Valley of Death: Pentagon Makes Moves to Speed Up Tech Transition.

• Author: Magnuson, Stew

SIMI VALLEY, California--It's a well-documented problem in the world of defense technology development.

Small businesses, universities or startups received a couple million dollars to develop an innovative new technology that warfighters could use.

The project comes to fruition, but when the startup delivers the prototype as promised, the funding to incorporate the technology into the force isn't available.

This is the so-called "Valley of Death," and the "death" is usually the small business that doesn't have the cash flow to stay in business while the Defense Department agency winds through its laborious budget process.

The lack of funding doesn't mean a lack of interest, said Heidi Shyu, undersecretary of defense for research and engineering.

The Army, Air Force, Navy or Marines might want the technology it invested in badly, but it takes too long to secure the funding, she said.

"Small companies can't twiddle their thumbs for two to three years waiting for a contract," she said during a panel discussion at the Reagan National Defense Forum held at the Reagan Presidential Library in Simi Valley, California.

The worst-case scenario is when a Chinese company swoops in to invest in the small business and then takes the technology out of the country.

Shyu said her office is actively trying to tackle the Valley of Death problem, along with implementing other programs with a goal of putting innovative, new technologies into the hands of warfighters more quickly.

"We are on the path of innovative solutions," she said.

One concrete move to bridge the Valley of Death came earlier in the day at the forum when Defense Secretary Lloyd Austin and Small Business Administrator Isabella Casillas Guzman signed a letter of intent to partner on the recently established Office of Strategic Capital.

The Defense Department office will seek to serve as a go-between connecting venture capital funds and the startups seeking the funding to wait out the Pentagon's notoriously slow budget process.

The SBA, for its part, will propose a new regulation that introduces a new financial instrument called the "accrual debenture."

This instrument is designed to align with the cash flow patterns of startups and supports the long duration often required to incubate and scale technology investments, a joint statement released after the deal was inked stated.

Guzman said: "This new mission-driven office will continue to build and align incentives for private investment in...