The Defense Department's recently established Office of Strategic Capital intends to sign a memorandum of agreement with the Small Business Administration's Office of Investment and Innovation to help increase early-stage private investment in critical technologies, according to a Pentagon announcement.
The agreement is slated to be signed March 10 at the South by Southwest Festival in Austin, TX, outlining the future OSC and SBA cooperation, building off the Small Business Investment Company Critical Technologies Initiative signed last December.
“The SBICCT Initiative is underpinned by new proposed SBA regulations for expansion of the SBIC program and introduction of a new financial instrument -- the Accrual Debenture,” DOD said.
Accural Debenture, a type of a financing arrangement, is intended to “better align with the cashflow requirements of startups in the hardware technology space and provide the ‘patient capital’ required for these companies to become thriving, instrumental partners,” according to DOD.
OSC Director Jason Rathje said the partnership with SBA has been “fantastic.”
“By licensing new limited partnerships that are vertically focused on deep technology areas, we can leverage new investment funds to provide patient sources of capital for these critical technologies,” he said.
Bailey DeVries, the associate administrator of the SBA’s Office of Investment and Innovation, said the new agreement represents a “natural extension” of the agency’s partnership with DOD, especially when it comes to being “intentional” about trying to move private capital toward the national security sector.
“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,” he said.
Defense Secretary Lloyd Austin established the OSC in December to bridge the “valley of death” by connecting defense companies with private investors.
“This is a major advancement in the relationship between DOD and SBA, which will allow our agencies to work together to build trusted investment funds to align and scale private capital in support of national security priorities,” Austin said at the Reagan National Defense Forum on Dec. 3.
The first funds for the SBIC initiative are expected to be released by the end of the summer.