When former Space X engineer Josh Giegel launched his North Hollywood tech company Gambit in 2023, he envisioned a futuristic battlefield, with fewer soldiers and more AI-driven assets.
His software would allow unmanned tanks and dozens of armed drones to communicate and synchronize in real time – without human intervention.
The company now employs more than a dozen people and has contracts with the military, which tests its software. But its growth has been dampened by a funding dispute on Capitol Hill over the Small Business Innovation Research (SBIR) program, which provides seed money to companies to develop new technologies that could help the government. Its funding and accompanying programs expired in September.
The seed bag was important for the local start-up of many technologies. Gambit received $3.3 million from the program early and was hoping to receive another $5 million in Small Business Administration funds, which are allocated to the military.
Employees at K2 Space in Torrance, where the startup builds high-powered satellites for Medium Earth Orbit. (Space for K2)
(Space for K2)
“That funding really helps companies like ours that put technology in the hands of the military,” said Giegel. “Losing that money becomes a legwork to find other sources.”
Gambit’s plight is shared widely across Southern California, which has seen a surge in technology startups launched by SpaceX alumni and other entrepreneurs with the help of SBA money.
In 2024, 124 contracts worth $173 million were awarded to 71 California companies through SpaceWERX, the El Segundo-based division of the Space Force that distributes SBA funding to advanced defense startups.
This money is also released by other military agencies and government departments, which are neutral to the companies. Gambit got money through the Air Force.
Other local recipients of SBA funding include Costa Mesa-based independent arms manufacturer Anduril Industries, now valued at more than $30 billion; and satellite platform manufacturers K2 Space in Torrance and Apex Space in Los Angeles.
Funds are distributed in tiers, with potential initial awards of up to $300,000 and up to $2 million for developing prototypes. Up to $15 million is available through a companion SBA-sponsored program if companies can bring in additional funding.
“I don’t know if I can name a single company that I work with, or that I know of, that didn’t start with SBIR funding,” said Maggie Gray, a partner at Silicon Valley venture capital firm Shield Capital, which invested in Apex. “We see SBIR as an important part of the defense-tech ecosystem. It’s a way to get your foot in the door with the government.”
Established in 1982, the SBA program provides more than $4 billion in funding to government agencies, with the military receiving the lion’s share. But SBA funding ended on September 30 as lawmakers debated over the proposed changes.
Sen. Joni Ernst (R-Iowa), who chairs the Senate Small Business and Entrepreneurship Committee, has introduced a bill that would set a lifetime limit of $75-million for individual company funds and establish performance standards. The bill would also strengthen due diligence to prevent new technologies from falling into the hands of foreign adversaries and eliminate diversity, equity and preferential inclusion in the distribution of funds.
The legislation, however, faced strong opposition from Massachusetts Senator Ed Markey, the ranking Democrat on the committee, who argued the changes were too far-fetched and would disrupt the establishment. A bipartisan House bill that would have reauthorized SBA funding for a year failed in the Senate amid opposition from Ernst, who is leaving Congress for a year.
Although negotiations have resumed on Capitol Hill, there is no guarantee that SBA funding will be reinstated, although the military and other federal agencies could fund the initiative from their budgets.
The SpaceWERX program, which has played a key role in revitalizing Southern California’s space economy, was launched in 2020, just one year after the creation of the Space Force.
Director Arthur Grijalva said the program distributes several hundred million dollars in SBA funding annually across the country and has not had a problem with outside influence or companies receiving repeated awards without much to show for it.
“Although it may be small [funding] in a really big company, it really affects these small companies, these start-up companies, where if they don’t have this money, they may have to spend money, go into debt, or they may not succeed in the end,” said Grijalva.
As of September, $94 million in larger contracts have been awarded to more than 25 companies, following funding for feasibility studies and prototypes, according to SpaceWERX.
The conflict comes at an inopportune time for the Trump administration, which has been scrutinizing arms purchases.
Defense Secretary Pete Hegseth announced in November a policy to accelerate weapons development by first acquiring capabilities on the commercial market before the government tries to develop new systems. Last week he visited several defense companies in the LA area, including Torrance startup Castelion, a hypersonic missile manufacturer that received SBIR funding.
Kirsten Bartok Touw, who is the managing partner of New Vista Capital, which has invested in Castellion, admitted that the program may have flaws but said that it plays an important role in attracting capital to companies that have received funding.
“That’s an important signal to the market, saying, ‘You should invest in more of this, because this is the technology we want and need,'” he said.
A report this month by the National Academies of Sciences, Engineering and Medicine found that one dollar of funding distributed by the military attracts more than four dollars of business or other third-party investment.
Markey’s office said last week it sent a proposal to Ernst that included making the SBIR program permanent, increased allocations, performance measures, foreign due diligence standards and neglected small business partnerships, among other provisions.
“This bill is like that [his] the second effort to break the logjam and restart these critical programs is to ensure that America’s most willing partners – small businesses – are not eliminated,” said spokesman Markey.
A spokesman for Ernst said last week that the senator “remains focused on making sure that taxpayer investment in R&D does not benefit China and actually brings advanced technology to our military.”
Giegel said that while he is hopeful that future SBA funding may come from Gambit, he is not counting on it. Now he thinks he will have to look for other ways to make money to grow the company, which has already attracted an undisclosed amount of money.
“We’re trying to get compliance up and running quickly,” he said.
