Private Capital Crucial for Defense Innovation.

• Author: Denning, Tim
• Position: Viewpoint

* China and Russia's technological investments and the uncertainty surrounding future applications have fundamentally altered the geopolitical environment.

This view, which has become a point of consensus in the United States, has also sparked another widely and correctly perceived imperative: the need for creating enduring public-private relationships between the Defense Department and defense-oriented companies.

If the nation is to address this burgeoning threat, the country must foster a culture of innovation and integration of various critical technologies into the military. Private investment and venture capital, which provide funding to companies making advancements within critical technology areas that are key to defense, play an integral part in this high-stakes competition for fielding innovative capabilities such as artificial intelligence, directed energy, quantum science applications and autonomy.

What initiatives have been implemented to both foster this relationship and encourage more private investment to fund dual-use companies and those developing defense-specific critical technologies? And to what extent has the Defense Department been able to increase the desire for startups to enter the defense market, a development that would improve the overall amount of private capital involved in promoting technological innovation for the military?

The answers to these questions are mixed. While there have been noteworthy developments in coalescing private and venture capital to aid the Pentagon, significant challenges to its relationship with private capital remain.

One issue that persists is the divergence in approach to timelines. While startups are driven by a fast-paced, growth-oriented mindset, the Defense Department largely operates under low-risk-tolerance development and acquisition processes. This means that dual-use or defense-oriented companies are in a constant state of seeking additional capital to continue existing, whereas the Defense Department is focused on reliability and performance. As a result, the growth cycle of startups is still not in alignment with the Pentagon's approach to developing, testing and integrating critical technologies for the military.

For example, the department awards venture-backed companies "on-ramp" contracts geared towards prototyping and testing such as other transaction authority agreements and Small Business Innovation Research contracts. But it is very challenging to receive...