From Ukraine to RNDF: It’s time for the DOD to Bet Big and Pick Winners
21 December 2022
Source: https://www.reaganlibrary.gov/visitor-information
This month the nation’s most prominent thought leaders from across the defense, congressional, technology innovation, and private capital communities convened once again at the Reagan National Defense Forum in Simi Valley, California. Their charter was identical to that of years past: review and assess policies that strengthen America’s national defense in the context of the global threat environment.
As expected, the prevailing consensus at the Forum was that there is much work to be done. 2022 has brought not only a resurgence of great power competition but that competition’s economic and military intensification–a development that gives new urgency to words of warning issued by prominent investor Katherine Boyle to Forum attendees just a year ago. “Time is running out with Silicon Valley” Boyle warned and “DoD [has] at most two years before founders walk away and private capital dries up.” Not three months later, Russia invaded Ukraine.
The real-time reshaping of European security over the last 9 months, and the critical role of cutting-edge commercial technology to this effort, demands that we consider what would have happened if venture-backed tech startups and private capital had already walked away. Would such contributors to the West’s support of Ukraine as Capella Space, SpaceX, Anduril, Skydio, HawkEye360, Shield AI, Databricks, and Scale AI, to name a few, have been there?
Military strategists and futurists alike have long predicted that a war with China would be one of techno-military supremacy, won or lost based not on traditional weaponry or platforms, but on which side most effectively leverages critical emerging technologies. The ongoing war in Ukraine has demonstrated unequivocally that that future is already here— that civilian technologies adapted for military use will drive military progress. Even so, most of the companies creating this desperately needed technology are not being leveraged, and the few that are able to contribute to the Ukraine war effort are stuck subcontracting to big industrial machines or selling to NATO because they can’t meet DoD’s requirements on production ability.
“Venture-backed companies account for 41% of total US market capitalization and 62% of US public companies’ R&D spending.” Moreover, the two largest venture funding rounds - across all industries - this year went to a dual-use technology company (SpaceX) and a defense-focused company (Anduril). And yet, over the past five years, during which nearly $23B in private capital was invested in defense and national security-focused tech companies, only one of those companies appears in the top 10 vendor lists in terms of government spending for their respective categories (e.g., space technology, AI, or autonomy). Such top 10 lists continue to be reserved for the traditional primes and systems integrators that have historically comprised the Defense Industrial Base (DIB).
Source: https://www.reaganfoundation.org/library-museum/permanent-exhibitions/air-force-one/
So what will it take to fundamentally reimagine the techno-security landscape and its star players? A year ago, Boyle pointed to three things DoD could do to prevent such an eventuality: Award production contracts to startups with teams that have proven they can build; change the culture of procurement [by incentivizing] procurement officers to work with venture-backed startups; and commit to long-term changes. No such critical shifts of vision and policy happened in 2022. And they were echoed once again, at this year’s forum, by current and former OSD leadership, Congressional leaders serving in key roles on the Armed Service and Appropriations committees, and general partners at the nation’s leading private capital firms whose portfolio companies “matter[] in the current conflict. More so than in any recent combat operation.”
Despite the DoD’s affinity for investing in traditional defense companies, startup founders and private capital investors have demonstrated–so far–that they are all in, in support of national security. Issuing real production contracts to startups and emerging tech companies would signal DoD’s seriousness about doing business differently and investing in cutting-edge technology that has already proven itself operationally in an active theater of war. Instead, DoD is issuing Small Business Innovation Research (SBIR) contracts at an unprecedented rate. And though SBIRs are certainly useful for prototyping and early-stage R&D efforts, they are almost detrimental to growth scale, venture-backed companies, in that they falsely signal government intent to invest meaningfully following award, something which rarely comes to fruition.
Far from meaningfully incentivizing procurement officers to make big bets on nontraditional DIB players with exquisite capabilities, DoD is falling back on a system originally designed to reward the big platform and hardware providers, and forcing them to make decisions about bringing on the small or dual-use companies as suppliers that create the emerging technologies they need. Let’s instead let the Defense Innovation Unit (DIU) lead the way on sharing best practice metrics and evaluation methods for procuring this technology, and then let’s create a contracting method accepted across the government that will allow for the purchase of this technology.
This is a call to action: to DoD, to Congress, to the National Security Innovation Base. Rather than continuing to issue SBIRs whose results rarely ever cross the “Valley of Death”, let’s make some big bets and pick some winners. Rather than continue to waffle on the value of truly differentiated approaches, let’s be unequivocal in our support for innovation, by realigning the DIU under the Secretary of Defense as it was in its early experimental days, and resourcing it at a level befitting its impact. Let’s make it a partner to the recently-announced, though not sufficiently resourced, Office of Strategic Capital. Not only will such a move help to attract and retain the nation’s top technical talent for the next DIU director and executive leadership, but it will signal to the private capital community that their investments - investments that most certainly have underwritten Ukraine’s fight for sovereignty - are not for naught.
Once again, imagine if Katherine’s warning had come 3 years ago, and if we had not heeded it. What would we be seeing in Ukraine today? Now imagine it is 2030 and DoD has still not heeded the warning. What does our great power competition look like then?Just as our service members need to constantly train to prepare for the unknown obstacles to come, our investors, lawyers, policy makers, and DoD must constantly work at their ability to maintain emerging technology readiness. Let’s get DoD procurement vehicles set up to rapidly stand up and scale innovative tech from emerging companies with the highest potential to support national security BEFORE we need them.
About the Silicon Valley Defense Group (SVDG): The Silicon Valley Defense Group (SVDG) is a non-partisan 501(c)(3) non-profit that seeks to create the nexus of pioneering ideas, people, and capital that will unlock new sources of innovation for national security and power the digital evolution of the defense industrial base. Convened first as an informal working group in 2015, SVDG began after members of Congress sought help from leaders in tech and finance to improve relations between technologists, investors, and national security practitioners. Learn more at siliconvalleydefense.org
