Federal funding cuts could cool L.A.'s defense industry boom

Dispute over program that funds startups has cut cash flow to firms

- Laurence Darmiento

WORKERS at K2 Space in Torrance, where the startup is building high-capacity satellites and platforms.

When former SpaceX engineer Josh Giegel launched his North Hollywood tech company Gambit in 2023, he had a vision for the battlefield of the future, one with fewer soldiers and more artificial intelligence-driven assets.

His software would allow unmanned tanks and swarms of armed drones to communicate and adapt in real time — without human intervention.

The company now employs more than a dozen people and has contracts with the military, which is testing his software. But its growth has been clouded because of a funding dispute on Capitol Hill over the Small Business Innovation Research, or SBIR, program, which provides companies seed capital to develop new technology that can assist the government. Funding for it and related programs expired in September.

The seed fund has been vital to many local tech startups. Gambit received $3.3 million from the program early on and was hoping to get an additional $5 million of the Small Business Administration money, which is allocated by the military.

"That funding really helps companies like ours that are putting tech into warfighters’ hands," Giegel said. "Losing that money becomes more legwork to find other sources."

Gambit’s predicament is widely shared across Southern California, which has experienced a proliferation of tech startups launched by SpaceX alumni and other entrepreneurs with the support of SBA money.

In 2024, 124 contracts worth $173 million were awarded to 71 California companies through SpaceWERX, an El Segundo-based arm of the Space Force that distributes SBA funding to innovative defense startups.

The money also is disbursed by other branches of the military and departments of the government, which do not take stakes in the companies. Gambit received funds through the Air Force.