WASHINGTON — In December, Defense News hosted a roundtable of venture capitalists, startups and Pentagon officials to discuss the challenges surrounding defense-focused companies getting funding from either the department or the VC community.
One theme that emerged: that those involved in defense-focused startups believe they are on the cusp of a time that will either make or break the Department of Defense’s chances of working closely with the tech sector for years to come.
In the words of Mike Madsen, director of strategic engagement at the Pentagon’s commercial tech hub, Defense Innovation Unit: “We’re at a significant inflection point right now that will be visible through the lens of history.”
Or as Katherine Boyle, with VC firm General Catalyst, said, “None of us would be here if we weren’t optimistic… I actually think this is an incredible time to be investing in deep tech, particularly deep-tech companies that are selling to the Department of Defense. Because if it doesn’t happen now, it never will.”
Just three months later, those involved are maintaining that optimism in the wake of the COVID-19 coronavirus pandemic which has sent the global economy into a tailspin.
Speaking to reporters on March 25, Ellen Lord, undersecretary of defense for acquisition and sustainment, acknowledged concerns about “uncertainty, especially with small businesses, as to whether their contracts will continue.” Lord indicated some concern that companies may have trouble receiving funds and turn towards other nations, particularly China.
A day later, DIU posted a notice on its website stressing that is remains open for business and contract awards are expected to keep flowing.
“DIU is not slowing down, we are accelerating,” Tom Foldesi, DIU’s commercial engagement director, told Defense News in a statement. “All of our programs are fully funded and continue to execute on schedule. The stability that government can provide in times of crisis is a bright spot for many companies. DIU will continue to execute all of our initiatives aggressively.”
While DoD funds may continue to move, VC funding is the lifeblood for many of the technology firms that the Pentagon is interested in. Given the sharp economic downturn of the past two weeks, will VC firms still look to invest in companies whose payout from the Pentagon may take significantly longer than the normal turnaround sought by venture capital?