Backswing Ventures: The SBIR Trap -- When Non-Dilutive Capital Becomes a Distraction

The Orlando-based defense venture capital firm warns that early-stage companies risk becoming outsourced R&D shops for the government if SBIR and STTR awards start dictating strategy instead of accelerating it.

ORLANDO, Fla., August 27, 2026 /PRNewswire/ -- SBIR funding is one of the most important levers for getting new defense technology off the ground, according to Backswing Ventures, an Orlando-based early-stage defense venture capital firm. For an early-stage company, the firm says, non-dilutive capital can be the difference between an idea staying on a whiteboard and a product reaching the warfighter — funding expensive R&D, validating technology, and building government relationships without giving up equity.

But the firm cautions that the model can become a trap. "The problem isn't SBIR funding," said Kyle Asman, Founder and Managing Partner of Backswing Ventures. "The problem is when SBIR funding becomes the business model."

From Force Multiplier to Distraction

According to Backswing Ventures, the pattern is familiar across the defense tech landscape: a company wins a Phase I, builds a prototype, wins a Phase II, then starts eyeing the next solicitation. The government has another problem, and the company has the technical capability to solve it, so it builds something new, chases another award, and repeats. Over time, Asman said, that company can start to look less like a product business and more like an outsourced R&D shop for the Department of War — a dangerous place for a venture-backed company to land.

The distinction, Asman said, is subtle. A defense company can, and often should, derive most of its revenue from government customers, since they're the market for many of the most important technologies being built today. "The issue isn't where the revenue comes from," he said. "It's whether the company is building toward a repeatable product and a defensible position, or simply chasing whatever problem happens to have funding attached to it."

When the Tool Becomes the Strategy

Used well, Backswing Ventures says, an SBIR accelerates a company's existing strategy — funding a hard piece of R&D, validating a new capability, or pushing a product through testing without burning equity capital. Used poorly, the firm cautions, the funding starts setting the strategy instead.

"A company with a product that's already 80 percent of what a customer needs might spend another 18 months chasing the remaining 20 percent simply because a new program is willing to pay for it," Asman said. "On paper that looks like progress — another award, another prototype, another relationship. In practice, it can move the company further from commercialization. Every engineer on a one-off government prototype is an engineer not improving the core product. Every dollar chasing the next award is a dollar not spent on production, hiring, or the next customer."

The SBIR program itself is built around this endpoint, according to the firm: Phase III exists specifically to move technology beyond SBIR/STTR funding and into federal or private markets.

The strongest defense companies, Backswing Ventures argues, treat SBIR funding as a force multiplier, not a destination. "They know what they're building, who needs it, and why they'll be hard to replace," Asman said, "and they use government funding to accelerate that roadmap, not rewrite it with every new solicitation."

The Right Question for Founders

For founders, Backswing Ventures says the right question isn't "Can we win this SBIR?" It's: "If we win it, does it make the company we're already building more valuable?" Does it strengthen the core product, create proprietary technology, expand a real capability, put the product in an important customer's hands, or open a path to production? If yes, the firm says, non-dilutive capital is a powerful tool. If no, another $1 million in funding may not be progress at all.

"At Backswing, we believe the best defense companies are defined by what they build, who buys it, and why they keep winning, not by how many government R&D awards they've collected," Asman said. "SBIRs can be an exceptional tool for getting there. The key is making sure the tool doesn't become the strategy."

Backswing Ventures has backed several companies that illustrate this discipline in practice. The firm recently led Isengard Industries' financing round to scale precision munitions manufacturing for allied militaries, and supported Orion Edge's $3 million seed round to expand delivery of tactical electronic warfare systems to U.S. Army Space and Missile Defense Command and international customers — investments the firm says reflect production-focused, revenue-generating businesses rather than research-stage dependency on government awards.

The firm's broader investment philosophy has also translated into results: Backswing Ventures' Fund II recently surpassed 1.0x DPI in under three years, a milestone the firm attributes in part to this discipline around what it funds and why.

Backswing Ventures has written previously about the importance of hands-on diligence in defense investing, noting in a recent post that its team makes it a policy to visit every portfolio company in person before investing — a practice it says extends the same principle of grounding decisions in what's actually being built, not just what's being pitched.

Backswing Ventures said it continues to look for founders redefining defense and national security who understand this distinction — building real products rather than chasing whatever solicitation happens to be open.

About Backswing Ventures

Backswing Ventures is an early-stage venture capital firm focused on dual-use and defense technology companies. The firm invests in businesses building next-generation capabilities across aerospace, autonomy, defense systems, infrastructure, cybersecurity, and national security technologies. Backswing Ventures' Fund II recently surpassed 1.0x DPI in under three years, making it among the top-performing 2023 vintage venture funds in the country.

Backswing Ventures | [email protected] 

SOURCE Backswing Ventures