FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT

Exhibit 10.36

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.

FIRST AMENDMENT TO

LOAN AND SECURITY AGREEMENT

THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “ Amendment ”) is entered into this 31 ^st day of December, 2008, by and among SILICON VALLEY BANK (“ Bank ”) and LUNA INNOVATIONS INCORPORATED , a Delaware corporation (“ LII ”), LUNA TECHNOLOGIES, INC. , a Delaware corporation (“ LTI ”; and together with LII, individually as a “ Borrower ” and collectively as “ Borrowers ”), whose address is 1 Riverside Circle, Suite 400, Roanoke, Virginia 24016.

R ECITALS

A.     Bank and Borrowers have entered into that certain Loan and Security Agreement dated as of May 22, 2008 (as the same may from time to time be further amended, modified, supplemented or restated, the “ Loan Agreement ”).

B.     Bank has extended credit to Borrowers for the purposes permitted in the Loan Agreement.

C.     Borrowers have requested that Bank amend the Loan Agreement to (i) adjust the interest rates under the Revolving Line and Term Loan, (ii) revise the minimum EBITDA covenant set forth in Section 6.7(c) of the Loan Agreement, (iii) add intellectual property as Collateral, and (iv) make certain other revisions to the Loan Agreement as more fully set forth herein.

D.     Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

A GREEMENT

N OW , T HEREFORE , in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

1.    Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

2.    Amendments to Loan Agreement.

2.1    Section 2.3 (Payment of Interest on the Credit Extensions). Section 2.3(a) is amended in its entirety and replaced with the following:

(a) Interest Rate .

(i) Advances . Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to the greater of (i) one percentage point (1.0%) above the Prime Rate or (ii) five percentage points (5.0%), which interest shall be payable monthly in accordance with Section 2.3(f) below.

(ii) Term Loan . Subject to Section 2.3(b), the principal amount outstanding under the Term Loan shall accrue interest at a floating per annum rate equal to the greater of (i) one half of one percentage points (1.50%) above the Prime Rate or (ii) five and one half of one percentage points (5.50%), which interest shall be payable monthly.

2.2    Grant of a Security Interest in Borrowers’ Intellectual Property. Each Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, its intellectual property, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Additionally, each Borrower hereby reaffirms its grant to Bank, to secure the payment and performance in full of all of the Obligations, of a continuing security interest in, and pledge to Bank, of the Collateral, including, without limitation, the personal property added to Exhibit A by this Amendment.

2.3    Section 5.2 (Collateral). Section 5.2 is amended by adding the following paragraph immediately after the second paragraph as follows:

Each Borrower is the sole owner of its intellectual property, except for (a) non-exclusive licenses granted to its customers in the ordinary course of business and (b) exclusive licenses granted to customers in the ordinary course of business. Each patent is valid and enforceable, and no part of the intellectual property has been judged invalid or unenforceable, in whole or in part, and to the best of each Borrower’s knowledge, no claim has been made that any part of the intellectual property violates the rights of any third party except to the extent such claim could not reasonably be expected to have a material adverse effect on each Borrower’s business. Except as noted on the Perfection Certificate, no Borrower is a party to, nor is bound by, any material license or other agreement with respect to which such Borrower is the licensee that prohibits or otherwise restricts such Borrower from granting a security interest in such Borrower’s interest in such license or agreement or any other property, or for which a default under or termination of could interfere with the Bank’s right to sell any Collateral. Borrowers shall provide written notice to Bank within thirty (30) days of entering or becoming bound by any such license or agreement (other than over-the-counter software that is commercially available to the public). Borrowers shall take such steps as Bank requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (x) all such licenses or agreements to be deemed “Collateral” and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such license or agreement, whether now existing or entered into in the future, and (y) Bank to have the ability in the event of a liquidation of any Collateral to

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dispose of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the other Loan Documents.

2.4    Section 6.7 (Financial Covenants). Section 6.7(c) is amended in its entirety and replaced with the following:

(c) EBITDA . Maintain, measured as of the end of each fiscal quarter during the following periods, EBITDA of at least the following:

[****]

2.5    Section 7.1 (Dispositions). Section 7.1 is amended in its entirety and replaced with the following:

7.1    Dispositions.

Convey, sell, lease, transfer or otherwise dispose of (collectively, “ Transfer ”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment; (c) in connection with Permitted Liens and Permitted Investments; (d) of non-exclusive licenses for the use of the property of any Borrower or any of its Subsidiaries in the ordinary course of business; and (e) of exclusive licenses for the use of the property of any Borrower or any of its Subsidiaries, provided: (x) all such exclusive licenses are in the ordinary course of business and there is no Lien or security interest associated with the exclusive license, and (y) such arrangements do not operate to effect a legal transfer of title of the licensed property.

2.6    Section 7.5 (Encumbrance). Section 7.5 is amended in its entirety and replaced with the following:

7.5    Encumbrance.

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Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein.

2.7    Section 13 (Definitions).

(a) The following term and its definition is hereby added to Section 13.1:

“ IP Agreements ” means (i) that certain Intellectual Property Security Agreement executed and delivered by LII to Bank dated as of December 31, 2008 and (ii) that certain Intellectual Property Security Agreement executed and delivered by LTI to Bank dated as of December 31, 2008.

(b) The following term and its definition set forth in Section 13.1 is hereby amended in its entirety and replaced with the following:

“ Loan Documents ” are, collectively, this Agreement, the Perfection Certificate, the IP Agreements, the Subordination Agreement, the Guaranties, any note, or notes executed by any Borrower and any other present or future agreement between any Borrower and/or for the benefit of Bank in connection with this Agreement, all as amended, restated, or otherwise modified.

(c) Clause (h) of the definition of the term “ Permitted Liens ” in Section 13.1 is hereby amended in its entirety and replaced with the following:

(h) non-exclusive license of intellectual property granted to third parties in the ordinary course of business, or other licenses of intellectual property permitted under Section 7.1 of this Agreement;

2.8    Exhibit A. The Collateral described in Exhibit A of the Loan Agreement is replaced in its entirety with the Collateral description attached hereto as Exhibit A .

2.9    Compliance Certificate. The Compliance Certificate to the Loan Agreement is replaced in its entirety with Exhibit E attached hereto.

3.    Limitation of Amendments.

3.1     The amendments set forth in Section 2 , above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

3.2     This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

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4.    Representations and Warranties. To induce Bank to enter into this Amendment, each Borrower hereby represents and warrants to Bank as follows:

4.1     Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;

4.2     Each Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

4.3     The organizational documents of each Borrower delivered to Bank on the Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

4.4     The execution and delivery by each Borrower of this Amendment and the performance by each Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

4.5     The execution and delivery by each Borrower of this Amendment and the performance by each Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting each Borrower, (b) any contractual restriction with a Person binding on each Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on each Borrower, or (d) the organizational documents of each Borrower;

4.6     The execution and delivery by each Borrower of this Amendment and the performance by each Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on each Borrower, except as already has been obtained or made; and

4.7     This Amendment has been duly executed and delivered by each Borrower and is the binding obligation of each Borrower, enforceable against each Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

5.    Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

6.    Effectiveness. This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, (b) Bank’s receipt of

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the Intellectual Property Security Agreement substantially in the form attached hereto as Schedule 1, duly executed and delivered by LII, (c) Bank’s receipt of the Intellectual Property Security Agreement substantially in the form attached hereto as Schedule 2, duly executed and delivered by LTI, (d) the proper filing of a UCC amendment to financing statement adding intellectual property to the Collateral with the State of Delaware, (e) Borrowers’ payment of a non-refundable amendment fee in an amount equal to Seven Thousand Five Hundred Dollars ($7,500), and (f) payment of Bank’s legal fees and expenses in connection with the negotiation and preparation of this Amendment.

[Signature page follows.]

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I N W ITNESS W HEREOF , the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

BANK

BORROWERS

[Signature Page to First Amendment to Loan and Security Agreement]

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Schedule 1

Form of Intellectual Property Security Agreement (LII)

THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT is entered into as of December 31, 2008 by and between SILICON VALLEY BANK (“ Bank ”) and LUNA INNOVATIONS INCORPORATED , a Delaware corporation (“ Grantor ”).

RECITALS

A. Bank has made certain advances of money and extended certain financial accommodation to Grantor (the “ Loans ”) in the amounts and manner set forth in that certain Loan and Security Agreement by and between Bank and Grantor dated May 22, 2008 (as the same may be amended, modified or supplemented from time to time, the “ Loan Agreement ”; capitalized terms used herein are used as defined in the Loan Agreement). Bank is willing to enter into that certain First Amendment to Loan and Security Agreement dated as of even date herewith by and between Bank and Grantor, but only upon the condition, among others, that Grantor shall grant to Bank a security interest in certain Copyrights, Trademarks, Patents, and Mask Works (as each term is described below) to secure the obligations of Grantor under the Loan Agreement.

B. Pursuant to the terms of the Loan Agreement, Grantor has granted to Bank a security interest in all of Grantor’s right, title and interest, whether presently existing or hereafter acquired, in, to and under all of the Collateral.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, and intending to be legally bound, as collateral security for the prompt and complete payment when due of its obligations under the Loan Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:

AGREEMENT

To secure its obligations under the Loan Agreement, Grantor grants and pledges to Bank a security interest in all of Grantor’s right, title and interest in, to and under its intellectual property (all of which shall collectively be called the “ Intellectual Property Collateral ”), including, without limitation, the following:

(a) Any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held, including without limitation those set forth on Exhibit A attached hereto (collectively, the “ Copyrights ”);

Schedule 1 Page 1

(b) Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;

(c) Any and all design rights that may be available to Grantor now or hereafter existing, created, acquired or held;

(d) All patents, patent applications and like protections including, without limitation, improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same, including without limitation the patents and patent applications set forth on Exhibit B attached hereto (collectively, the “ Patents ”);

(e) Any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Grantor connected with and symbolized by such trademarks, including without limitation those set forth on Exhibit C attached hereto (collectively, the “ Trademarks ”);

(f) All mask works or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired, including, without limitation those set forth on Exhibit D attached hereto (collectively, the “ Mask Works ”);

(g) Any and all claims for damages by way of past, present and future infringements of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;

(h) All licenses or other rights to use any of the Copyrights, Patents, Trademarks, or Mask Works and all license fees and royalties arising from such use to the extent permitted by such license or rights;

(i) All amendments, extensions, renewals and extensions of any of the Copyrights, Trademarks, Patents, or Mask Works; and

(j) All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.

This security interest is granted in conjunction with the security interest granted to Bank under the Loan Agreement. The rights and remedies of Bank with respect to the security interest granted hereby are in addition to those set forth in the Loan Agreement and the other Loan Documents, and those which are now or hereafter available to Bank as a matter of law or equity. Each right, power and remedy of Bank provided for herein or in the Loan Agreement or any of the Loan Documents, or now or hereafter existing at law or in equity shall be cumulative and concurrent and shall be in addition to every right, power or remedy provided for herein and the exercise by Bank of any one or more of the rights, powers or remedies provided for in this Intellectual Property Security Agreement, the Loan Agreement or any of the other Loan

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Documents, or now or hereafter existing at law or in equity, shall not preclude the simultaneous or later exercise by any person, including Bank, of any or all other rights, powers or remedies.

[Signature Page Follows.]

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IN WITNESS WHEREOF, the parties have caused this Intellectual Property Security Agreement to be duly executed by its officers thereunto duly authorized as of the first date written above.

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EXHIBIT A

Copyrights

Exhibit A Page 1

EXHIBIT B

Patents

Exhibit B Page 1

Exhibit B Page 2

Exhibit B Page 3