Supercharging Defense Startups: How the SBIC & SBICCT Programs Unlock Funding Without Forfeiting Set-Asides

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It’s no secret: the federal procurement system is undergoing major changes.  The President’s “Revolutionary FAR Overhaul” is well underway, the Department of War (“DoW”) has recently announced that traditional program executive offices will be replaced with portfolio acquisition executives, and the Secretary of the Army, Dan Driscoll, made it clear at the most recent AUSA (Association of the United States Army) exposition that “We cannot . . . wait to innovate until Americans are dying on the battlefield.”^[1] However, one of the most innovative, yet under-discussed, programs has flown under the radar: The Office of Strategic Capital’s (“OSC”) Small Business Investment Company Critical Technologies Initiative (SBICCT).  This initiative is a game-changer for SBICCT funding for defense startups, blending private capital with government leverage to fuel innovation in high-priority tech sectors.

The Basics: What is an SBIC?

In essence, an SBICCT is a DoW spin on the classic Small Business Investment Company (SBIC) model—with some additional benefits tailored to national security needs.  Broadly, SBICs are “privately owned and managed investment funds that the SBA licenses and regulates.”^[2] What they do, however, is a bit more interesting.  “The SBIC license allows SBICs to employ private capital and SBA leverage (funds borrowed at a low-cost using SBA-guaranteed securities, called debentures), to make investments in qualifying small businesses.”^[3] More clearly, becoming an SBIC provides access.

Where banks (otherwise prevented by the Volcker Rule), private equity (“PE”), and venture capital (“VC”) firms^[4] would otherwise have little incentive to invest in small businesses with limited returns, they are incentivized by SBA long-term loans (debentures) at low rates, which they then invest in small companies that they would otherwise overlook (or be prohibited from investing in).^[5] In return, the small businesses receive the direct capital they require to scale and grow into more profitable and autonomous businesses while supervised by their PE/VC investors. More practically, rather than having SBA (taxpayer) dollars directly forwarded to companies with potential, SBIC licenses provide a vehicle for private funds to spark growth and innovation in exchange for investment returns.  This allows private funds to research the companies they would like to invest in (rather than allocating SBA employees to do this), invest in these companies, and reap the benefits.

Additionally, as a “force-multiplier,” the SBA is willing to offer additional leverage to the SBIC-licensed firms to invest in these same companies.  This approach lets the SBA stretch its resources further, diversifying investments across more small businesses.  Ultimately, taxpayers no longer bear the full burden of funding; private investors are rewarded for their forward-looking investments in emerging companies, while the SBA provides additional leverage by offering low-interest loans to private funds.  In return, the government gets small companies to scale up more quickly to provide better services, the businesses return profits more quickly and make products faster, and taxpayers contribute less money to these companies—because banks/PE/VC are investing their money and services instead.  In the world of federal funding, SBICs are that rare win-win-win

The SBICCT Twist: Focusing on Critical Tech

But where does the “Critical Technologies” part of SBICCT come in?  This, happily, is the simplest part.  The Department of War dictates what technology sectors need to be prioritized, while also cutting bureaucracy.  Rather than the hyper-specific solicitation method of procurement that is easily bogged down, the DoW instead announces its innovation priorities as “Critical Technology Initiatives”—such as bioenergetics, quantum computing, or similar fields—and companies producing these technologies are prioritized under the SBICCT DoW-SBA partnership program.

Admittedly, this program is young—its first cohort of 18 licensees was green-lit to fund investments just less than one year ago on January 17, 2025.^[6]  But the advantages are clear: Government contractors who participate in any one of the various set-aside programs now have direct access to funds that allow them to rapidly scale, while having the ability to utilize outside parties to assist without affiliation, and without forfeiting their ability to pursue set-asides aimed at their growth. It’s a supercharger for government contracting innovation that is seemingly yet-to-be truly discovered.

Benefits for Government Contractors

Even more useful to government contractors—especially SBICCT funding for defense startups—is that, in addition to the advantages noted above, an SBIC remains “unaffiliated” with the company or companies that it invests in.^[7] Although seemingly mundane, this “unaffiliation” leaves the door open for small businesses to qualify for small business set-aside contracts, despite having big-business investments and oversight or control. Specifically, investments by SBICs (including SBICCT funds) do not create an “affiliation” for purposes of determining small business size status under SBA rules.^[8] This means a defense startup can accept significant SBIC equity—up to 50% or more—without being deemed “other than small” for set-aside eligibility under FAR Subpart 19.5.

That said, there’s a key nuance to socio-economic set-asides such as Women-Owned Small Business (WOSB), Service-Disabled Veteran-Owned Small Business (SDVOSB), and the 8(a) Business Development Program.  While the SBIC exception preserves size status, it doesn’t extend to the “unconditional ownership and control” requirements for these certifications.^[9] For instance, in a WOSB, women must unconditionally control the board of directors, the highest officer position, and daily operations—either through 51% voting stock ownership (with supermajority protections) or majority board representation.^[10] An SBIC’s protective rights, such as board seats, vetoes on budgets, or approval over major decisions, could still be seen as ceding control, even if the SBIC holds minority equity. The same holds for SDVOSB (veteran control via similar mechanisms)^[11] and 8(a) (disadvantaged individual control over policy and operations).^[12] SBA evaluates these holistically during certification or protests, so structuring deals to avoid “potential control” (e.g., no board influence) is crucial to maintaining eligibility.^[13]

Navigating Risks and General Eligibility

For balance, it’s worth noting the risks.  SBA oversight is rigorous: SBICCT funds must comply with annual reporting, audits, and investment limits (e.g., no more than 10% of a fund’s capital in one company without SBA approval).^[14] Tech-specific eligibility is narrow—firms must align with DoW’s Critical Technology Initiatives (e.g., AI, hypersonics) and demonstrate small business status under NAICS codes tied to defense needs.^[15] Non-compliance can lead to license revocation or fund clawbacks.

On eligibility, SBICCT is open to U.S.-based small businesses (per 13 CFR § 121) developing DoW-priority tech.  To attract funding, startups should: (1) hold SBA small business certification; (2) align with OSC’s investment thesis (e.g., scalable prototypes for DoW contracts); and (3) prepare pitch decks highlighting set-aside pursuits. The licensing process for SBIC managers takes 6-12 months but unlocks up to $150M in leveraged capital per fund.

Ready to Launch?  Let’s Talk

In a procurement landscape that’s evolving faster than a hypersonic missile, the SBICCT program offers defense startups a rare blend of private firepower and government tailwinds—without derailing set-aside advantages.  Whether you’re eyeing SBICCT funding for your next breakthrough or structuring deals to safeguard certifications, proactive planning turns potential pitfalls into propulsion.

Our team at Maynard Nexsen specializes in SBA compliance and federal contracting.  Contact us today for a review of your SBICCT strategy or licensing guidance—let’s get your innovation off the ground.

^{[1] Hope Hodge Seck, Driscoll goes scorched earth on Army buying inertia Defense News. Oct. 13, 2025, https://www.defenseless.com/land/2025/10/13/driscoll-goes-scorched-earth-on-army-buying-inertia/
[2] Office of the Comptroller of the Currency, Small Bus.  Investment Co.: Investment Options for Banks (September 2015), https://www.occ.treas.gov/publications-and-resources/publications/community-affairs/community-developments-insights/pub-insights-sep-2015.pdf.
[3] Id.
[4] SBICs and SBICCTs are not limited to these types of private investment.  Pension funds, individuals, and any other form of private capital is welcome, but banks, Private Equity, and Venture Capital tend to be the most common investors.
[5] Small Bus. Investment Co.: Investment Options for Banks, supra.
[6] DoD News Release, “Department of Defense and U.S. Small Business Administration Publish Names of First SBICCT Funds” (Jan. 17, 2025), https://www.defense.gov/News/Releases/Release/Article/4032999/.
[7] 13 CFR § 121.103(b)(1).
[8] Id. (excluding SBIC investments from affiliation calculations for size standards).
[9] See 13 CFR Parts 124, 127, and 128 (separate control tests from size rules).
[10] 13 CFR § 127.202(f) (WOSB board and officer control requirements).
[11] 13 CFR § 128.203 (SDVOSB control mirroring WOSB).
[12] 13 CFR §§ 124.105-106 (8(a) unconditional disadvantaged control).
[13] But even here, SBICs provide unique leeway: unexercised stock options or convertibles held by SBICs (licensed under 15 U.S.C. § 681 et seq., the Small Business Investment Act) are disregarded when calculating the 51% ownership threshold (§127.201(c))—which is different from normal convertible securities under general control requirements for SBA Certifications.
[14] 13 CFR § 107.1500 et seq. (SBA leverage and reporting rules).
[15] DoW OSC Investment Policy (Aug. 21, 2025) (outlining critical tech priorities).}