Is the DoD Investing in Tech Startups?

In the ever-evolving landscape of technology, the symbiotic relationship between government and tech startups is often overlooked. While skeptics argue that the Department of Defense (DoD) remains hesitant to invest in emerging ventures, a closer examination reveals a different narrative. In reality, the DoD has been actively supporting tech startups, recognizing their potential to revolutionize defense capabilities and national security.

Where the Challenge Lies

That being said, there are inefficiencies that still exist in the realm of DoD contracting. These challenges are indicative of larger process issues that are being closely paid attention to by the Government. The government is aware of the bureaucratic hurdles and regulatory complexities that entrepreneurs face when seeking DoD funding. For years, the DoD has been putting an intentional effort towards correcting it.

The main roadblock, especially for startups, is referred to as the “Valley of Death”. The “Valley of Death” is the gap between research and development (R&D) funding and full-scale production or commercialization within government procurement processes. It is a critical phase where innovative ideas often get stuck or “die out” due to insufficient funding or bureaucratic roadblocks, hindering their transition from concept to fabrication or “lab to fab.”

Startups are especially affected by this gap as they are at the forefront of technology innovation, meaning their technology may lack the sufficient testing needed to prove to the Government that it is worthy of investment. An official from Under Secretary Defense for Research and Engineering (OUSD(R&E)) commented on this concept at the Reagan National Defense Forum in 2023, recognizing that small companies cannot afford to wait multiple years to get on contract with the Government.

In addition to the “Valley of Death”, startups face a number of additional challenges, including long regulatory wait times, lack of insight into DoD needs and being overpowered by large traditional contractors. However, these challenges present opportunities for collaboration and innovation. By streamlining acquisition processes and fostering public-private partnerships, the DoD can capitalize on the unique benefits startups have to offer. In the past few years, the DoD has put their money where their mouth is, investing in many startups and pushing forward innovative funding initiatives.

How the DoD Invests Money and Effort

By putting more dollars towards startup capabilities, the department aims to create streamlined access to the best and brightest in technology and get it in the hands of the warfighter faster than ever. Consequently, it has allocated considerable resources to support these ventures, as we explore below.

In  2022, the Biden Administration signed the CHIPS and Science Act, a $280B funding initiative designed to strengthen U.S. science and technology innovation. This bill included $52 billion in subsidies to encourage chip manufacturers to build out semiconductor fabrication plants – referred to as “fabs” – in the U.S. Today, government attention on the “Chips Crisis” remains high. In September of 2023, the DoD announced the award of the Microelectronics Commons program to eight awardees, who were tasked with creating regional prototyping “Hubs ”. These Hubs are establishing a network of manufacturing capabilities within the U.S., ensuring our microelectronic independence. The Microelectronics Commons has provided funding to multiple tech startups, including the Northwest AI Hub, led by Stanford University, located in the heart of Silicon Valley. Silicon Valley is the birthplace and continues to be the stomping ground for tech startups in the U.S.

The Commons program is managed by NSTXL, and in recent years, consortiums like NSTXL have played a pivotal role in bridging the gap between the government and the startup community. The NSTXL membership community is comprised of 70% small, nontraditional organizations who have access to opportunities with Naval Surface Warfare Center, Crane division and Space Systems Command through the S²MARTS and SpEC Other Transaction Authorities (OTAs) respectively. By partnering with these OTAs, Government programs are fostering relationships with VC startups, resulting in more funding for the “little guy,” as displayed in the DEEP SDA and FORGE C2 projects. To learn more about the benefits of NSTXL membership, click here.

Outside of NSTXL, the Government has invested in many notable initiatives in the past few years, including:

Shield AI: Founded by former Navy SEALs, Shield AI develops autonomous systems for military and law enforcement applications. The company received funding from the DoD’s Defense Innovation Unit and has since expanded its capabilities to enhance situational awareness and intelligence gathering on the battlefield.

Anduril Industries: Founded by Palmer Luckey, the creator of Oculus Rift, Anduril Industries focuses on developing AI-powered defense technologies. With DoD backing, the company has developed systems for border security, perimeter defense, and battlefield communication, revolutionizing how the military operates in contested environments.

Palantir Technologies: While not a traditional startup, Palantir Technologies received early funding from the CIA’s venture capital arm, In-Q-Tel, before securing contracts with various government agencies, including the DoD. The company’s data analytics platforms have been instrumental in supporting military operations, intelligence analysis, and counterterrorism efforts.

These examples highlight the broad scope of investment by the DoD, which will continue to expand coming months and years.

The Opening Market: More Potential for Startups in 2024

President Biden’s 2024 defense budget calls for a record $842 billion in spending, signaling ample funding opportunities for enterprising startups. The DoD is also modernizing its approach to weapons development and acquisition, emphasizing software, information warfare, AI, big data and automation. These are all areas in which nimble tech startups excel and align well with Silicon Valley’s tendency to “move fast and break things,” as stated in this Forbes article.

Furthermore, the increasing DoD utilization of the OTA paves a promising road for small, nontraditional companies often backed by VCs. Unlike traditional FAR-based contracts, OTAs increase the government’s ability to capitalize on emerging technology opportunities and leverage flexible processes that reduce risk.

In conclusion, the Department of Defense serves as a significant investor in tech startups with much more potential for future investment in 2024, considering the passing of a robust Defense Spending Bill and the DoD’s increasing utilization of OTAs. While criticisms regarding funding allocation and bureaucratic inefficiencies persist, success stories abound, highlighting the impact of DoD-backed ventures. Moving forward, continued collaboration between the government and the startup community is essential to harnessing the full potential of emerging technologies and safeguarding the nation in an increasingly complex threat landscape.

About NSTXL

NSTXL is focused on building a network of innovators and creators across the most sought-after emerging technology fields. As an open-source platform, our approach was designed to encourage network growth and collaboration without stifling change. We support our network by providing commercial-term contracting, open-source technology discovery, modern-day marketing outreach, a strongly interconnected network for easy teaming and cybersecurity compliance support.