TERRAFORMING THE VALLEY OF DEATH
Making the Defense Market Navigable for Startups
Over the last 25 years, the Department of Defense (DoD) has engaged the
growing U.S. technology ecosystem with a series of top-down olive
branches. Perry created joint research and development (R&D) projects;
Carter, the Defense Innovation Unit (DIU); and now Austin, the Office
of Strategic Capital (OSC). This continued outreach is a good sign our
military’s leaders understand a divided technology ecosystem will
ultimately undermine U.S. national security competitiveness, especially
against centralized military-civil fusion in China.
However, these olive branches do not mark
the end of the valley dividing non-
recurring defense R&D funding from
recurring defense revenue. At best, they
are provisions to aid this valley’s
crossing. At worst, dangerous Sirens in a
“valley of death.” With U.S. private
investors unprecedentedly pro-defense at a
time of global security challenges, the
need for reform is immediate.
While DoD undertook meaningful strides over
the past decade, these largely centered on
new organizations experimenting with new
reforms. Methods for both investing and
transitioning R&D into programs of record
were demonstrated by organizations like AFWERX, Air Force Research
Laboratory (AFRL), Army Futures Command, Defense Innovation Unit (DIU),
Marine Corps Warfighting Laboratory, Special Operations Command
(USSOCOM), and Strategic Capabilities Office (SCO). However, these
methods were never formalized, shared, and integrated into a repeatable,
transparent process capable of transitioning new DoD R&D entrants to
recurring revenue at scale. This task must now be completed and urgently
if the Department is to prevail in the “decisive decade” ahead. Delay
is increasingly dangerous: keeping the U.S. technology ecosystem divided
relative to China’s - and future defense unicorns, as mythical as their
namesake - is a losing strategy at the starting line. The Pentagon must
return to its role of seeding world-changing technology, and to do this,
it must fix the valley of death, now.
The Defense Innovation Board Task Force on Strategic Investment Capital
assessed how to terraform the startup Valley of Death. Interviewing
hundreds of startup companies, venture investors, current and former DoD
leaders, and Combatant Commanders, it found that the
● Investment Side of the Valley needs reforms that make DoD a better
investor and investment partner by (i) becoming more expeditionary
and accommodating to external stakeholders, (ii) leveraging total
addressable market potential, (iii) clarifying product-market fit,
