DoD and SBA Announce First Licensed Funds For SBIC Critical Technology Initiative

Insider Brief

• The Department of Defense and U.S. Small Business Administration announced the first group of investment funds approved under the Small Business Investment Company Critical Technology Initiative (SBICCT Initiative), planning to invest over $2.8 billion into 1,000+ companies.
• These funds will have access to up to $175 million in SBA guaranteed loans, which support investments in critical technologies tied to U.S. economic and national security.
• The SBICCT Initiative, launched in late 2023, aims to scale private investment in critical technology areas, with over 100 funds expressing interest in joining.

PRESS RELEASE — The Department of Defense (DoD) and the U.S. Small Business Administration (SBA) today announced the first group of Small Business Investment Company (SBIC) Licensees and Green Light Approved investment funds approved under the Small Business Investment Company Critical Technology Initiative (SBICCT Initiative). This first group collectively plans to invest over $2.8 billion into over 1,000 portfolio companies.

The SBICCT Initiative’s primary objective is to attract and scale private investment into technology areas critical to economic and national security. Funds licensed under the SBICCT Initiative are eligible for access to SBA guaranteed loans designed to enhance fund-level investment returns. Each fund can access up to $175 million in loans which can be accessed through the new Accrual Debenture, which aligns with the cash flows of longer duration and equity-oriented investment strategies and may also be accessed through the longstanding SBA Standard Debentures that aligns to credit strategies. DoD also provides Program Related Initiatives intended to drive value in the implementation of the Licensee’s respective investment strategies.

The SBICCT Initiative was announced by Secretary of Defense Lloyd Austin and SBA Administrator Isabel Casillas 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.

“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 OSC and our SBA OII colleagues to stand up and advance this important program.”

These investment funds, as well as representatives of the SBA and DoD and investment industry advisors, gathered at the Hall of Heroes at the Pentagon to celebrate this accomplishment.

“SBA and DoD entered into this historic initiative to ensure America maintains its global competitive edge,” said SBA Administrator Isabella Casillas Guzman. “Today we are proud to recognize the early results of our Agencies’ collaboration and partnership with the U.S. investment community to fill capital access gaps vital to our national and economic security.”

The SBICCT Initiative formally launched and began accepting SBIC applications in fall 2023. In early July 2024, the SBA granted the first SBICCT Initiative license. Just three months later, as of October 22, 2024, after taking the significant step to submit a formal application and undergo the rigorous underwriting and due diligence process, 4 funds are Licensed and 9 are Green Light Approved by SBA to raise private capital.

These 13 funds, taken along with the other investment funds nearing the end of the diligence process, collectively project to invest over $4 billion in nearly 1700 portfolio companies focused on all 14 DoD Critical Technology Areas and component-level technologies and production processes. In addition, these funds plan to invest across asset classes including seed, venture, growth, buyout, direct lending, special situations, and fund-of-funds.

Interest in the SBICCT Initiative continues to grow, as over 100 funds have expressed interest in the Initiative. Additional applications are 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 here.