The DoD has a long history of investing in technologies through DARPA, and more recently DIUx, evaluating and sponsoring concepts which are seen as having high potential value for national security applications.  

 

Among a raft of good ideas announced over the past few months by Ellen Lord for speeding up the adoption of technology across the defense enterprise (more agile acquisition, a focus on tailoring policies to be more responsive and adaptive to delivering success, and engagement of the Defense Innovation Board in determining actionable ideas), there was one concept which stood out as unusual: the formation of a trusted capital marketplace for investing in small-to-medium defense firms.  

 

While the term “public-private partnership” is used in conjunction with the marketplace, what’s described doesn’t seem to fit the traditional definition of a PPP.

 

The objective of the trusted capital marketplace seems to be to provide a vetted group of investors access to a similarly qualified group of small-to-medium sized companies. Essentially, it's the creation of a curated dating site for investors and those seeking investment; kind of like SeekingArrangements with things that go boom. 

 

Flippancy aside, there are some very interesting aspects to this idea:

 

Sharing the risk and cost of developing new technologies.

Being able to connect small-to-medium defense firms who have good ideas with private capital takes some of the pressure and risk off the Government, especially where technology has both a national security and commercial application. 
 

Encouraging and fostering new ideas and development.

 

idea-4244248_1920
 
The traditional defense industry is well practiced in iterative evolution of technology and less adept at rapid innovation. This is especially true at the fringes of cyber, mobility, information, and media warfare, but also in terms of logistics, operations, and finance.
 
Bringing in new investors with different perspectives and new firms looking to solve burgeoning problems can create a fertile market to supplement and spur innovation in the industry. 
 

Broadening the pool of firms for non-traditional acquisition options.

The wider use of Other Transaction Authority (OTA) would benefit from a larger and more diverse base of respondents. Even though OTAs are far less onerous than the FAR, they still require an understanding of government contracting.
 
Many small companies lack this understanding, especially in the technology space. Providing access to investors with OTA expertise improves the likelihood of respondents bidding successfully.
 

Shepherding small and medium-sized companies through the “valley of death.”

The gap between being a small company with a good idea or niche services (those which can qualify for small business set-asides) and a large firm with enough resources to compete and deliver on major programs has long been a significant hurdle for growing companies. Outside investment could help provide a financial bridge to cross that gap.

 

All of these benefits are valid for the DoD and the country’s national security. So what would the investors get out of it? Investors - be they patriotic, philanthropic, or pragmatic - want to see a return on their investment. 

 chart-4065756_1920-1

 

It can be a long path toward widespread and therefore profitable adoption of a particular technology, simply due to the massive scale of the DoD enterprise and its attendant inertia to organizational change. Investors are therefore likely to focus on technologies which will show a quicker and lower risk return.

 

Such technologies would not include the kind of more risky, complex problems which have a high operational value to national security. This could skew the trusted capital marketplace towards lower risk, higher return projects much like the commercial business world, which would seem to defeat much of the purpose. 

 

Regardless, the trusted capital marketplace is an intriguing concept, and it will be interesting to see how it develops. 

 

 

Liam Speden is RG’s Chief Technology Officer, previously a start-up CEO and formerly a product line manager for Autodesk in San Francisco. He has been practicing rapid development software engineering for over 30 years, including applying Agile and its precursors, on projects ranging from 3 to 300+ people.

Join the Conversation