative to attract and scale private investment in technology areas critical to economic and national security made possible by historic modernization by SBA in its Small Business Investment Company (SBIC) program under the Biden-Harris Administration, which established a new SBA government-guaranteed loan, the “Accrual Debenture” for private investment funds. The 12 firms managing the 13 funds collectively plan to raise $2.8 billion in private capital matched with SBA-guaranteed loans to invest in over 1,000 innovative startups and small businesses developing technologies from advanced materials to space and hypersonic technologies.

“The SBA and DoD entered into this historic initiative to leverage the SBA’s long-standing SBIC program and its recent transformations, so that we can ensure America maintains its global competitive edge in critical technologies,” said SBA Administrator Guzman. “These early strong results and expanded network of investors will provide America’s innovators, producers, and supply chains with the vital funding needed to meet challenges and advance our national and economic security.”

“This first group of SBICCT Initiative funds represents a consequential milestone in demonstrating the power of public-private partnerships to build enduring advantage by growing and modernizing our supply chains, strengthening our economic and national security, and benefiting the development and commercialization of critical technologies that are key drivers of our U.S. industrial base,” said Heidi Shyu, Under Secretary of Defense for Research and Engineering. “I am proud of the collaborative work between the Office of Strategic Capital (OSC) and our SBA OII colleagues to stand up and advance this important program.”

Funds licensed by the SBA under the SBICCT Initiative are eligible for access to SBA-guaranteed loans designed to enhance fund-level investment returns. Licensees have access to up to $175 million in SBA Debenture loans through the SBIC program. The new Accrual Debenture loans align with the cash flows of longer duration and equity-oriented investment strategies that tend to invest in innovative new technologies and the longstanding SBA Standard Debentures align to credit strategies. Through the SBICCT Initiative, licensed funds also gain access to DoD provided program-related initiatives and benefits intended to drive value to each Licensee’s portfolio of fund investments.

The SBICCT Initiative was announced by Secretary of Defense Lloyd Austin and SBA Administrator Isabel Guzman in December 2022. Through this first-of-its-kind partnership, DoD’s Office of Strategic Capital (OSC) and SBA’s Office of Investment and Innovation (OII) aim to increase private investment in critical technologies, including component-level technologies and production processes vital to U.S. economic and national security interests.

The SBICCT Initiative formally launched and began accepting SBIC applications in Fall 2023. Over 100 funds have expressed interest in the initiative, and since the formal launch, 22 took the significant step to submit a formal application and undergo the rigorous underwriting and due diligence process.

In early July 2024, the SBA granted the first SBICCT Initiative license. Just three months later, as of October 22, 2024, a total of 13 funds within the ‘Green Light’ approval are to raise private capital and be licensed by SBA. The funds span all 14 DoD Critical Technology Areas, component-level technologies, and production processes. They represent all parts of the capital stack across stages of investment ranging from seed stage venture to later stage buyout and from venture debt to special situations credit.

Interest in the SBICCT Initiative continues to grow, with additional applications expected in future quarterly filing windows. The next filing deadline is November 15, 2024. For more information on the SBICCT Initiative and the application process, please see the Investment Policy Statement.