Venture Backing of Defense Firms Foiled by Small Business Rules

Damien Specht spoke to Bloomberg Government about the Pentagon's effort to draw more commercial investment to technology with military uses being thwarted by regulations designed to ensure the viability of small business vendors in the federal contracting base.

The Small Business Administration (SBA) "negative control" rules state that a small startup controlled by a bigger firm or fund isn't eligible for small business set-aside opportunities for contracts. These sorts of controls are common with venture capital investments in the commercial market, but restrictions in the federal market can come as a surprise for contracting newcomers.

"It happens when you actually bid on something, you've actually won something, and then someone says 'Houston, we have a problem,'" Damien said.

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