Emerging Tech Readiness: How the Silicon Valley Defense Group Supports National Security
21 March 2023
In the age of rapid technological advancement, the landscape of warfare is evolving at a breathtaking pace, opening doors to a future brimming with possibilities and challenges. As we embrace this new era, we witness the transformative power of trade, cyber-security, non-state actors, and social media algorithms, reshaping the very nature of conflict and national security. While countless thought leaders strive to harness the potential of cutting-edge technologies to redefine the battlegrounds of tomorrow, the Department of Defense (DOD) constantly adapts to these emerging realities, learning from pivotal events like 9/11 and Russia's invasion of Ukraine.
As diverse new threats that the DOD has neither budgeted nor trained for emerge, arguably faster than ever before, the only way to ensure we are prepared is by investing in an enduring capability equipped to counter and overcome existing and emerging threats. Silicon Valley Defense Group, a non-profit founded by a small group of venture capitalists who backed defense tech during Operation Enduring Freedom (Global War on Terrorism 2001-2021), calls this enduring capability “Emerging Technology Readiness (ETR).”
What is Emerging Tech Readiness?
At its core, Emerging Tech Readiness promotes the development of an ecosystem that ensures national security (NatSec) leaders are always equipped to rapidly respond to urgent operational needs by being connected to and able to source new tech from the entrepreneurial sector, leveraging a mix of public and private finance. The concept of ETR centers on the principle that, in a dynamic security environment, buyers of defense tech will never know exactly what capabilities they will need in advance of a conflict.
The entrepreneurial tech market offers three advantages that make it particularly useful to defense/emerging tech needs: speed, scale, and selection. Technology company founders and their venture capital backers compete to build the biggest new companies in the shortest times possible - i.e., speed and scale. Additionally, they speculate on what the market will need before the market knows to ask for it – i.e., selection. Paradoxically, the fact that start-ups operate too fast for the slogging traditional DOD procurement cycle ends up being their most attractive feature to panicked buyers. Ultimately, they can offer a "catalog" of new, leading-edge tech that can be accessed overnight.
What Constitutes the Emerging Tech Readiness Ecosystem?
A high-functioning Emerging Tech Readiness Ecosystem is built and maintained across three mutually reinforcing layers: the people, the connection, and the tools. The tech community must be brought to the table with the NatSec buyers/users, trained and coached on how to conduct business outside of their customary practices, and given the functional tools to do so.
People: The people comprise two groups: the sell-side and the buy-side. The sell-side includes technology company founders, their investors, and the myriad of advisors who support them. The buy-side are the policymakers and budgeters, acquisition professionals, and operational users.
Both sides need to be coached well in advance of the appearance of an urgent operational need.
The sell-side needs an understanding of the NatSec market's unique idiosyncrasies - the role of Congress, regulatory and compliance-related nuances, accounting, reporting and documentation requirements, post-sales support and service needs, workforce rules, cap table hygiene, etc.
The buy side needs an understanding of start-ups' cash burn timelines, software-as-a-service, and hardware-as-a-service revenue models, IP ownership needs, desire for recurring revenue, lack of accounting, controls, and compliance tooling, profit margin profiles, etc.
Connection: The buyers and sellers - warfighters, policy makers, acquisition pros, technologists, entrepreneurs, investors, etc. - must all be connected.This may seem stunningly obvious but in reality, it doesn't happen in the NatSec world. In the regular business world, this connectivity would be called networking, road shows, trade shows, and the conference circuit. All the buyers and sellers would get together quarterly or so, and over time would get to know each other personally as they engaged in business.
So obviously, sell siders need to go to DC and meet people. Buy siders need to go to Silicon Valley, Boston, and Austin and meet people. But they don't.
VCs and Founders don't frequent the Tactical Wheeled Vehicle conference, generally, nor the classified Precision Munitions Conference. Maybe 5-10 sell siders will attend the Reagan National Defense Forum or Aspen Security Conference. Hill staffers don't attend SXSW, CES, or TechCrunch. Warfighters don't go to Money 2023, Superfund, or the Allen and Co Sun Valley conference. One of SVDG’s founders has been a defense investor based in Silicon Valley since the late 90s and has only seen one PEO (Program Executive Officer) representative in the region ever (and zero Requirements or Acquisition pros).
In fact, buyers –in many cases –are legally prohibited from interacting with sellers. The incumbent sell-siders use personal relationships, non-profits, and hired help to get around these restrictions. The emerging tech sell-siders outside of the top VC-backed defense companies wouldn't even know there were PEO industry days going on in their market segment. The buy side is horrendous at outbound BD and generally, the best commercial tech start-ups couldn’t care less about serving the NatSec market. These sell/buy side connections that happen naturally in every other market in the world need to be artificially engineered if DC and Silicon Valley are going to work together in a meaningful way.
Tools: Finally, the tools. Ironically, most of the necessary authorities and flexible funding tools already exist in statute. They just aren't used. SBIRs have waiver mechanisms for VC-backed companies to get around the affiliate rule. Most agencies don't use them for fear of suffering the wrath of the National Federation of Independent Business and other SBIR-mill organizations. Other Transactional Authorities have been around since the late 50s yet only a few billion of the roughly $1T NatSec annual budget flows through them. The acquisition workforce generally defaults to the most conservative, risk-averse buying tools from the usual customers. So, they need to be trained in using the full, flexible acquisition toolkit, then held accountable for using it effectively when appropriate. Or even better, formally incentivized to use it where appropriate.
Further, the existing tools are blunt. They need to be sharpened. DOD has a variety of mechanisms by which to inject non-dilutive funding and equity-like investment into start-ups. But the Pentagon has no standing financial analysis unit to assess in which markets and which companies how much investment when and why. Money is peanut-butter spread around for political vice strategic investment reasons more often than not.
Finally, the tools need to be made scalable. Until the buy side finds itself in an urgent operational need environment, the amount of funding aimed at the sell side need not be voluminous. However, once the need arises and sell-side sources are identified, the rapid and flexible funding tools must be able to scale infinitely, virtually overnight. As such, caps and limits should be set well above actual funding thresholds. Governing bodies should be in place well ahead of time and must be empowered – if not outright incentivized - to authorize waivers and programmatic shifts.
Historical Examples and Precursors of Emerging Tech Readiness:
There are countless examples in history – both distant and much more recent – from the Global War on Terror, specifically how our collective sense of urgency catalyzed the development, scaling, and successes of JIEDDO (Joint Improvised-Threat Defeat Organization) and the MRAP (Mine-Resistant Ambush Protected); to the current role of the Defense Innovation Unit (DIU) supported commercial space companies positively impacting the trajectory of the UKR/RUS conflict; through which we might examine the tenets and benefits of an Emerging Tech Readiness ecosystem. We can then project what such an ecosystem might be able to do in terms of augmenting In-Q-Tel's success by expanding it to the DOD, adding scale to their investor checks, and attracting private capital to their platform; envisioning the benefits of the ecosystem’s ability to educate LPs in all the above; imagining it driving regulatory reform aimed at enabling better buy/sell side connectivity; leveraging it to meaningfully analyze the effectiveness of the various "Innovation Units" at enabling buy/sell side connectivity; using our understanding of the stakeholders within it and their respective inputs, outputs, and incentive structures to generate the development of a PEO-driven innovation model; evolve the Innovation Units' governance and metric-driven accountability at the macro level; augment professional military education with principles of GeoEconomics, Innovation, and National Security, and conduct a socioeconomic and behavioral study of all the buy and sell side subgroups along with their incentive structures; etc. All of these things are direly needed. All of these things are eminently possible. But the first step – as with anything – is not just recognizing, as we long have, that there is a problem, but proposing a solution with real champions and a viable execution plan.
SVDG’s Role in Building the Emerging Tech Readiness Ecosystem:
Senator McCain commissioned the Silicon Valley Defense Group in 2015 to "get the DOD to work better with Silicon Valley." Since our founding, our understanding of McCain's mandate has crystallized into our vision and mission statements which talk about the need for an enduring advantage in the new long-term (and mostly digital) techno-security competition. Building a functional Emerging Tech Readiness Ecosystem, first at home, and then with our democratic allies, is how we do that.
As of January 2023, all of SVDG's efforts are focused on this singular goal. Our programming comprises three lines of effort (LOE) in furtherance of developing and instantiating the ETR: policy, finance, and education. SVDG’s Academy is the engine that will drive our impact across each line off effort.
Policy in Furtherance of ETR: The Academy will coach the sell siders, connecting them to the buy siders, and advising on the sharpening of the emerging tech acquisition tools.
Finance in Furtherance of ETR: SVDG will coach the sell siders via the Finance LOE on the NatSec market, connecting them to buy siders, and helping to drive the adoption of and develop new co-mingled public/private investment tools.
Education in Furtherance of ETR: SVDG will engage in curriculum development to proliferate all of the expand the Tech and Security campus conference series geographically and to the military schoolhouses, and develop professional education offerings including residencies and fellowships, policy leaders.
As we move – unequivocally and unapologetically – to realize the founding mission and vision of the Silicon Valley Defense Group, via the development, refinement, and instantiation of Emerging Tech Readiness for U.S. national security, we encourage you to come learn more, roll up your sleeves, and join us.
