Enhancing the Warfighter’s Pipeline: Defense Tech & Venture Capital

>> Cutting-edge technologies, including advanced satellites, unmanned drone swarms, and AI-powered data analytics, are becoming essential to America's future national security. But unless the United States modernizes its development, procurement, and deployment of these types of capabilities, it risks losing its technological edge to emerging near-peer competitors. Today, the Pentagon primarily relies on traditional defense contractors to build weapon systems. The entire process is slow, expensive, and risk-averse, often taking years to deliver.

Meanwhile, conflicts in Ukraine and Israel have reinforced the lesson that technology advances on the modern battlefield will be measured in days or weeks, not months or years. Fortunately, for the United States, some 200 venture-backed defense tech startups have been preparing for this new reality since the mid two thousands. These companies represent hundreds of millions of hours of engineering labor outside the traditional defense ecosystem.

They're designing, building, and now deploying operational defense products and services using a fundamentally different approach to risk management and cost. Unlike traditional defense contractors, these startups move swiftly using their own product roadmap funded by venture capital. This private investment means the value of every taxpayer dollar can be multiplied by up to tenfold. Many of these startups, however, stall in what's known as the valley of Death as they shift from proof of concept to operational systems.

Investors demand real traction contracts, purchase orders, or funding allocations that the Department of Defense often fails to provide. Investors may see early, but small demand signals through programs such as small business innovation research, but there are a few paths to reach the tens of millions of dollars in contractual obligations Investors would want to see at series B or Series C venture financings. Now, how many war fighters, ultimately kids from our own neighborhoods serving in uniform could have been saved in Iraq and Afghanistan?

Had America tapped into our broader technology sooner? Are we willing to risk a technological Vietnam where troops lives and strategic objectives are unduly threatened in future conflicts where competitors use advanced technologies in unexpected and asymmetric ways? It's time to recognize that overly cautious acquisition processes limit innovation and actually increase the risk of delayed and or inadequate equipment for war fighters. In the 1950s, the U2 spy plane emerged from only a two-page proposal and tight government-industry collaboration. That kind of simplicity without the red tape and risk-averse mindset is what the United States needs to unleash startups to meet our urgent demands. A critical part of the solution lies in aligning acquisition with private investment.

First, we need to expand the Air Force's strategic funding increase program to the entire Department of Defense, double its awards, and eliminate the need for SBA waivers. We should communicate to entrepreneurs, investors, and government acquirers that this is the preferred model to bring the early-stage capabilities of defense-focused startups to operational readiness.

Secondly, we should incentivize program officers to back startups. Currently, choosing an unproven firm over a traditional contractor is often perceived as an unacceptable risk and possibly career suicide. By rewarding officers who champion startups, the culture could shift towards innovation.

Finally, we should allocate 30 to 50% of the Pentagon's one and a half billion dollars annual SER budget to stratify like programs. This allocation could support many more startups and ensure that modern technologies reach the battlefield quickly. This will also help create a reliable market for investors. Not every company will be successful, but at least investors could count on funds being available for startups that rise above the fray. These necessary yet targeted reforms don't demand a comprehensive overhaul. Just bold action to unlock an already dynamic and growing defense industrial base.

Pentagon Partnership with venture-backed startups can help leverage private capital, cut costs, and deliver urgently needed cutting-edge technology to Americans in uniform quickly.

In a world where technological superiority defines our national security, America cannot allow antiquated risk management approaches to delay the tools our war fighters need to keep us safe. The United States should embrace a new model to secure our future.