A crucial insight wrought from our 2022 research was based on a pattern garnered from our Opportunities for Advantage Series – which grew out of the OODA Alamanac 2022: Exponential Disruption– which we then brought more clarity to as a community at OODAcon 2022 (specifically, in the panel discussion Canceling the Apocalypse at OODAcon 2022: Funding the Next Generation of Innovation).
The initial pattern was a clear inflection point over the course of Q3 and Q4 of 2022 in National Security Investment for American Competitiveness. As result, this theme is now featured in the OODA Alamanac 2023 (Jagged Transitions), and will guide our research for the year. From the almanac:
A New Wave of Investment in National Security and American Competitiveness
At OODAcon in October 2022, we identified over $15b being raised for new investment initiatives focused on national security and American competitiveness and we continue to cover those initiatives here on OODAloop.com. This wave of speculative national security investment represents a new privatization of national security technology initiatives and will create a forcing function for the adoption of new disruptive technologies.
We also believe this will drive a rapid innovation pipeline for these companies at the seed and early-stage investment levels and OODA will continue to create opportunities for the OODA Network to engage on these emerging technology topics including at our January 2023 event on quantum computing.
Consistent with this theme, the following are some very recent developments from this promising ecosystem structured around innovation, investment capital, leadership, collaboration, and community-building.
DoD Office of Strategic Capital Announces Small Business Investment Company (SBIC) Critical Technologies Initiative
Video Source: dvidshub.net
Jason Rathje, Director of the recently formed Department of Defense, Office of Strategic Capital (OSC), announced at a recent Defense Innovation Board (DIB) Meeting (above) the first programmatic offering from his office, which he also announced via Linkedin:
“Thrilled to announce the Office of Strategic Capital’s initial program activity – the Critical Technology Initiative. In partnership with the SBA’s Office of Investment and Innovation, the aim of our new initiative is to increase the number of, and access to, sources of capital for companies developing our nation’s enabling and frontier technologies. Just the first step of many to come in aligning and scaling private capital in support of national security. Thank you to Bailey DeVries and her incredible team for making this a reality. This is truly an all-of-government approach.”
Also via a LinkedIn post), Ian Eishen, Director, Global Public Sector at Aalyria, Venture Fellow & Advisor at Insight Partners, and a Presidential Leadership Scholar described the announcement and the overall highlights of the DIB meeting :
“Mike Bloomberg, Will Roper, Gilda Barabino, Reid Hoffman, and others from the Defense Innovation Board met…and is worth your time. Clint Hinote was able to explain why the United States Department of Defense is an environment that is hard for personnel to #innovate. He discussed the conflict that arises when a senior leader tells a #startup “come back to me in two years when we have the money” and how the revenue models of startups can upset the “sustainment” revenue models of many of the large companies. He also stated that flexibility, trust, and transparency are vital if we want to get over the valley of death!
The meeting was also a great platform for Jason Rathje to highlight the work his team at the Office of Strategic Capital has been doing. He also introduced the “Small Business Investment Company (SBIC) critical technologies initiative through the office’s partnership with the Small Business Administration. The SBIC program has already helped create new investment opportunities in early-stage deep technology companies. This program ‘leverages what is called the Federal Credit Program where other departments and agencies utilize government loans and loan guarantees to increase leveraging technology areas and societal sectors that we think are important to increase investment in.’”
Pentagon’s ‘strategic capital’ office focusing on ‘deep tech’ startups through SBIC initiative
Video Source: defense.gov
Highlights from coverage by Jaspreet Gill of the DoD announcement of the SBIC initiative and the critical technologies initiative:
“’OSC was fundamentally established to give the Department of Defense a new tool in our current competition because today the United States… is in a global competition to be a world leader in emerging and critical technologies,’ Jason Rathje, OSC director, said, noting they’ll be taking applications for investment later this year.
Two months into its establishment, the Pentagon’s Office of Strategic Capital (OSC) is looking at ways to increase capital flows and market participation in deep technology areas — things like artificial intelligence, biotech, and quantum computing — and is developing its first investment strategy, the office’s director said today. ‘How do we give these technology entrepreneurs the opportunity to take their [science and technology] into products and services that not only support the national security mission but also larger economic prosperity?’ said Jason Rathje, who was a guest speaker at a meeting…of the Defense Innovation Board. ‘Well, the Office of Strategic Capital is investigating two new strategies to help align and scale private investment to support national security.’
Those two strategies are syndication, in which the government ‘simply partners with private capital providers to co-invest in new technology efforts to help scale the business as we help scale the technology,” Rathje said, and a ‘more novel strategy’ for DoD: leverage.
‘Leverage works to change the economics on investments in deep technology areas,’ Rathje said. ‘Fundamentally what leverage does is it lowers the cost of capital, allowing private investors to make the patient capital investments that are required at the sizes that they’re required to invest in deep technology companies.’
The Pentagon established the OSC last December in an effort to help bridge the “valley of death,” where innovative technologies fail to shift into actual programs of record, by developing and implementing ‘proven partnered strategies to shape and scale investment in critical technologies,’ DoD said in a memo. While the OSC and Defense Innovation Board are two separate entities, they share a similar focus on leveraging private industry for advancing innovation within the department.
In December the office launched its first program activity, the Small Business Investment Company (SBIC) critical technologies initiative through the office’s partnership with the Small Business Administration. The SBIC program has already helped create new investment opportunities in early-stage deep technology companies, Rathje said. (1)
What’s Next with the OSC SBIC Program?
- According to Rathje, ‘the way this program works is it leverages what is called the Federal Credit Program… where other departments and agencies utilize government loans and loan guarantees to increase leveraging technology areas and societal sectors that we think are important to increase investment in,’ Rathje said.
- The OSC will start taking applications for the SBIC initiative by this summer and wants to ‘license our first funds’ for the program this year, Rathje added.
- The office also plans to publish its first investment strategy, which will assess critical technology areas for ‘capital availability as well as liquidity opportunities. So what this does is it really helps us to tip and cue these tools to invest in the areas of these technology sectors that most require this source of capital,’ he said. (1)
America’s Frontier Fund Launches Strategic Innovation Group
America's Frontier Fund (AFF) announced today it is assembling a group of 12 finance, policy, and technology experts to join its newly formed Strategic Innovation Group, which will identify bold ideas to power American innovation in frontier technologies. https://t.co/siuosWWdSe
— America’s Frontier Fund (@AmericaFrontier) February 2, 2023
America’s Frontier Fund (AFF) announced today it is assembling a group of 12 finance, policy, and technology experts to join its newly formed Strategic Innovation Group. The group will provide strategic guidance to help AFF reach its investment objectives and advance American competitiveness through frontier technologies. The Strategic Innovation Group will be chaired by Nicholas Donofrio, IBM Fellow Emeritus and Former Executive Vice President, Innovation and Technology at IBM.
AFF is the nation’s first investment platform focused on empowering American innovation and revitalizing domestic manufacturing in critical frontier technology sectors. Consisting of industry experts, accomplished executives, and successful entrepreneurs, the Strategic Innovation Group will identify bold ideas to power American innovation within next-generation technologies and advanced manufacturing.
“We are excited to launch the Strategic Innovation Group and incorporate the extensive knowledge and insight these accomplished Americans bring to the table,” said Jordan Blashek, AFF’s President and Chief Operating Officer. “Their unique insights will prove invaluable towards driving breakthrough innovations, jobs, and shared prosperity for all Americans.”
“America must lead the next wave of innovation in artificial intelligence, biotechnology and microelectronics–the stakes are simply too high,” said Nicholas Donofrio, Chairman of America’s Frontier Fund’s new Strategic Innovation Group. “I am privileged to have the opportunity to lead AFF’s new advisory group composed of successful and talented individuals committed to helping aid in this critical mission.
“America’s Frontier Fund is the only organization that has found a bridge between government, industry, and capital markets. Their talent and capital stack puts them at the forefront of seeing, building and enabling a future where the US leads in the most critical global industries.” (2)
The members include:
- Nicholas Donofrio, Chair, IBM Fellow Emeritus
- Dr. Mostafa Analoui, Managing Director, Pickwick Capital Partners
- Steve Blank, Entrepreneur, Educator, and Author
- Mung Chiang, President, Purdue University
- Dr. Mark Dean, Leading Inventor and Computer Engineer
- Michele Docharty, Former Partner, Goldman Sachs
- Julia Phillips, Board Member, National Science Foundation
- Henrik Rasmussen, Institute for Science and International Security
- Ray Rothrock, CEO FiftySix Investments LLC
- Anne-Marie Slaughter, CEO, New America
- Tyson Voelkel, CEO, Texas A&M Foundation
- Stephen Rodriguez, Rapporteur, Managing Partner, One Defense