At this year's South by Southwest (SXSW) festival in Austin, Texas, the Small Business Administration will formalize a joint initiative on global innovation that Administrator Isabel Casillas Guzmán and Secretary of Defense Lloyd Austin announced in December 2022. The initiative supports the Biden-Harris Administration's whole-of-government strategy to bolster America's leadership in global innovation and strengthen national security.

The agreement sets the stage for the newly-established partnership between the Department of Defense's Office of Strategic Capital (OSC) and the SBA's Office of Investment and Innovation (OII) in what will be called the Small Business Investment Firms Critical Technologies Initiative (SBICCT). It's a public-private investment partnership designed to accelerate and scale private investment and Department of Defense support for innovative technologies critical to U.S. national security.

Bailey DeVries, associate administrator of the SBA’s Office of Investment and Innovation, stated:

This agreement represents a natural extension of our longstanding partnership with the Department of Defense and a commitment by both of our agencies to be intentional in our efforts to commit capital and resources to private funds aligned to America’s national security mission.

A secure alliance

With the goal of modernizing the SBIC program and introducing a new financial instrument called Accual Debenture, the SBA seeks to address patient capital gaps such as those frequently seen in capital-intensive technology sectors critical to national security.

In addition to offering long-term alignment with private funds that engage equity holding companies, defense-related innovations that require significant research and development investment and early-life capital expenditures are also addressed by the company.

“The Accrual Debenture was developed to address patient capital gaps like those frequently seen in capital-intensive technology sectors critical to national security. Many defense-related innovations require heavy research and development investment and capital expenditure early in the life of a business, and this instrument is aligned to the long duration of private funds committing capital portfolio companies developing such innovations” said the SBA.

Tomorrow at #SXSW! @DeptofDefense and SBA will sign a historic Memorandum of Agreement to help accelerate and scale private investment and DoD support for innovative technologies critical to U.S. national security. Learn more: https://t.co/3VIwChrsBn

— SBA (@SBAgov) March 9, 2023

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“Throughout its 65-year-long history, the SBA’s Small Business Investment Company (SBIC) program has seeded and scaled some of the most innovative and successful businesses in the world. From semiconductors to personal computers to electronic vehicles, public-private SBIC partnerships have sparked the growth of new industries by growing startups and sustained small businesses fulfilling critical needs in our domestic supply chain and communities around the country,” added DeVries.

Dr. Jason Rathje, OSC director, stated: “The partnership with the SBA has been fantastic; we’ve been able to bring back the SBIC program for national security to make investment opportunities in early-stage technology companies and capital-intensive small businesses addressing today’s most pressing national security supply chain needs. By licensing new limited partnerships vertically focused on deep technology areas, we can leverage new investment funds to provide patient sources of capital for these critical technologies.”