David Gompert and Tim Denning
A sea-change is happening in cooperation between the U.S. defense sector and private enterprise, driven by geo-strategic and technological imperatives. Practical efforts to remove obstacles are underway. Venture capital has a crucial role and major opportunity.
The Big Picture
Not since the Soviet Union’s demise has there been such clarity and consensus about the main affront to U.S. global interests. In response to China’s challenge to U.S. international, technological and military primacy, a public-private response is being forged. In this larger context, the U.S. military is especially anxious for innovative solutions to its operational needs in order to deter and/or to prevail in a conflict.
These developments come amidst technological transformation that presents both risks and opportunities. In the U.S., most critical new technologies are emerging in the private sector, where funding for research and development is roughly twice that of the government. Thus, while demand for innovation is gathering strength in the realm of national security, much of the supply of innovation comes from firms, large and small, whose business is mainly non-governmental.
Linking supply to demand will require significant improvements in the access private firms have to government work. Already, creative contracting and funding options are in use to yield innovation based on emerging technologies. These must and will be fully utilized and augmented. Meanwhile, government is helping innovators in the national-security sector to ply their innovations in commercial markets. Public-private cooperation can be a two-way street.
Leapfrog Capabilities
Although demands flowing from the U.S. response to China’s ambitions go beyond strictly military ones, it is essential to understand what is driving the needs of the armed forces. In brief, China’s build-up of advanced attack submarines, surface-to-surface missiles, and air-defense systems is making the vital region from Korea to the South China Sea increasingly perilous for U.S. surface ships and bases. Because China’s ability to target U.S. forces is improving steadily, the U.S. military services must leapfrog this Chinese strategy with more diverse, dispersed, linked, numerous, and less conspicuous forces capable of precise long-range sensing and strikes.
Back in the 1980s, the U.S. succeeded in neutralizing the Soviet mechanized menace to NATO by capitalizing on digital processing and networking technologies developed mostly by private companies, who were competing with one another and with Japan. By the end of that decade, the United States was able to win a dazzling military victory in the Gulf War and a more important and peaceful victory in the Cold War. That these results were achieved absent structured public-private collaboration suggests what is possible when such collaboration is proactively organized and pursued by the U.S. defense and industrial establishments.
Today’s most important commercial technologies are the same as those needed to sustain U.S. military advantages. Artificial intelligence (AI) multiplies the potency of information — its collection, fusion, dissemination, management and use in decision-making – and thus can help integrate and empower networked forces. AI can also enliven unmanned air and naval systems. Such systems can also exploit advances in reduced-power and -weight technologies. Joint operations across all services and domains — air, land, sea, under-sea, cyber, and space — offer superior combat power, but will in turn demand improved cyber-security. Recent and ruinous network attacks by enemy powers underscore the need for innovation in cyber-security, including quantum communication. Ultimately, quantum technology will hold the key to cyber defense and offense.
At the nexus of technological possibility and the need for leapfrog capabilities, the U.S. military — once a bastion of caution — has become a champion of creativity. The services and joint organizations are engaging private enterprises to devise solutions to operational problems. This effort requires concrete progress in government contracting, funding and program management. The proof lies in the practical modalities of public-private partnership, without which commercial firms will lack the patience and motivation to design, develop and build military capabilities.
Institutional Scaffolding
To facilitate the search for new solutions between private and military sectors, U.S. officers and civilian officials are creating an ecosystem that can share war-fighting requirements with prospective industry partners around technologies that have mission applicability. The goal is to make defense work more exciting, dynamic, economic and (to be frank) easy for private businesses and employees. The styles, structures, processes and profit models of U.S. defense and information industries have followed divergent paths; while they cannot be made to converge suddenly, the military services increasingly understand and are committed to attract and adapt to the culture that spawns American technology.
This emerging ecosystem is comprised of relatively new entities at the DoD headquarters-level, including a Defense Innovation Unit (DIU) and a National Security Innovation Network (NSIN). DIU seeks to strengthen U.S. national security by expediting adoption of commercial technology throughout the military and growing the national security innovation base. NSIN builds communities of innovators that generate new solutions. These entities complement existing entities like Defense Advanced Research Projects Agency (DARPA) and the Defense Technical Innovation Center (DTIC).
In addition, each service has its own collaborative innovation arms that expands and enhances the Pentagon-wide ecosystem. AFWERX, the USAF’s innovation arm, seeks to solve problems and enhance the effectiveness of the service by enabling thoughtful, deliberate, bottom-up innovation. This is done through an approach that combines startup urgency with the largest pool of motivated talent in the world to uncover opportunities to improve Air Force capabilities, connect and engage the right stakeholders, and facilitate outcomes. Army Futures Command’s mission is to develop how future Army organizations will fight with new technology and ensure rapid delivery of war fighting capabilities. NavalX, the innovation branch of Navy, seeks to innovate by transforming the Navy workforce.
Together, these mechanisms comprise significant reform and unprecedented opportunities for the US military and private-commercial firms to collaborate around mission needs and technological possibilities. The propinquity they offer professionals from both realms will improve cultural familiarity and trust.
Collaborating on requirements is only half the task. Actual capabilities must of course be developed to address those requirements, enhance operational performance, and continuously improve. Such capabilities are procured from industry through the modality of contracting. To keep up with the speed of innovation and bring life to collaboration of the U.S. military and private sectors, creative contracting methods have been implemented. The methods include Other Transaction Authorities (OTAs) and Small Business Innovation Research Grants (SBIRs).
OTAs are legal instruments that may be used to engage industry and academia for a broad range of research and prototyping activities. OTAs are not standard procurement contracts, grants, or cooperative agreements and, as such, are generally not subject to the federal laws and regulations that apply to government procurement contracts. Given this, they can move more nimbly through the procurement process, allowing contracting to move at the speed of innovation.
A SBIR is a contract awarded to a domestic small business to engage in Federal Research/Research and Development (R/R&D) with the potential for commercialization. Through a competitive award-based program, a SBIR enables small businesses to explore their technological potential and provide the incentive to profit from its commercialization. By contracting qualified small businesses in the nation’s R&D arena through a simplified process, high-tech innovation is stimulated, and the United States gains entrepreneurial spirit as it meets its specific research and development needs.
Successful examples of OTAs and SBIRs abound within the US military. The OTA program has yielded some significant capabilities, such as the Mine Resistant Ambush Protected (MRAP) family of vehicles. These were procured through OTAs and provided protection from improvised explosive devices, rocket-propelled grenades, and other threats, saving countless American warfighter lives. Similarly, the SBIR program has yielded capabilities like a cross between radar and camera that can see in the dark and through barriers to allow for better flight navigation, as well as a Mobile Cleaning Reclaim Recycle System (MCRRS) to ensure aircraft carrier decks are mission-ready almost instantly. These and other SBIR-acquired capabilities have immensely positive impacts on the mission.
Political Attention
Obviously, even the most determined uniformed military does not have sufficient authority or political heft to put in place the institutional-legal scaffolding of effective public-private partnership. The incoming Pentagon leadership team has wasted no time endorsing existing mechanisms for defining requirements and contracting work from non-traditional industrial players. In addition, it has set up over-sight structures to energize further that commitment to transformation. The new Deputy Secretary’s Management Action Group (DMAG) is especially well-conceived to provide identify and knock down obstacles, not to add bureaucratic layers or micromanage. Appointing the Vice Chairman of the Joint Chiefs as DMAG co-chairman is the right way to elevate civilian-military collaboration and further encourage military initiative.
More broadly, alignment of political and institutional support for transformation is imperative, and it is a reality. From the previous administration to this one, concern about China and preference for new technologies over old platforms have been consistent and bipartisan.
There is a difference across administrations in the level of projected defense spending. The Biden administration favors neither significant growth, as proposed by its predecessor, nor the cuts sought by “progressives” in its own party. However, a tighter defense budget is reinforcing a predisposition toward investment in technology, which can offer savings relative to producing and maintaining more legacy platforms. Ever since the defense establishment “bought into” the digital revolution thirty years ago, it is increasingly clear that information and integration can offer more capability for less cost.
Thus, broad and durable political support for technological transformation, for streamlined and flexible acquisition, and for public-private partnership can be expected. While Congressional committee traditionally lean toward job-intensive production and basing, there are indications that the commitment to confronting China’s technological rivalry is increasingly common defense-oriented legislators.
The Role of Venture Capital
A public-private strategy to apply new technology for national security requires adequate well-placed capital to fund innovation, development, adaptation and scale-up. This can be essential to bridge the gap between design and production, during which considerable cost is incurred but adequate funding has yet to be committed. Venture capital can position a new enterprise for going success or for acquisition, e.g., by an established defense contractor.
Mentoring can be as vital as money for startup ventures within or intended for government business. Specifically, experience and savvy in operations, generation of profitable revenue, investment for exceptional return, organization, planning, and business systems can be of great value. Business development and solution development in a government setting are no less important. Knowledge of how to navigate both standard and reformed government acquisition, contracting, and program management, as well as familiarity with competitive landscape, are all essential to impart. Not least in value is awareness of military and other needs and how solutions based new technology can meet them, hand-in-hand with government counterparts.
Finally, a high-value financial partner will be mindful of the creative environment typical of promising high-tech ventures and of how to sustain it no less in public-sector as in private-sector endeavors. Clients in military and other national services are increasingly receptive to importing and supporting the culture of innovation; and venture capital can play a crucial role in fostering mutual respect and teamwork.
Meeting the strategic demand with new technology, as presented earlier, means challenge for government and private enterprise. Venture capital must be superior in knowing “both worlds” no less than in furnishing capital for greatest effect and return. The general partner has this responsibility.
Overall Assessment
The Chinese challenge is not a “Sputnik moment,” as when, in October 1957, the Soviet launch of the world’s first satellite shocked Americans into action to avoid losing the space and missile races, and when the U.S. government dictated the national response. Nor is it the 1980s, when it became apparent that the United States could win the Cold War by seizing the lead in digital innovation – mainly in the private sector — against a technologically handicapped adversary. China is gathering and using its strength patiently. It has awesome technological prowess, is recovering enviably from the pandemic, and can be a global power for the foreseeable future.
From this perspective, today’s steadily improving partnership between a defense establishment that is mindful of the need for innovation and a technology sector that is willing and able to take on defense business seems about right. The best formula is collaboration — public-private, military-civilian, executive-legislative, and bipartisan – invigorated by venture capital. So far, progress is encouraging.
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David Gompert is Special Advisor and Tim Denning is Vice President at Ultratech Capital Partners
