Critical Technologies and Small Businesses

Hello, everyone. Welcome back to the summit.

We are thrilled to get going and.

Continue with our wonderful programming. Next up, we have Bailey Devries, our Associate Administrator of the Office of Investment and Innovation, here to lead a fantastic discussion on critical technologies in small business. Bailey, I'll turn it over to you. Well, Brittany, thank you so much. And I'll just apologize to the whole audience that I am on my phone for this zoom, but hey, we improvise. But I am just so excited for this conversation today. And Brittany, thank you for everything that you've done to bring this wonderful community together. I am just so thrilled about the opportunity that we have here today to share information and connect with so many incredible innovation ecosystem support organizations and individuals that are helping to drive our economy forward through innovation. Innovation. I know I speak for the entire team when I say I'm thankful and excited also to have you back at the SBA and on our team leading these focused efforts. Your leadership and enthusiasm are so important as we continue to build out our ecosystem development initiatives at the sba. And thank you everyone in the audience for joining. Without you, there would be no innovation ecosystem. You are the lifeblood and we are happy every day to support you and your communities and learn new ways to partner and work better together. I am thrilled that our next conversation is concerning small businesses, innovative startups, and US Critical technologies. The development of critical technologies is so necessary for the protection of our national security, our economic security and economic growth and cannot happen without the entirety of our innovation ecosystem, all stakeholders that are within that ecosystem. Here in SBA's Office of Investment and Innovation, we work every day to support small business businesses and startups who are building these critical technologies, help them to get access to private capital, debt and equity, and to resources and support organizations to help them navigate resources in the federal government and the private market. Those organizations are so key to the support and development of critical technologies and ensuring that businesses receive the assistance and capital that they need to grow. One big example I'd love to highlight of our focus on critical technologies is our partnership with the Department of Defense's Office of Strategic Capital, which Administrator SBA Administrator Guzman and Secretary Lloyd Austin of the Defense Department formalized back in December of last year. So we're just celebrating about a year of that partnership. For anyone who follows that closely, you know that we work very closely with our colleagues at DoD on the new small business investment company, SBIC Critical Technologies Initiative, which is focused on how we can partner with private investors to drive capital, both public and private, into companies that are developing critical technologies that will be so valuable to our national security and economic growth. But I'm excited to expand the conversation on critical technologies today, and I'm joined by two wonderful colleagues who will share their insights on what else is needed to support our nation's most innovative entrepreneurs in these areas. So I'm pleased to welcome Erica Fuchs and Jared Evans to the stage. Erica and Jared, thank you so much for investing the time with us today and sharing your thoughts. As always, the time is going to fly by, so let's get started and I'd love to turn it over to you to introduce yourselves and speak a little bit about your work. Erika, would you like to go first?

I would be honored to and it's I'm honored to be here today to talk about what I would argue is a very challenging question. So I think where to start? So I've been leading this past year. The do you want me to give a brief intro or do you want me to launch into.

Yes, it would be fabulous for you to give a little bit of your bio and background your experience will bring. Perfect.

Yes.

Great.

Thank you. I wanted to clarify so I we have, I have over the past two decades been using manufacturing facilities as my lab for my research and had the honor to work closely with industries, whether the aerospace industry, the automotive industry, the semiconductor industry, and optoelectronics, also in telecommunications, to really think about what are the existing incentives and how might those differ than what we need to achieve national objectives and national needs. And most recently, I've been leading a national initiative of 13 universities across the country and 22 leading scholars to think about how we could leverage the rich variety of institutions and disciplines across our country to really focus, inform rapid critical technology assessment and investment by the U.S. government.

Thank you, Erika. And I'm excited to delve more into that in a minute or two. And Jared, we'd love to give you an opportunity to also introduce yourself.

Well, once again, thanks so much for having us. It's honored to be here. And the SBA has been a fantastic partner, not only here most recently with the SBIC Critical Technology Initiative, but also in the past working with much of the team in the small business innovative research space as TTR as well. It's been a pleasure over the last few years working directly with the team there. So, as you mentioned, my name is Jared Evans. I'm the director of the Transition Acceleration Program within the Office of Strategic Capital. My background started as mechanical engineer, worked through as an acquisition officer on the Air Force and Space Force side and most recently worked within the AFWorks network, helping stand up AF Ventures, the open topic, and ultimately leading the stratified TAC fight programs prior to moving over to the civilian side here at osc. Much of the team brings experience from inside of the DOD and we've had the fantastic opportunity to bring on the financial sector and bring on a lot of external expertise into the team as well to really get after our mission of attracting and scaling private sector capital towards our national security priorities. So that's really where we come into play and the perspective that we bring from a techno economic competition perspective. But let's again, you know, we'll have a chance to kind of walk through some of the details there and super excited to be here. Thanks.

Well Jared, I mean it has been a pleasure and so much fun and also fascinating to be partnered with your team. It builds on a rich successful history that we have had partnering on the sbir, the CPR program and the CITR program, Small Business Tech Transfer Program and just the tremendous successes that we saw at AFF Works and Innovation and the use of the program. So really thrilled that we're continuing that momentum and strengthening our relationship in support of our national security. But let's get into the questions because again, the time's going to fly. Erika, I'd love just to pass the ball back over to you. So as you mentioned you have had this focus on leading the national Network for Critical Technology Assessment. Can you share a little bit more about why this is so important right now and some of the challenges that you believe we need to overcome?

So in the past several decades we have faced challenges where there is increasing global competition in terms of science and technology. We are no longer we have many peers in the international space and also increasing inequality on the home front and issues on the home front. And the question of how do we invest as a country to simultaneously, simultaneously address both of those issues is really challenging. And some of our research that we've done here at Carnegie Mellon suggests that actually there are opportunities where investing in certain critical technologies might simultaneously increase our innovation, our national security and well paying jobs, small sized business opportunities. So the question is how do we do that? And then with the Chips and Science act requirement for the country to have a all of government national technology strategy and beyond that even to identify what are our primary domestic and geostrategic challenges as well as what investments would help us and policies would overcome those challenges. Investments in critical or key technologies. That was such a monumental and unprecedented legislation for this country and Yet I would argue that here in academia, we're way behind on knowing how to do that, how to help the government get the answers that they need. And so we focused in bringing together leaders across the country to demonstrate what analytics could do today to inform those questions. And also what were our gaps, as well as what would be needed going forward to really leverage all of the capabilities of the country to, you know, the rands, the mitres, the university capabilities that we have spread across the country towards this absolutely most important question.

Thank you so much for sharing that important points and the whole of government approach, but also the importance of public private partnership to further advance this very successful bipartisan legislation that has such great potential to support our national security, but also to create so many jobs and economic opportunities across the country. If I can shift to Jared for a second, there are questions that I receive frequently, and actually I bet many people do, interested to understand more about how the Department of Defense and the Office of Strategic Capital in particular, is determining the critical technologies that, that have gaps in terms of adequate funding. I would love to dig into that a little bit more. Also just say, to share a little bit of context for our audience, that the work that SBA and the Office of Strategic Capital DoD are doing together to crowd more capital into these areas, it's not just about things that the Department of Defense procures. It is about technologies that we are interested and feel it is vital for them to be developed here in the US and for them to be invested in by US Investors. So just wanted to share that the department may or may not procure these things, but they are technologies that we have a vested interest in having located here in the U.S. so, Jared, with that, would you love to share a little bit more about the approach to determining the critical technologies?

Sure. I mean, ultimately, the critical technologies for the Department are determined by the Undersecretary for Research and Engineering. So, you know, as the, as the CTO for the department, if you will, you know, that's, you know, her realm to, to be able to coalesce all of the different areas that we're interested in and need, right. To maintain our operational advantage, right into a cohesive list and priority set. Now, from that point, we're able to layer on a lot of different layers of expertise and experience into how we, how we get after these, how do we prioritize, how do we organize these in a way that, to your point, are investible and are able to be able to be digested by those working on these different things on these different technologies. And one of the things we like to highlight is the way that OSC approaches this, and I kind of hinted at this a little earlier. We see this as a techno economic issue. So much conversation the DoD has has to do with the technology itself. Right. Or as you mentioned, procurement. Right. Contracts and that type of thing. But, you know, the DOD and the federal government more broadly is a. Is a small and decreasing player in the funding that goes into these critical technology areas writ large. Right. And so that forces a perspective shift from a government, from the government side to work with folks, to be a partner, to be a teammate, and to, you know, it underlies an imperative to work with our innovation ecosystem, you know, in the US Our manufacturing base, our technology base, in a much broader sense in a way that maybe we haven't before. And so one of the particular ways that OSC approaches these. These critical technology areas is in terms of finances. Right. And financing. Financing tools. Right. And so that sounds similar for a lot of folks in the dod. We use the term finance a lot. Right. That doesn't sound too weird, but it is a categorical difference in how we approach this problem, because these financial tool sets that we're bringing are, in some cases, underpinned by appropriations in certain cases, in certain ways, but they themselves aren't appropriations. They themselves are financial in nature. Right. They're not defense acquisitions, they're not contracts. So that is a categorical shift in these types of tool sets, and not only the tool sets themselves, but who these tool sets serve and the effects that they're able to have, not only on those integrators that we tend to work with on the defense acquisition side, but also in terms of the supply chains that underpin those integrators and that underpin our critical technology areas themselves. And so this is a really important piece of the equation for us to be able to have very legitimate relationships with the supply chain themselves and not just with the integrators, to allow ourselves to be both financially efficient and operationally effective. Right. In what we're doing and how we're doing it. So we're really excited to be able to work with partners like the SBA to bring those to bear. And, you know, how we approach these critical technology areas in terms of different tool sets that we have are detailed in documentation, such as the. The investment policy statement that folks can read on the SBA website. We'll provide some links and some background there. And very soon we'll be publishing our investment strategy as well. To talk a little bit More in much more detail about how we organize and think about these types of things within the context of these critical technology areas.

Perfect. And for those in the audience, if you are curious what the 14 critical technology areas are, you can just Google DoD R&E critical technologies and you will see the full list right there. And as Jared mentioned, we do maintain a formal investment policy statement and IPS that guides the asset allocation of our partnership with dod. So you have a sense of the requirements of the funds that we partner with and where their investments are directed. But pulling back a second, the development of new technologies often requires many different people with many different skill sets, different relationships, networks, knowledge bases and resources. You know, we are, we're not talking about a single inventor in a garage or necessarily a single application or piece of software. So we are often talking about very capital intensive investments, long duration investments, complex solutions that are being developed. But this is integral to continued U.S. competitiveness and necessary that we strengthen the fabric of networks of innovators and ensuring that these innovators have equitable access to the innovation ecosystem. And when I speak about the innovation ecosystem, I'm talking about access to research institutions, to academia, to funding, to philanthropy, to corporate networks as well and corporate development and strategy. It is the, it is a vast network of resources and different stakeholders in this equation. Would love, Jared, for you to share, you know, where OSC is zeroing in in terms of how they reach and support innovators and the startups that they're supporting to ensure that they have capital and resources needed to further develop technologies.

Yeah, absolutely. I mean, I kind of hinted at this in my previous answer here, but when we talk about financial tools, and I'll park here briefly, osc, many of us come from the innovation ecosystem within the services and within the department. And as we made the transition into OSC and began to look at the tool sets that were needed across the space, we really focused in on this finance aspect of need. Right. And so osc, we really see ourselves as much more of a finance organization as opposed to your traditional innovation organization, who's working to find some of this product market fit as an example. But ultimately the benefit of these tools being financial in nature, one, they're much more familiar. There's some government folks kind of, you know, have a, have a, you know, a personal brain, right, where they understand some of these concepts, but they don't, it doesn't really carry over into the work or the government side. So for instance, the VA home loan program, you know, we understand how that works and we understand how loans work, but we don't necessarily translate that in opportunities based on the government side. And so, you know, that is a financial tool that we're, that we're, that we're considering and working forward on. But more importantly, you know, these financial tools allow us to focus on components and allow us to focus on the business aspect of a lot of these things and helping ensure that capital is available in, in a variety of different formats and a variety of different tool sets to be able to make, you know, allow these, these technologies to be successful in a place where, you know, traditional finance would not value them from a risk perspective. Right. The lending and not spending is another aspect of this. Right. We talked about, you know, loans, loan guarantees as an example of some of these financial tool sets. And again, that's categorically different than how we, we currently do business via contracts. And you know, a fun talking point we always kind of throw in every so often is, you know, the DoD budget in FY22 was something like $850 billion. Right. We didn't get any of that back. Right. With, with lending, it allows us a lot of flexibility to, to work towards these critical technology areas and in a much more financially efficient way, in a way that, that allows us to again have these relationships with folks throughout the supply chain as opposed to just with integrators, just with the capability providers that we've worked with historically. So it's an exciting time, for sure.

No, it definitely is. And for our audience, DOD and sba, you know, have rolled out their first financial instrument together and that is the small business investment company Critical Technologies Initiative, the SBIC ct, where we are partnering together to license private funds, venture capital, growth, equity buyout, MES debt, depending on what the financing need is for the type of technology. And from there we license those Funds and through SBA's authorities, provide a loan to the fund. So we're not an LP in the fund, but we provide a low cost, government guaranteed loan to the fund. So that puts leverage on the fund which shifts the risk return profile in the basket of investments in these critical technologies to potentially improve, improve the overall end of day return on the fund. So we're very excited about it. There's keen interest from a number of funds across the country already and we are, we're getting excited about establishing our first few relationships in Q1 of the calendar year of 2024. So it's an exciting journey and I know that this will be one of many tools, but turning over to Erica, you know, I would love to understand, you know, and again, as we talked about equitable access and ensuring that we are bringing in more innovators and entrepreneurs with different ideas. Ideas come from everywhere. How was equity considered in the critical technology assessment and why it needs to be considered in the first place? Would love to hear your perspective on that. Brilliant.

Thank you so much. I think that one of the core focuses of the National Network for Critical Technology Assessment was asking, could we quantify technology criticality in a way that could be useful to our partners in government? And when you think about a country, a country has multiple missions, it has security, it has the economy, both economic security as well as the well being of its businesses, as well as societal well being, whether that be public health or equity or climate or otherwise. And so that's quite different than a private firm whose objective is needs to be to maximize profit. So how do we start to think about quantifying the investment in these technologies, the implications for these multiple objectives that are part of our national mission or missions? And so I want to give three examples to your question. The one is an example of capability development that's needed, the second of supply and access challenges, and the third of impact on equity and more broadly the economy and jobs. So in the area of AI, Erik Brynjolfsson @ Stanford and Lee Branstadter at Carnegie Mellon for the first time show that, perhaps not surprisingly to everyone else, that AI increases the productivity of firms. There had been some questions, perhaps largely academic, if we couldn't find it in the data up until then, but also more importantly that it increases, increased the number of jobs not just in AI, but outside of AI, but that not all firms were benefiting from that increase in productivity and jobs. And particularly when you look demographically, those benefits were being seen at the coasts and in large businesses, not in small and medium sized businesses. And so that really motivates the need not just for any type of AI education programs or training programs or quality programs, but thinking about how to get training programs so that everyone can be benefiting from the productivity and labor benefits of AI in semiconductors. Our findings in terms of supply and access found that actually US researchers and small businesses have less access than competing nations to what are called shuttle runs and multiple wafer project wafers that are going through the facility. So commercial fabs, which is essential for commercializing new technologies. And so we actually recommend that as part of FDI requirements for the subsidies for manufacturing incentives that coupled with that may need to be increasing access to U.S. researchers and small innovative small businesses. With new designs or novel ideas to be able to get those technologies to market. Also on the semiconductor front, we have a shortage of VLSI engineers. And so there are very interesting programs, trust, trying to engage and expand interest in VLSI education at various institutions, including MSIs and HBCUs across the country. And then finally on impact, our critical materials and energy team, Energy Transportation team from MIT and Elsa Olivetti and Kate Whitefoot at Carnegie Mellon, Very interestingly, they demonstrate that within the next decade we frankly, by 2030, we can expect to see impacts as large as the semiconductor shortage due to shortages in critical materials just for electric vehicle batteries alone, which is a priority area to expand for the country for a number of reasons, energy security as well as climate and otherwise. And what they show is that those impacts they're able to Quantify include losses, $24 billion losses in consumer surplus as well as losses in jobs. And that we ameliorate those vulnerabilities just by increasing. And they quantify how much 100 lces in lithium in terms of access. And there's a variety of ways small businesses could get involved in that increase. And also in shifting our designs away from cobalt or designs, which is the industry norm right now, to cobalt free batteries. Again, a real opportunity for innovative needs, new ideas. But most importantly, on the equity front, it turns out that there may be that also batteries without cobalt may do better in speed charging, which is something for low income households that is prominent versus other households where they can plug in locally. And so there may also be equity benefits. So as we quantify the impacts for the country of these supply chain vulnerabilities, not only are there security benefits, not only are there economic benefits and job benefits, but there may also be equity benefits to those types of transitions away from cobalt based.

Batteries. Gosh, Erica, there's so much I'd love to follow up on there. We at the SBA right now we are thinking about and anticipate that folks will learn more in the coming year ahead about ways that we can be supportive of helping more small businesses and startups get access to to the tools and training that they need and resources to start to leverage AI technology to help them improve productivity and efficiency in their businesses and to grow and create new businesses. But in addition to that, you bring up these important points that there's a lot that we can do in terms of compute and development, but it is necessary that we have the underlying system structures and resources to power those developments in the future. And that is going to take a tremendous amount of public and private partnership and focus and organization. So that way we can unlock access to the tools and resources that entrepreneurs need to be able to make these advancements in innovation. So it's a fascinating time that we are in today. It is going to take this entire ecosystem and what do they say? It's collaborative competition is, is the way that we will be working and doing so hand in hand between the private sector and the public sector. I, I know we're a little bit short. I have other questions I'd love to delve into, but I just want to say thank you. This has been phenomenal. I appreciate the investment of time and know how busy both of you are, but I am hopeful that you're taking time to share your unique perspective and expertise with our audience is helpful and ideally, if it's okay, audience members might be able to follow up if there's more specific questions, since our time today was brief, but we're very appreciative. Happy holidays and thank you for joining us.

Today. Thank you so much for this.

Opportunity. Thank you. Well, with that, I am going to hand it back over to our dear friends that are facilitating the rest of the day. So thank you. Thank you so much. Bailey, Erica and Jared, let's give our panelists an emoji or gift. Round of.

Applause.

Applause. And John, I love that Giphy that you just shared. If you're just now tuning in, welcome to the third annual Innovation Ecosystem Summit. Please share your takeaways with us on social media using the hashtags ESL Summit 2023 and seed the future. Don't forget to visit AmericaSeed fund us your go to resource hub for ecosystem builders like yourself. Okay, y', all, we're going to take a quick break, a very quick break. And when we come back, we'll hear from federal and state policymakers and capital providers concerning the type of small, the type of support they can extend to small businesses. I'm going to see everyone back here at 1:05pm Eastern. Stay.