Capitalizing on an Opportunity to Grow the US Defense Industrial Base
By: Colonel Clarence “Geno” Burton, U.S. Air Force
Image: AFWERX, SpaceWERX announce Program Year 25.1 STRATFI selections at Capital Factory House, Department of Defense DVIDS courtesy photo by Matthew C Clouse.
Editor's Note: Colonel Burton's thesis won the FAO Association writing award at the Eisenhower School, National Defense University. The Journal is pleased to bring you this outstanding scholarship.
To shore up the foundations for integrated deterrence and campaigning, we will act urgently to build enduring advantages across the defense ecosystem – the Department of Defense (DoD), the defense industrial base, and the array of private sector and academic enterprises that create and sharpen the Joint Force’s technological edge.
-2022 National Defense Strategy (NDS) of the United States of America
Introduction
Great Power Competition with China requires an industrial base that enables rapid technology growth, prevents vendor lock, and empowers non-traditional industry partners. Making this a reality requires the U.S. to expand its industrial base and horizons on how it approaches industry and business. The technologies emerging from companies other than the five major players (Lockheed Martin, Boeing, Raytheon, Northrop Grumman, and General Dynamics), are a great asset to national security. However, the unfamiliarity of doing business with the DoD causes these companies to wander in the “valley of death,” waiting several years to be awarded lucrative production contracts as returns on their Research and Development (R&D) investments.
The Office of the Secretary of Defense’s (OSD) recent stand-up of the Office of Strategic Capital (OSC) will connect non-traditional companies, which are developing critical technologies vital to national security, with capital. By arranging long-term financing for innovative companies, they can avoid long lead times (up to two years) from transitioning a prototype or commercially available product to a defense contract. Contributions made to non-traditional vendors through the venture capital (VC) process are vital to expanding the defense industrial base (DIB) and keeping China within arm’s reach during the great power race.
As the epigraph asserts, deterrence realized from the integration of the DoD, DIB, and private sector is necessary to build enduring advantages and sharpen the Joint Force’s technological edge. The seamless combination of capabilities from these three entities has the potential to produce effects that convince potential adversaries that the costs of their hostilities outweigh their benefits.[1] The effective use of VC is at the center of this relationship. Sections to follow will examine the current state of the innovation base/non-traditional small businesses; discuss the concept of VC in today’s DIB from the perspective of the OSC, a VC firm, and the Air Force; and make the case for continued use of VCs along with recommendations for improving their use going forward.