February 7, 2025

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Michigan Capital Network joins Pentagon tech investment initiative

Michigan Capital Network joins Pentagon tech investment initiative

Michigan Capital Network is among 18 investment firms nationally selected for a U.S. Department of Defense initiative to invest in critical technologies. 

A Jan. 17 announcement from the Department of Defense listed the Grand Rapids-based Michigan Capital Network among the first cohort for the Small Business Investment Company Critical Technologies Initiative, a partnership with the U.S Small Business Administration. 

The announcement did not specify how much each of the recipients would receive but did project that the 18 firms collectively were expected to invest more than $4 billion into more than 1,700 portfolio companies that focus on critical technologies and “on strategic component technologies and production processes.” 

A Department of Defense announcement last fall on the initiative indicated that each fund, once licensed as a small business investment company, could access up to $175 million in SBA Debenture loans. 

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The first funds chosen for the initiative have offices in 15 states and Washington, D.C., and will invest in various stages, from pre-seed to Series D rounds, as well as offer private equity growth and buyout capital and private credit. 

The Department of Defense lists Michigan Capital Network, the only firm in the Midwest chosen for the initiative, as planning to provide pre-seed, seed, and Series A and B rounds through what the announcement called Michigan Capital Network Venture Fund V LP. 

Michigan Capital Network declined to comment on the selection.

Michigan Capital Network operates four venture capital funds and five angel investing groups based in Grand Rapids, Kalamazoo, Detroit, Flint and Saginaw. 

Records show that Michigan Capital Network Venture Fund V LP was formed on March 25, 2024 as a Delaware corporation. 

In-state companies developing innovations in defense technology could benefit from having a Michigan-based fund participating in the Small Business Investment Company Critical Technologies Initiative, said Adam Bruski, senior counsel at Warner Norcross + Judd’s Midland office who works in the law firm’s aerospace, defense and government services practice. 

A Michigan fund also would be in a position to scout for prospects and vet companies by “having your ear better to the ground” than funds in other parts of the country, Bruski said, noting the fund would also have a stronger ability “to evaluate the potential of Michigan businesses to be funded.” He cites as examples a strong aerospace sector in Michigan and the state’s manufacturing acumen. 

“It’s really important that we do have a Michigan fund that’s one of the current parties in this first cohort. During World War II, we were the ‘Arsenal of Democracy’ and in a lot of ways, we still are. If you need to make it for the DoD, there’s a pretty good chance that we can do it here,” Bruski said. “Having one of these funds in Michigan is a definite positive benefit for Michigan companies that are already in the defense space or who are interested in perhaps getting into the defense space.” 

The Department of Defense and the SBA started the Small Business Investment Company Critical Technologies Initiative through the Pentagon’s Office of Strategic Capital that then-Defense Secretary Lloyd Austin III created in December 2022. 

The initiative will target critical technologies that include advanced materials; biotechnology; sensor hardware; microelectronics for assembly, testing, and packaging; quantum science; battery storage; and space-enabled services and equipment. 

“The United States is in a global competition for leadership in critical technologies. Today, private capital finances the significant majority of the critical technology and supply chains needed by the Department of Defense,” Austin, who left his role as defense secretary this week with the change in presidential administrations, wrote in a March 2024 report on the Department of Defense’s investment strategy. “Consequently, private capital is a vital resource for the Department and a key source of U.S. comparative advantage in technology competition. Therefore, working with capital providers is a national security imperative.” 

The Office of Strategic Capital “will engage with and enhance the United States’ significant national advantages in capital markets, technology development, and commitment to market competition,” according to Austin. 

“In contrast to global competitors that coerce and control investors and companies, the United States has an unmatched ability to invite and empower those who seek to contribute to our shared security,” he wrote at the time. “Together, we can work towards ensuring that the United States maintains its technological advantages.” 

The Department of Defense announced the first cohort this month after issuing a “Green Light Letter” to each fund that invites them to raise private capital to leverage the federal funding. When they close on the first capital tranche, they can apply for a Small Business Investment Company license from the SBA. 

The new initiative reflects how the Department of Defense has been trying alternative ways to improve American manufacturing and R&D in critical technologies that are important for the future of national defense or where the U.S. is falling behind or threatened by foreign competitors, Bruski said. 

Traditionally, the department achieved those goals through research and development contracts, funding programs at universities, or in-house through a national laboratory or the Defense Advanced Research Projects Agency.  

“The DoD has been innovating new ways to help us close those gaps or advance those technologies,” Bruski said. “This gives them another ability to take some of that money and get it more directly into the hands of people and companies that are pursuing some of these things on their own. I think it has the ability and potential to speed up the process.” 

Seven of the 18 investment funds, not including Michigan Capital Network, already have been licensed by the SBA as a small business investment company, according to the Department of Defense. They are now able to begin investing. 

The Department of Defense said in last week’s announcement that more than 100 investment funds have indicated an interest in participating in the SBIC Critical Technologies Initiative. Applications for the second cohort are due March 31. 

Bruski believes the Critical Technologies Initiative will survive the change in presidential administrations. 

“This is a bipartisan effort that will continue. It started under the Biden administration, and I don’t see any reason why the Trump administration wouldn’t continue it. This is the type of innovation that, I think, both parties are looking to leverage,” he said. “Defense is generally one area that the parties tend to agree on. Anything that allows us to do what we’re doing faster, smarter and, hopefully, more efficiently is, I think, acceptable to both sides.” 

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