Los Angeles’ Booming Defense Industry Faces Uncertainty Due to Federal Funding Cuts
When former Space X engineer Josh Giegel launched his North Hollywood tech company Gambit in 2023, he had a vision for the battlefield of the future, one with fewer soldiers and more AI-driven assets. His software would allow unmanned tanks and swarms of armed drones to communicate and adapt in real time — without human intervention. The company now employs more than a dozen people and has contracts with the military, which is testing his software.
However, its growth has been clouded because of a funding dispute on Capitol Hill over the Small Business Innovation Research (SBIR) program, which provides companies seed capital to develop new technology that can assist the government. Funding for it and related programs expired in September. The seed fund has been vital to many local tech startups. Gambit received $3.3 million from the program early on and was hoping to get another $5 million of the Small Business Administration money, which is allocated by the military.
Workers at K2 Space in Torrance, where the startup is building high-capacity satellites for Medium Earth Orbit. (K2 Space)
The Importance of SBIR Funding for Startups
“That funding really helps companies like ours that are putting tech into warfighters’ hands,” Giegel said. “Losing that money becomes more leg work to find other sources.” Gambit’s predicament is widely shared across Southern California, which has experienced a proliferation of tech startups launched by SpaceX alumni and other entrepreneurs with the support of SBA money.
In 2024, 124 contracts worth $173 million were awarded to 71 California companies through SpaceWERX, an El Segundo-based arm of the Space Force that distributes SBA funding to innovative defense startups. The money also is disbursed by other branches of the military and departments of the government, which do not take stakes in the companies. Gambit received funds through the Air Force.
Impact on the Defense Industry
Other local recipients of SBA funding include Costa Mesa autonomous weapons maker Anduril Industries, now valued at more than $30 billion; and satellite platform manufacturers K2 Space in Torrance and Apex Space in Los Angeles. The funds are allocated in phases, with initial feasibility awards up to about $300,000 and as much as $2 million for the development of prototypes. A maximum of $15 million is available through a companion SBA-funded program if the companies can bring in other funding.
Established in 1982, the SBA program provides more than $4 billion to government departments, with the military receiving the lion’s share. But SBA funding ran out on Sept. 30 as lawmakers clashed over proposed reforms. Sen. Joni Ernst (R-Iowa), who chairs the Senate Committee on Small Business and Entrepreneurship, introduced a bill that would set a $75-million lifetime cap on funds for individual companies and establish performance benchmarks.
Future of SBIR Funding
A report this month by the National Academies of Sciences, Engineering and Medicine found that one dollar of the funding distributed by the military attracts more than four dollars of venture capital or other third-party investment. Markey’s office said last week he submitted a proposal to Ernst that includes making the SBIR program permanent, increased allocations, a performance metric, foreign due diligence standards and fellowships for underserved small businesses, among other provisions.
Giegel said that while he is optimistic future SBA funding might come through for Gambit, he is not counting on it. He now assumes he will have to look for other sources of money to grow the company, which already attracted undisclosed venture capital. “We’re trying to find operational relevance faster,” he said. For more information, read the full article Here
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