If the US doesn’t act quick, the subsequent technology of dual-use technological innovation will belong to its adversaries — creating an irreversible hole. America’s technical benefit has saved adversaries in examine for many years, however new near-peer competitors in dual-use applied sciences threatens that stability. Over the previous decade, China has quickly developed from an rising financial and geopolitical drive to an imminent nice energy menace.
China and the West have seen their business markets supplant the federal government in innovation management, together with within the protection area. In all the things from AI to drones, batteries, and robotics, China’s enterprise capital–backed corporations and college networks are main the best way in technological growth.
That is vital as a result of to compete with the pacing menace of China’s burgeoning business dual-use ecosystem, the Division of Protection must ship on the pace of want in inventing and assimilating new applied sciences. This can require the US to redefine its tech funding playbook to develop higher entrance pathways for the personal trade and startups engaged on promising dual-use applied sciences. That is additionally vital to me personally. My bias is rooted in seeing first-hand the present and doable state of innovation for our nation as a enterprise capitalist (because the managing associate of Booz Allen Ventures and our International Tech Intelligence Staff), a technologist, and an American citizen, involved that we’re on the precipice of ceding our tenured benefit on the worldwide scale. The USA wants a brand new roadmap — a brand new playbook for victory — and wishes it now.
What’s Driving the Pacing Menace
China follows the same dual-use scaling strategy to the US, leveraging a mixture of private and non-private capital, with one main distinction being China’s devoted enterprise capital funding funds. For instance, with roughly 2,100 government-linked funds referred to as Authorities Steerage Funds, China presents extra flexibility to deploy capital and has very long time horizons for achievement. This offers Chinese language dual-use startups with an important runway that almost all startups desperately have to succeed. From 2018 to 2023, Chinese language startups raised properly over half a trillion {dollars}, with a lot of this capital flowing into inherently dual-use corporations reminiscent of EHang (autonomous cargo and passenger drones), Zhipu AI (generative AI), and GalaxySpace (micro-satellites).
Furthermore, Chinese language chief Xi Jinping has centralized China’s “military-civil fusion” technique to scale back acquisition obstacles and make it simpler for Chinese language innovators to do enterprise with the Folks’s Liberation Military. Xi’s determination centralizes military-civil fusion, a longstanding however wavering program in China, underscores that the Chinese language Communist Celebration considers indigenous, dual-use know-how growth as paramount to China’s future.
Playbook to Drive Protection Division–Business Collaboration in the US
The USA ought to enhance the setting for collaboration between the Division of Protection and the personal sector to satisfy the technological problem of China. Which means streamlining the Division of Protection’s authorities and operations and bettering the funding setting to hurry the combination of superior tech into present missions and develop the proper tech for the longer term. Funding and authorities must be modernized, together with when and the place funds might be spent and the contracting course of itself.
Multi-Yr Funding
Equally to Protection Manufacturing Act funding, cash appropriated for the Protection Innovation Unit and different innovation cells devoted to bringing dual-use superior tech to the Division of Protection needs to be non-expiring and legitimate till expended. Figuring out know-how shortfalls and with the ability to execute funds as wanted — not by means of the Division of Protection planning, programming, budgeting, and execution course of — generally is a key contributor to overcoming the “valley of demise” for promising startups.
Fiscal Flexibility
Division of Protection innovation models ought to have extra flexibility to help startups by means of proof of idea. A great instance is the pliability Congress supplied the Protection Innovation Unit to make use of its funds each for firm prototype growth and for preliminary fielding of recent applied sciences. Likewise, the below secretary of protection for analysis and engineering applications — reminiscent of Speed up the Procurement and Fielding of Modern Applied sciences — are extraordinarily helpful in addressing the valley of demise however want extra funding help from Congress, in addition to continued help to current Air Pressure work tasks such because the Tactical Funding Improve and Strategic Funding Improve applications.
Outcomes-Based mostly Contracting
The Division of Protection must be empowered to undertake outcomes-based contracting to unlock the commercial-level considering and innovation wanted to drive modernization ahead. Such contracting permits the federal government to pay for providers and merchandise primarily based on achievement of particular outcomes. In different phrases, inform the contractor “the place you need to go” as a substitute of “the right way to get there.” It will additionally align incentives between primes and methods integrators and non-traditionals in a manner that treats these platforms which might be constructed and built-in collectively as one agency fixed-price unit versus being handled as ammunition or bolts and screws. The Division of Protection has been an early adopter of outcomes-based contracting, particularly within the push towards prototyping, nevertheless it ought to apply the strategy extra broadly.
Implement the 1994 Federal Acquisition Streamlining Act
The Senate Armed Providers Committee’s Fiscal Yr 25 Nationwide Protection Authorization Act pushed to assist guarantee constancy to the Federal Acquisition Streamlining Act, which is an effective factor for adoption of rising dual-use applied sciences. The Federal Acquisition Streamlining Act requires the federal authorities to make use of business merchandise, when accessible, as a substitute of attempting to construct their very own. Division of Protection processes and coverage want streamlining too, opening up inner collaboration alternatives, making processes survivable for innovative startups, and sharpening deal with America’s fundamental protection know-how competitor.
Codify Intra-Division of Protection Collaboration
Division of Protection leaders ought to benefit from new applications reminiscent of Aggressive Benefit Pathfinders, which empowers necessities, budgeting, and acquisition communities throughout the providers to collaborate on know-how growth and acquisition. The significance of collaboration between service branches and versatile spending authorizations has been echoed by Underneath Secretary of Protection for Analysis and Engineering Heidi Shyu, whose analysis, growth, take a look at, and analysis models have the procurement flexibility to quickly area applied sciences, along with service branches, to seamlessly transition to the suitable service department sub-units.
Streamline the Authority to Function Course of
Even the perfect tech for the Division of Protection’s wants will sit on the shelf if it doesn’t make it by means of the ponderous authority to function processes required to be allowed on the division’s networks. These are long-established info know-how risk-management processes required by the decade-old Federal Data Safety Modernization Act of 2014. A lot of the authority to function course of is finished manually, significantly the intensive reporting and documentation necessities for implementing safety controls. Nevertheless, as we speak few startups have the runway to attend for full authority to function approvals below the perfect of circumstances. A Division of Protection–accredited platform, like Second Entrance’s Sport Warden, might be a part of the answer (Booz Allen Ventures invested in Second Entrance in January 2024). Sport Warden offers a safe setting that streamlines and automates authority to function compliance processes, enabling the speedy supply of economic software program to authorities end-users. Nevertheless, essentially, the authority to function procedures themselves want streamlining to make them survivable for promising startups. The Division of Protection is shifting on this route, slicing out redundant accreditation with reciprocity for authority to function throughout Division of Protection networks, making certain digital availability and sharing of key documentation with stakeholders on points like cybersecurity, accreditation, and efficiency.
Concentrate on China
Legacy intelligence practices of analyzing Chinese language coverage and end-to-end Folks’s Liberation Military army methods are important, however they don’t give the U.S. authorities a full image of Chinese language technological growth. The Division of Protection and intelligence neighborhood leaders want a deeper understanding of China’s personal sector, from which the Folks’s Liberation Military and China’s state safety providers more and more procure dual-use applied sciences. For instance, Chinese language Authentic Gear Manufacturing and methods integrators are more and more incentivized to complement their providers with dual-use merchandise from Chinese language startups. The Division of Protection ought to equally search for artistic methods to incentivize the acquisition and supply of dual-use merchandise.
Evolving the U.S. Enterprise Capital Market to Meet Mission Calls for
U.S. enterprise capitalists even have an important function to play as startup investments change into more and more pivotal in geopolitical tech competitors. The nation’s aggressive benefit will depend upon startups’ skill to beat the valley of demise phenomenon, the place roughly seven in ten startups fail within the first two to a few years. The percentages are much more daunting for protection tech startups because of restricted funding for analysis contracts and insufficient help to navigate Division of Protection processes.
Whereas important personal capital has flowed into early-stage dual-use know-how startups over the previous three years, it’s inadequate. Sustained funding is required as these corporations scale to make sure they obtain product-market match inside strong Division of Protection applications. Moreover, success will hinge on enterprise capitalists understanding the altering state of the protection market, mission issues, the budgeting and procurement cycle, and which applied sciences will resolve actual points for nationwide safety.
Mission First
Enterprise capital investing in dual-use tech isn’t new, however its worth proposition varies. Most enterprise capital corporations claiming protection tech experience solely present monetary backing, whereas only a choose few actually drive strategic worth for each startups and the Division of Protection. To carry dual-use know-how to the warfighter, the US wants extra enterprise capital corporations dedicated to a mission-driven strategy that requires deep data of the Division of Protection’s complexities and necessities and embody lengthy return cycles, usually 7 to 12 years.
As former Deputy Secretary of Protection Robert Work famous on the Nationwide Protection Industrial Affiliation convention, “The Division is an economic system.” It’s huge, with its personal tradition, language, and complicated processes. Funding success right here calls for not simply funding however hands-on professional navigation, which most rising dual-use startups can’t handle alone. Mission-focused steering is vital to deploying know-how that issues.
To bridge this hole, enterprise corporations should make each strategic hires and hyper-focused army specification hires so as to add worth to their portfolio. These hires are people with deep Division of Protection expertise who perceive mission wants, know the acquisition course of, have the connections to champion the know-how and in the end have served on the bottom downrange and have encountered first-hand the issues to deal with — also referred to as “Operators.” Enterprise capital corporations also needs to domesticate mission-aligned partnerships to information product growth, making certain the know-how is actually dual-use from the beginning. Take the problem of mitigating adversarial autonomous drone swarms — it’s a high-priority space the place contractors like Booz Allen are partnering by means of investing in startups to show potential into operational functionality on giant methods integration–led contracts. If methods usually are not constructed to deal with austere situations from first ideas, they won’t maintain up in theater. This deep data and experience will transfer rising know-how by means of the valley of demise and into impactful protection options.
Authorities Budgeting Realities
Enterprise capitalists ought to perceive that whereas Division of Protection budgeting and procurement processes are sluggish, they’re at all times in movement. Profitable protection know-how traders want a deep understanding of the division’s multi-year funds planning and shifting priorities, and they need to assist information their portfolio to align growth timelines with these cycles. Endurance and strategic flexibility are important, as these startups needs to be ready for prolonged runways whereas remaining agile to capitalize on altering necessities, pressing functionality wants, and surprising funding and management shifts.
Profitable within the Lengthy-Tail
Enterprise capitalists additionally want to acknowledge that the protection sector is inherently a long-tail market that calls for sustained dedication. Whereas returns might not be fast, the potential for important influence and monetary achieve is actual. It’s vital to establish and spotlight key milestones, reminiscent of securing warfighter approval, successful a tactical funding improve, or touchdown a major contractor partnership. These markers validate a startup’s trajectory and end-customer understanding, in addition to growing its credibility inside the division. It’s additionally incumbent on the Division of Protection and the intelligence neighborhood to interrupt by means of the paperwork to get funding out the door and into the palms of the dual-use corporations sooner and extra effectively, as famous above, or danger a mass exodus of personal funding over the subsequent 5 to 10 years, an issue that China doesn’t have.
Parting Ideas
By harnessing the creativity and flexibility of economic, personal, and startup organizations, the US can compete successfully and set up a brand new period of financial and nationwide safety, underpinned by peace and stability.
With out fast and substantial funding within the activation and scaling of dual-use applied sciences, the US dangers falling behind within the world energy race. That requires streamlining Division of Protection authorities and operations and bettering the funding setting to assist promising dual-use startups survive and produce the absolute best tech to protection missions on the pace of want, and for the longer term.
Brian MacCarthy is a Booz Allen senior vice chairman and managing associate for Booz Allen’s $100 million enterprise capital fund, Booz Allen Ventures, along with Booz Allen’s Tech Scouting crew together with its International Expertise Intelligence Apply. He leads a crew of enterprise traders, technologists, and enterprise builders who scout, associate, and spend money on cutting-edge dual-use applied sciences that may rework the markets and missions of shoppers. He has over 20 years of expertise within the federal and business sectors, spanning software program, {hardware}, cloud, AI, cyber safety, and well being operations.
Picture: Kisha Johnson
