Tag Archives: Commercial Insertion in Military Technology

Defense Industry Needs New Small Business Entrants During Crisis

Image: “Fundinggates.com

DEFENSE NEWSBy: Venture capital community leaders

How can the Pentagon best preserve its innovation base and develop the most competitive and advanced technologies? The answer is simple: Buy commercial. New and emerging defense startups — and our men and women in uniform — don’t need symbolic gestures.

What they need is concerted action to bring the latest and most advanced technologies — many of which are routinely used in industry — to dangerously antiquated defense weapons systems and internal IT infrastructure. This was true before COVID-19, it is true now and it will be true when the next crisis strikes.


“The COVID-19 health crisis is quickly leading to an economic meltdown, throwing millions of Americans out of work and forcing strategic reevaluations across industries. The defense industry is no exception. We are praying for a swift end to the crisis, but its effects will linger, shaping the Pentagon’s priorities, organizational structure, military operations, logistics, supply chains and interactions with the defense-industrial base for years to come.

In the past few weeks, we have had numerous conversations with government officials about our venture and growth equity investments in the defense sector. These discussions have centered on the eligibility rules of the CARES Act’s Paycheck Protection Program and the risk of foreign capital seeking entry into defense technology startups desperate for investment in these trying times.

All too often the government has responded to crises by circling wagons around incumbent firms — the large prime contractors, whose political connections afford them bailouts in the name of “ensuring ongoing competition.” This process is already underway. After announcing its hope for a $60 billion relief package for the aerospace manufacturing industry, Boeing successfully lobbied for $17 billion worth of loans for firms “critical to maintaining national security.”

The CARES Act also announced provisions to streamline the Defense Department’s contracting process, which sounds promising, except for the fact that these provisions apply only to contracts worth over $100 million. This discriminates against smaller, more nimble innovators and providers of cutting-edge technology.

This isn’t how things have always been. After complaints about large horse dealers monopolizing military contracts during the Civil War, the government allowed quartermasters to purchase horses and mules from any dealer on the open market. In World War II, Congress created the Smaller War Plants Corporation, which awarded tens of thousands of contracts to small, competitive firms. Today, through innovative use of Small Business Innovation Research money, other transactional authorities, rapid work programs and the like, the Pentagon is certainly signaling interest in emerging technologies.

But let us be clear: We are not advocating continuing to invest larger dollar amounts into never-ending, short-term pilots and prototypes. The key to sustaining the innovation base through this crisis and any future crises is transitioning the best of these companies and products into real production contracts serving the day-to-day needs of the mission. Host tough, but fair competitions for new innovations, and then rapidly scale the winners.

America’s technological supremacy has afforded our country nearly a century of military hegemony, but it is not a law of nature. Sovereign states and peer competitors like Russia and China will quickly outpace us if we take our prowess for granted. We need new entrants into the defense industry more than ever, but without government support through crises like this one, the talent and capital simply won’t be there.

As the Department of Defense readily acknowledges, its mission is fundamentally changing. Breakthroughs in technological fields like artificial intelligence, autonomous systems, robotics, resilient networks and cyberwarfare mean that future conflicts will look nothing like those we have seen before. The DoD of tomorrow needs a fresh wave of technical expertise to understand and respond to these new kinds of threats.

That is not to say that legacy defense contractors are not needed; their expertise in large air and sea vehicles is currently unparalleled. But the expertise to build these new technologies resides in pockets of talent that the big and bureaucratic incumbents, who made their names with 20th century technology, lost access to decades ago.

The DoD has publicly exalted the importance of innovative defense startups for years. That is partly why we are so excited to invest capital into the defense sector at this moment in history. Silicon Valley has a chance to live up to its oft-ridiculed but sincere ambition to make the world a better place by investing in American national security.

However, we as venture capitalists and growth equity investors also have a duty to our limited partners who have entrusted us to invest and grow their capital. If we see the same old story of the government claiming to support small businesses but prioritizing its old incumbents, those investment dollars will disappear.

Times of rapid and unprecedented change, as COVID-19 has precipitated, also provide opportunities. The DoD and Congress can reshape budget priorities to put their money where their mouths have been and support innovative defense technologies. Each dollar awarded to a successful venture capital and growth equity-backed defense startup through a competitively awarded contract attracts several more dollars in private investment, providing the DoD significantly more leverage that if that same dollar was spent on a subsidy or loan to a large legacy contractor. This leverage of private capital means that every contract a startup receives accelerates by up to 10 times their ability to build technology and hire talent to support the DoD’s mission.

The bottom line is this: There’s no reason to let a health crisis today become a national security crisis tomorrow. The DoD has an opportunity to not only sustain but grow its innovation base, and give contracts, not lip service, to innovators. We, the undersigned, hope they do.”

The contributors to this commentary are: Steve Blank of Stanford University; Katherine Boyle of General Catalyst; James Cham of Bloomberg Beta; Ross Fubini of XYZ Capital; Antonio Gracias of Valor Equity Partners, who sits on the boards of Tesla and SpaceX; Joe Lonsdale of 8VC, who also co-founded Palantir; Raj Shah of Shield Capital, who is a former director of the U.S. Defense Innovation Unit; Trae Stephens of, Founders Fund; JD Vance of Narya Capital; Albert Wenger of Union Square Ventures; Josh Wolfe of Lux Capital; Hamlet Yousef of IronGate Capital; and Dan Gwak of Point72.


Commercial Technology Market Poised To Disrupt Defense Industry

Image: “Geospacial World”


“If you look in between the lines at the type of sales and acquisitions, you’ll be able to identify a subtle but increasingly disruptive influence: the commercial technology market.

As margins become lower and keeping up with the pace of innovation becomes harder, you can be sure the shift of business models in the government contractor community has only just begun. “


“A recent Washington Technology article highlights some big moves in its annual Top 100 list, which ranks the largest government contractors in the federal market based on prime contract obligations during the previous fiscal year. A few of these big moves are thanks to acquisitions such as United Technologies jumping from No. 57 in the 2018 ranking to No. 27 after it acquired Rockwell Collins.

Emerging technology areas such as machine learning and artificial intelligence are advancing faster than it takes to land a meeting inside a government building. But you already know that the private sector tech market is outpacing the government. What might be less obvious is the impact on incumbent government contractors.

Government’s appetite for commercial tech

Last year venture capital investment in U.S. companies hit $130.9 billion, surpassing that of the dot-com years. Now, the federal budget for 2019 has $118.1 billion allotted for R&D. Evidently, the government has noticed how far behind it is technologically compared to the private sector.

Federal agencies — including the Department of Homeland Security, the Department of Defense, and many in the intelligence community — have offices in major tech hubs such as San Francisco, Boston, and Austin. Even the U.S. Geological Service has an innovation shop out west.

DOD alone awarded over 179 contracts in 2018 to non-traditional technologies leveraging the Other Transaction Authority (OTA) contracting method. The government also awarded millions through challenges it launched in search of non-traditional technologies to support objectives such as the Air Force’s multi-domain operations. NASA has also shifted its focus to companies such as SpaceX instead of building capabilities in house.

We are witnessing this shift in government firsthand at Dcode. In just the last three years, we’ve worked with 70 private sector tech companies and dozens of government organizations, driving 52 new implementations of commercial technology in government. Having hosted cumulatively more than 500 government leaders at our accelerator and innovation training programs, we see that the government is hungry for something different and increasingly willing to take chances on emerging tech solutions.

The government leaders who come in for our three- or four-day innovation training program also tell us that they are less and less interested in paying contractors to build solutions from scratch that already exist in the private sector for a fraction of the cost and at exponentially higher quality.

We hear war stories of antiquated technology solutions holding federal agencies hostage, and government leaders are motivated to find new ways to improve the way their agencies operate.

Not lost on the contractor community

Just as the government has taken notice, so have federal contractors.

The evidence is in the analysis of the Washington Technology Top 100. Deloitte has a newly reinvented innovation office and a new chief innovation officer. Booz Allen Hamilton is investing in artificial intelligence. BAE and Accenture have commercial tech plans. Lockheed Martin has a venture capital arm.

Federal contractors now understand what we know to be true: Finding private sector tech companies that can address government needs and that also know how to work in the federal market is easier said than done.

The growing number of prime contractors calling us to connect with emerging tech companies also indicates growing awareness and concern over the shifting dynamics. More than 50 systems integrators and technology partners engaged with our accelerator cohort of advanced analytics tech companies, and we have facilitated partnerships for dozens of OTA calls.

New business models on the block

A new type of prime contractors is also on the rise.

For example, Anduril, which successful Silicon Valley entrepreneurs and venture capitalists founded, touts the ability to “move fast and fix things.” Tackling interesting AI and UAS problems at agencies such as U.S. Customs and Border Protection, Anduril leverages existing commercial products to build defense solutions swiftly.

Referred to as the Defense Innovation Base, these new types of systems integrators and product companies are on a mission to disrupt the existing primes and industrial base. The existing prime contracts business model will have to shift from the traditional “butts-in-seats” approach to revenue models centered around private sector technologies if they want to stay competitive.

While the legacy powerhouses will likely continue to dominate the large industrial market of building plants, tanks, and heavy artillery for the foreseeable future, they will not be immune to this shift either.

For instance, in our accelerator cohort of space tech companies, we worked with cube satellite company Kepler Communications that went from napkin to orbit in under $1 million dollars and is already pushing live commercial data. For those still operating in the world where a satellite runs in the hundreds of millions of dollars to build, commercial alternatives like Kepler Communications should be a wake-up call.

For now, the traditional culture, bureaucracy, and incentives around contracting remain within the large incumbents, even those with budding in-house innovation groups. The change might not come suddenly overnight or even in the next year, but we will see a shift in the Top 100 list. The contractors that embrace new business models and the changing needs of government will thrive, and those who don’t will face an uphill battle.”



Meagan Metzger

Meagan Metzger is the CEO of Dcode, a tech accelerator with the mission of breaking down barriers between innovative private sector technologies and government. Dcode has accelerated over 65 technologies to-date, resulting in over 45 active implementations and $55M in contracts thus far. For her work at Dcode, Meagan was recognized as one of FCW’s Federal 100 winners and one of 2018’s Top Women in Tech by Fedscoop. Prior to Dcode, Meagan served as Chief Operating Officer of a government-focused mobile and cloud company helping to grow it by over 200% in its first two years. Prior to that she served as Chief Strategy Officer for a government-facing IT consultancy, helping establish it on Washington Technology’s Fast 50 as one of the fastest growing small businesses for three years in a row. Meagan has worked closely with senior leadership across DoD and civilian agencies, serving as – among other things – the program manager for the execution of billion-dollar IT program with an expertise in federal IT acquisitions.

In her spare time, Meagan serves as the chair of the Career Advisory Board in the athletic department at her alma mater, The George Washington University, where she was captain of the Division I gymnastics team on a full athletic scholarship and majored in engineering and marketing. 

GSA Begins Pilot OTA-like Streamlined Process



The General Services Administration announced its client support center for acquisitions will use a streamlined process, designed to attract startups, to procure innovative, commercial solutions.


“As part of a pilot, GSA’s FEDSIM innovation team will rely on the commercial solutions opening (CSO), a solicitation outside the Federal Acquisition Regulation, to acquire technologies and services in the production phase or adapted from existing products from “traditional and non-traditional government contractors.”

“The goal of this pilot program is to provide a streamlined approach for acquiring innovative commercial products and services,” GSA says.

CSO is a recently created tool with simplified contract terms, which Section 880 of the National Defense Authorization Act for fiscal 2017 authorized GSA to create the pilot. It’s similar to the Other Transaction Authority of defense agencies but differs in that it’s not legally binding, GSA says.

FEDSIM will post solicitations from client agencies for specific projects of technical areas of interest as they open.

New technologies, processes, methods, applications, and adaptations at the time a proposal is submitted will be considered.

The CSO process consists of submission of a written solution brief, an oral presentation if applicable, and a request for proposal.

Currently, FEDSIM is accepting briefs for three Defense DepartmentCSO solicitations: AFWERX Hub, Marine Maker and the Joint Artificial Intelligence Center Humanitarian Assistance and Disaster Relief DAMAGE.

The Defense Innovation Unit also uses CSOs to speed up vendor selection for innovative needs.”

Other Transaction Agreements (OTA’s) Change Defense Acquisition For The Duration


Image: https://twitter.com/hashtag/othertransactionagreements?src=hash


“For some time the DOD has been trying a number of ways to speed up the identification and acquisition of … innovative? non-traditional? prototypical? …  technologies or capabilities. It wants a third offset, a reasonable aspiration.

The OTAs can be a way to trap it in a way open competitions or wired traditional acquisition and their seemingly inevitable protests cannot.”


“Can a defense acquisition approach restore the military advantages Pentagon planners say the U.S. has lost over the past 30 years? If so, contractors should get used to living with two parallel acquisition systems. The regular Defense version of the Federal Acquisition Regulation. And, of course, the burgeoning Other Transaction Authority (or Agreement).

“Other” can be a scary word. Everyone professes loathing for the FAR and the DFAR because how they ostensibly slow everything down. But whole armies of sales and business development people have invested careers and gotten wealthy by playing the traditional FAR and defense acquisition systems the way Paganini played the violin. OTAs threaten that.

Not that OTAs are new. They date to the early 1960s. But they’re like an unused kitchen utensil that, when re-discovered, finds all sorts of convenient uses. For defense acquisition, OTA’s are out of the rummage drawer.

Congress has encouraged OTAs for obtaining non-traditional technologies from non-traditional vendors. It’s given DoD greater explicit authority to use them. Some OTAs have looked, at least on the surface, like regular deals for regular companies. Two recent awards to Perspecta (old company, new name) from the Defense Information Systems Agency to build the background investigation system come to mind. I’m not prepared to second guess DoD on this one, but OTAs are available to traditional companies doing non-traditional or prototypical things. But not, one hopes, to non-traditional companies doing ordinary things.

A deep data analysis by Govini shows OTA activity in DoD having grown by a compound annual rate of 57% for the last six years. The base is small, but in 2018 they amounted to $3.4 billion. OTAs aren’t the only approach DoD uses for its research, development, test and evaluation investments. They only represent 8% of RTD&E spending. But the only part that’s growing. You could say they represent real money.

I mention all this, prompted by the round-number anniversary of D-Day approaching. OTAs fit in with a strategy having to do with numbers.

On D-Day, I think of those numbers. The sheer tonnage of platforms, materiel and, of course, human troops thrown by nations at one another produces wonder to this day. The D-Day invasion consisted of about 175,000 troops including 57,500 Americans. That’s just for the first few days of one piece of the plan to pinch Germany.

Warfare is totally different today because of technology. One 21st century precision bomb can inflict more real damage on an enemy than a squadron of bombers dropping hundreds of bombs over the course of an hour during the 1940s.

If from the Civil War to World War II sheer numbers dominance was the essential element for victory, later that dominance came from the sorts of technological advantages that produce greater lethality per troop. You might call it military productivity. In recent decades, the U.S. has attributed its advantage to technologies such as stealth and precision guidance, developed during the “second offset” of the 1970s. Offsets decay. How long did the atomic bomb offset last?

Military leaders have been hunting diligently for evidence of technology that could lead to an offset. They theorize such technologies exist within companies unknown, at least, to the military. The OTAs can be a way to trap it in a way open competitions or wired traditional acquisition and their seemingly inevitable protests cannot. “

The Air Force Wants You To Build Their Next Drone Engine


Ny Times Graphics

The Pentagon Hopes that Their Next UAV Engine is in Someone’s Garage. Image: NY Times Graphics


“The Air Force on Tuesday announced a $2 million prize for the U.S. citizen who can design the best new engine. It’s the largest prize ever from a military service, according to Air Force Lt. Col. Aaron Tucker.

The announcement presents a novel workaround to the traditional acquisition process, a focus point for Air Force Secretary Deborah Lee James. “If we can align air force and commercial markets, this is how we bend the cost curve,” said Tucker.

But it also suggests that the Air Force is looking to develop a new UAV, distinct from—but not dissimilar to—the one that defined how drones are used in war. ” Here’s what the Air Force is looking for. “A successful 100-horsepower turboshaft engine [that] must operate on Jet A fuel, demonstrate a brake-specific fuel consumption less than or equal to than 0.55 pounds of fuel per horsepower per hour, and generate at least 2.0 horsepower per pound,” Tucker told drone designers Tuesday at the Association for Unmanned Vehicle Systems International conference in Atlanta, Georgia. The overall goal: create a power plant with the fuel efficiency of a piston engine and the low weight of a turbine engine.

A 100-horsepower engine may sound like a small deal, and in a way it is, but that doesn’t mean it’s insignificant. It’s about the same output as the 115-hp engine that drives the General Atomics MQ-1 Predator drone.

Tucker told his audience that there’s currently no destination platform for the engine. Instead, it’s an attempt to spur innovation in the weight and horsepower class occupied by the Predator, the most significant unmanned military platform that the world has ever seen. “What we’re seeing is a lot of activity down here [for small UAVs], a lot of systems that are in production up here [for large drones like the MQ-9 Reaper and Global Hawk], and this seems to be a place where we can stand to get some technology investment.”

The Predator first flew in 1994 as a spy drone. It wasn’t until 2004, when the Air Force armed it with Hellfire missiles during Operation Enduring Freedom in Afghanistan, that Predator became synonymous with the U.S. drone war and all the policy problems that have flowed from it. Long since surpassed in sophistication and capability—the MQ-1 has a range of 460 miles and endurance of 24 hours—it has nonetheless racked up more than two million hours of flight time.

The Pentagon began phasing out the Predator years ago in favor of the MQ-9 Reaper, which sports a 950-horsepower engine, a far larger payload, better electronics, and twice the speed and operating ceiling. But if the Predator has lost popularity in Washington, it’s gaining fans in militaries around the world. The Italian Air Force flies an unarmed reconnaissance version. Even the Chinese have built their own more-capable knock-off, the Cai Hong, or CS 4; it has a 2,100-mile range, almost fivefold the Predator’s.

And even if the Pentagon is retiring the MQ-1, the need for drones of its size isn’t going away. “We’re not expecting too much change in the mission,” Tucker said. “We see there’s a need for increasing the fuel efficiency for that size-class engine.”

If the Air Force Prize succeeds, it could lead to UAVs that resemble the Predator but that can fly farther, carry more weapons, act like a tiny Global Hawk, or some combination of all of the above.”