In the latest Mission Matters Podcast episode, David Rothzeid and I sat down with Oleg Rogynskyy, CEO of UFORCE, Ukraine's first defense tech unicorn, to talk about what it takes to build systems that actually work when lives are on the line.

A few things that stuck with us:
• A PACOM general told Oleg: "If you can't fix it with a coconut on an island, I don't want it." Most Western defense tech can't pass that test.
• UFORCE has flown more combat missions than all Western defense tech companies combined, and is expanding to NATO allies and the US market now.
• Ukraine's acquisition model is outcomes-based in real time. Units rate their weapons like Amazon reviews, updated from missions flown that morning.
• The lessons from the Black Sea are directly applicable to the Strait of Hormuz, the Baltic, and the Indo-Pacific.

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security. 🇺🇸

You can listen to the podcast on Spotify, Apple, YouTube, the Shield Capital website, or right here on Substack.

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Transcript

Maggie 01:18

In this episode of the Mission Matters podcast, we’re joined by Oleg Rogynskyy, the CEO of UFORCE, Ukraine’s first defense tech unicorn.

David 01:21

UFORCE builds some of the most consequential battle-tested autonomous systems in the Russia-Ukraine war. Its platforms have executed tens of thousands, nay, hundreds of thousands of real missions in highly contested environments, informing not just autonomy software, but manufacturing, supply chains, deployment, and sustainment at scale.

Maggie 01:44

Perhaps most notably, UFORCE builds the Magura Unmanned Surface Vessel, or USV, the first ever naval drone to sink an enemy warship in combat, destroying eight Russian warships in the Black Sea in its first year of operation and causing hundreds of millions or even billions of dollars of damage to other ships. UFORCE also develops several other defense systems, including the Nemesis Unmanned Aerial Vehicle, UAV, Liut Unmanned Ground Vehicle, UGV, and a command control software platform.

David 02:14

In addition to its Ukrainian customers, UFORCE is expanding to NATO allies and the United States, where it will bring its combat-proven systems to an industrial base in dire need. In this conversation, we dive into what it takes to build defense technology that actually works on a real-world battlefield, the lessons the US, the Middle East, and the rest of Europe should take from Ukraine, what it takes to scale this technology beyond Ukraine and more. And with that, Oleg, thank you so much for joining us. I guess first things first, like how are Ukrainian forces using UFORCE systems today, and where are they creating the biggest operational advantage?

Oleg 02:53

David, thank you for having me here, Maggie. So to your question, we have a number of platforms, and they’re all used in different ways in Ukraine. We’re most known for the Magura USV, and in the beginning when there were still, Russian naval assets in the Black Sea in the open, Magura was used in a number of operations, both as, one-way attack strike platform to strike those ships, but also as a short-range air defense platform to defend the swarms of Maguras from incoming aircraft, incoming drones, et cetera. Magura was also used to find subs, to find sea mines, to deliver UAVs to the enemy shore against the hard targets in fully denied environments, and so on and so on. So that’s just one chapter. The second product we have is Nemesis, which is the workhorse of Ukrainian mid strike capabilities. So every night there is thousands of these drones flying to deliver tens of thousands of payloads, to the distances of 20 to 50 kilometers, return back, reload, and go back out again. All of that driven by software that kind of works like DoorDash, where launch teams just go from spot to spot to spot and relaunch, reload, change the battery of the drones. We also have the ground vehicle, called Liut, that, allows Ukrainian forces to, do first ever, trench assaults without any humans on the line. These are fully remotely controlled UGVs, that have AI capabilities in them, have turrets with guns that both shoot down incoming FPVs as well as help, complete unmanned trench assaults, kind of smoking out enemy soldiers out of the trenches. There’s a mo- a lot more I can tell you, but that’s, those are the three main CONOPs we are running.

Maggie 04:52

Oleg, what are the actual combat effects that UFORCE has had in Ukraine to date?

Oleg 04:59

Great question. So, on the maritime front, we have affected latest count, I believe 19 Russian warships, out of which 14 are verified sunk. And then in terms of aircraft, because as you remember, we do, USV, unmanned surface vessel-based short-range air defense and counter-UAS. We’re the first company ever to take down fighter jets. We got two Su-30s, as well as we have two confirmed and a number of unconfirmed, as in we didn’t film them, helicopter kills, over the Black Sea, and that’s the maritime side. The land side, we have flown over 220,000 missions within all versions of Nemesis drones, and that has allowed us to destroy, over 10,000 Russian vehicles And I mean, the body count is really high, as you can imagine. And then, we’re talking over 2,000 armor, we’re talking number of logistics trucks, very large number of logistics trucks. But more importantly, we have been the artillery hunter for the Ukrainian side. So we mow down that thing all day long, every day, all night long, every, all the time. And then we had the technology that got close to 100% of the kills for the North Korean, howitzers that they gave to Russians. So that’s one of the claims to fame.

Maggie 06:32

You know, I think Oleg, I think UFORCE is probably the first company that we have invested in at Shield that had actually been used on the battlefield before we made the investment. What’s it been like building and operating a defense company in Ukraine during wartime, and how has that environment shaped the culture and urgency of the business?

Oleg 06:53

So that’s really interesting because I’m not a founder. I joined as a CEO, two and a half years into the company when the company was already north of $100 million in revenue, and the difference was stark. In Ukraine, everything is real time. You just go and do it right now. You don’t wait. Obviously, there’s downsides in terms of longer term planning, longer term system thinking, et cetera, but at the same time, the sense of urgency, the sense of why it is right now and why it is extremely important is nothing like I’ve seen before. The systems, the communication patterns, everything else in the company is organized around that real-time communication. And that’s different. Now, if you layer on what I’m trying to do, layer on knowledge management systems onto real-time communication, some really good things are happening.

Maggie 07:46

Can you tell us a bit about the origin story of the company and how you came to lead it?

Oleg 07:50

Yeah, absolutely. So the company came together through a merger of initially two companies. One was making Nemesis drone, another one was making a Magura C Drone. And then as those two came together, then became clear that, they were sharing a C2 system by a third company that got brought in. And then turns out there were other companies like a UGV company running on the same C2. So the interesting part is there was a whole cluster of companies and teams that were operating together even pre-merger that kind of were acting as one team, and it was just a very obvious move to bring those together using Western capital and, identify synergies, create scalability across them, start normalizing the tech stack, code base, training, ConOps, TTPs, business development, and so on and so on. So in the end, we now have, I think the latest count was nine companies that have come together, but they all have been operating as one for a while.

David 08:56

Well, like it’s so interesting, and it feels like very organic and like Silicon Valley-esque, right? That everyone’s doing their thing. They’ve got these core competencies. You find these opportunities to sort of collaborate, and then lo and behold, the whole is greater than the sum of its parts, so you start to incorporate raising money, and obviously now headquartered in London and trying to proliferate the combat-proven technology across multiple domains, multiple geographies. And I guess the basis of my question is like how replicable is this, you know, across the Ukraine, entrepreneurial, you know, which has really shown itself, in a pretty inspiring way. But, you know, is UFORCE going to be a one of one, or is this a model that we’ll see happening over and over again?

Oleg 09:47

So I think there is two answers to that one. From one side, it’s replicable. It has to be replicated because the consolidation to achieve scale, especially as the war in Ukraine ebbs and flows, will need to happen. Like at our size and scale, we can, not only continue leading in Ukraine but also start expanding to other markets. On the other hand, the bottleneck is actually in the leadership talent And there’s only so many, leaders out there who have done, and it’s not just me, it’s my whole leadership team, who have done work with Ukraine before, but have also seen Western large scale companies that allows them to not figure out things on the spot, but also bring in Western governance, scalability, finance, and other capabilities to the bear, to combine it with the product market fit that was achieved by the Ukrainian, ingenuity, iteration, and exposure to a real war.

Maggie 10:51

Yeah, Oleg, I think that’s an interesting point that you make. I know that your experience previous to this was as a CEO of a software company in Silicon Valley. Can you talk a little bit about how you bring some of the principles from running a business like that, which as far as I know, had no connection to defense into this new market area?

Oleg 11:11

Yeah. Running a software in AI company in Silicon Valley taught me a lot. I mean, what’s happening in defense right now is that there is a massive amount of growth opportunities happening all the time, and that means you gotta be hiring fast, but with really, consistent quality. You have to be working with capital markets. You have to be thinking about, capacity models, both on the manufacturing but also on the sales side, on customer support, success, et cetera side. And SaaS and AI were the places where those skills had to be developed at significant, scale because of the templatization of, SaaS industry that happened in between 2010 and 2020 or so. So having learned those pathways, having learned those patterns, has been extremely helpful in order to scale up this business very quickly. I mean, we went from over, from about 800 people to 13, 1400 people in less than Nine months, 10 months, something like that. So the growth is staggering. The bookings growth, I don’t wanna talk about it, but it’s also staggering. And all of that is only happening if you’re able to hire people at consistent, significant scale and consistent quality. And then one more thing to actually to bring to that is we learn how to run efficient companies in Silicon Valley between 2020 and 2024, kind of through the downturn, through COVID, et cetera. And so scaling up a business like UFORCE is very hard on its own, but scaling it up efficiently without lighting massive piles of money on fire on stupid things is a lot harder. And then doing that while introducing AI capabilities in every part of the business, both in terms of personnel efficiency, documentation, engineering, sales, everywhere, is also a challenge of its own, especially in high OpSec environment where every minute Russians are trying to get you, and not just Russians. So it’s been probably the most challenging and the most exciting thing I’ve ever done, but man, it’s a lot of work

Maggie 13:33

Yeah, I mean, speaking of some of those OPSEC challenges and, you know, just actually what it takes to build for real combat conditions, can you tell us about some of the biggest technical and operational challenges that you’ve had to work through in order to actually harden these systems for real-world battlefield deployments?

Oleg 13:51

Yeah. I mean, first of all, in Ukraine, everything is kind of move fast and break things because Ukraine knows, Ukrainian soldiers know that whatever is the weapons are today, it’s not gonna be the same tomorrow. So nobody’s focusing on building that highly certified, highly perfect, highly integrated set of systems, just the rate of change is so fast. And so, on one hand, that leads to, really fast iteration. On the other hand, it leads to kind of more dynamic environment that what Western militaries are used to. And then from OPSEC perspective, you have to approach it very differently. If everything’s changing all the time, you cannot defend your perimeter as well, ‘cause you cannot think through every little bit of operational security. And so what you gotta focus on is a lot more prevention of the lateral movements. You assume they’re in, you gotta stop them from moving to other places. Very different, approach in the West, where you have to really focus on your perimeter security, you have to really focus your interoperability to your NATO certification, other certifications, and other integrations and slow things that you can afford when you’re not at war. So completely two different cultures, and you have to be very conscious about what’s relevant from wartime to peacetime and the other way.

Maggie 15:12

Kind of following up on some of the technical deployments here, you know, something I found interesting when you read about what’s happening in Ukraine, in the news and elsewhere, there’s a lot of discussion of autonomy, you know, completely human out-of-the-loop action. But if you actually look at a lot of the technology being used today, most of it is still mostly remotely operated, you know, maybe there’s some small pieces of autonomy in terminal guidance or elsewhere. What will it take to move towards greater autonomy, and how do you see this future of software-defined warfare and UFORCE role in that?

Oleg 15:46

Yeah. So there is an interesting stat for why autonomy is not picking up in Ukraine, and it’s actually harder for it to pick up elsewhere. There’s not enough targets, and so it would be akin to over-engineering if people went for full autonomy right away. There is pockets of it developing really rapidly, such as terminal guidance in denied, in fully denied environments, autonomous resupply using aerial ground and sea drones, Swarm intelligence, but in a very basic way. Like, how do you queue up multiple drones in case one drone gets distracted to another target, opportunistic target? How do you make sure the others are following and both missions get completed? So kind of mission queuing, et cetera. But nobody in Ukraine is thinking about, “Well, I’m gonna send in drones over there and have them figure it out.” The kill boxes are too undefined, the terrain is too complex, the assets are too sparse, the battery ranges are too low. And so from that perspective, it basically would be an overkill. Now, when you look at Indo-Pacific, for example, where distances are massive, you know roughly you expect better ISR, but then at the same time you expect denial and kind of peer-to-peer, fight, autonomy would play a much bigger role there. And so you have to modulate what’s relevant and where. In fact, that leads to the base mantra that UFORCE carries with it everywhere, which is we start with the customer. I call us, we are the first bottoms-up adoption defense tech company. Other defense techs go and go straight to the ivory tower and push the top down. Okay, capture the Congress, shove down $20 billion of contracts down your throat, and then see what COCOMs do. We try to do the opposite, and Ukraine taught us that. We got the users who love the product and ask for more, and then Ukrainian government has enabled commanders of individual units to have a say in what weapons they get to fight the war, specifically of the type that they are facing. And so that’s the approach we’re taking elsewhere. We have combatant commanders of different theaters in the US being very excited about what we do before the Pentagon figures out. We have individual war fighters of war-fighting leaders kind of ask for our hardware because it works, because it’s battle proven before we show up to the procurement teams. And that has been very different Of an approach, and it’s a much more wartime approach. But unfortunately, the world is becoming less stable than more, so that approach is gonna be taking more and more space.

David 18:47

Yeah. Oleg, I definitely wanna jump into it, and I know you brought up a little bit about the Indo-Pacific Theater and INDOPACOM. And then, you know, saying a little bit of heresy there, that centralized control and decision-making at the world’s largest bureaucracy, the Pentagon, maybe isn’t the best path to creating innovation and combat-proven technology. But before we jump into that, maybe just like one quick anecdote for our listeners about how the Ukrainian acquisition system and its fixation on outcomes-based, capability, development and funding versus this requirements-based that we sort of have here in the US, where you have to think about what it is you want to build, then you go and build it, then you test and you iterate, and then at some point it reaches the operational environment. But in Ukraine, it’s obviously been different ‘cause you don’t have the luxury of test and evaluation. It’s just outcomes-based. So can you maybe just highlight a little bit of that?

Oleg 19:53

Yeah, absolutely. So in Ukraine, you don’t have the time. You don’t have the time to develop a thing and then spend couple years certifying it and getting it, and then perfecting it, et cetera. Everything gets to the front line in Ukraine in days, weeks. It gets iterated within hours, gets upgraded. If you don’t ship code same day as you got the mission data, you’re out. And so that’s the speed at which Ukraine operates nonstop, and that’s the only way to play. And so that speed is actually enabled by a number of inventions that only Ukraine so far has. Now, some of them are only possible because Ukraine is in an active fight, and we... at the same time, we’ve seen lack of those innovations, slow things down in the Gulf, for example And what I mean by that is, so in Ukraine, both vendors and units get points for kill videos that they get submitted. So basically, you fly a mission, you got a kill, you submit the video to a government website. There is like a government Amazon for weapons. And the AI verifies that this video is unique and not AI generated. And then, you basically get points, and you can use those points to buy weapons that you want for your next mission. They even have Amazon Prime for that. You can spend more points to get it by tomorrow. And so that is very interesting because it pushes down the decision-making to a unit commander level, and at the same time, it gives the government perfect data of what works. Because if it doesn’t work, people won’t order it again. There is literally reviews you can go and read on every drone and from missions that were flown this morning. I’m not even talking about, like, last year on a slick sheet. And then from there, the government is now starting to layer on more and more data, like how many missions did this system actually fly? How many kills did they have? How many... What kind of units are using it? What kind of operators are more successful with them? So they are now collecting the ecosystem metadata and segmenting the procurement data about what can be bought with factual battlefield data to an insane extent. And then on the other side of this invention, they have created very tight partnerships between the tech partners like us and the units themselves. And so for example, we are closely paired up with Unit 412 Nemesis, which started as a battalion, and then it became a regiment, and now it’s a brigade. And rumors are, unconfirmed rumors, that it’s gonna become a corps at some point And what it means is we started with 100 operators, which became 1,000, which then became 5,000 operators, who could become 25,000 operators that are sitting and whose job is not just to fly missions, but to deliver feedback to us. And our job is to iterate on that feedback in real time with them. There is tens of thousands of code commits and design changes that happen all the time based on that real-time feedback. So now that you know there are units that can access the data and influence procurement in real time through the government system, and all this kit is being co-developed with people that are trusted in real time, things are changing very quickly and improving all the time.

David 23:17

Yeah. That’s fascinating. I mean, it’s a real markets-based approach to capability development and acquisition procurement, and definitely some lessons that could be learned over here in the United States military. Maybe from, like, the operational standpoint, right? Like, the last couple months, the US has been embroiled in a number of different conflicts. You know, there was Venezuela, which went fairly quickly, and now nobody talks about that. And of course, you know, the situation with Iran, Given where our capability deployments have been, and there was a great chart within the first couple weeks of the Iranian conflict that kind of highlighted that there were very few capabilities developed in the last 10 years that were actually operationally being used, in Iran. And I’m wondering, you know, at some point, did the Pentagon come calling or people in Central Command or European command about, “Hey, how can we get some of this stuff over there?” And then, you know, could Ukrainian combat-developed technology be useful to helping the situation with the Strait of Hormuz?

Oleg 24:30

I can’t really comment on specific engagements, but as I mentioned in one of the interviews, the phone had been ringing and has been ringing off the hook, with interest because when you are dealing with the challenges that we saw in Iran, the lessons from Ukraine are directly transportable. These are the same Shahed drones flying. The tactics and concepts of operations that Iranians are using against Dubai and Qatar is no different than what they’re doing against Odesa in Ukraine. Russians are doing it against Odesa in Ukraine. The mining, demining in Hormuz is no different than when Russians tried to mine the grain routes to bring Ukrainian grain out of Ukraine. So the analogy is all there. Maybe the temperatures are slightly different, but the sea is also similar. Black Sea and, the Gulf both go maximum sea state three, and so on and so on. So lots of lessons to be learned from there. Ukrainian experience is extremely, effective there. As you know, there was a delegation from Ukraine helping take down a number of Shahed drones in Middle East. That has been extremely successful, and lots of lessons learned from there, including in design of interceptor drones. Ukraine was able to change how interceptor drones are designed in less than two weeks to match the Middle Eastern requirements, which was very interesting. So yeah. I think, also there is a very effective knowledge transfer that happened from those examples of how Ukraine fights to people on the ground in Bahrain and other parts of US military installations in Middle East right now. People are learning. We saw the Lucas program. There is many other programs where Ukrainian experience is being implemented right away. Now, when is it gonna arrive to Pentagon? Great question. Hopefully soon.

David 26:30

Yeah. And hopefully, your investor at Shield Capital is helping, you know, accelerate that whole process, which I know can feel a bit mind-numbing. Now maybe just real quick, speaking of engaging with the Pentagon, you just hired your US-based CEO, Sean Planke. Maybe talk a little bit about how you met Sean and what you were looking for in somebody to help sort of, push out the US, UFORCE, exposure.

Oleg 27:01

Yeah. So, we got our introduction to Sean through our investors. And then what’s interesting is at least three of our investors triangulated the same person to us around the same time, which was, a great way to know that we’re talking to someone who is for real, where, all of the US really plugged in defense investors we have on the cap table at once said, “That’s the guy.” And then at the same time, just the level of expertise that we saw, the level of ability to navigate, Washington DC, which is not easy to navigate. But also the knowledge of having served, the knowledge of having met a number of people in a number of missions and just being super mission-aligned is something that really caught our eye. Level of energy is more than mine, which is really hard to imagine. But guess what? We were just in a, literally in a bunker with a number of commanders a couple days ago. It was day eight on the job, and I was sitting in the back of the room. I’m like, “Huh, I’m not really needed here anymore. That’s amazing.”

Maggie 28:14

What have been some of the biggest challenges, you know, or unexpected surprises in scaling UFORCE beyond Ukraine to international markets?

Oleg 28:24

That’s a really good question. So early on, about a year and a half ago, it was financing, not private capital financing, but like walking up to a bank and saying, “Yeah, we want some working capital to make some weapons,” was a difficult thing. In the UK, even opening a bank account was a very difficult thing. We had to go through a chairman of a banking group to get someone to open a bank account for us there. Not an issue anymore. Scaling, talent has been an issue because especially in Europe, where there is much less density of venture scale outcomes and so there’s very few, much fewer people who have seen unicorn growth, 10Xing year over year, et cetera. And so, finding those people was hard. And it’s like I’m juxtaposing them with people who come from defense world, which actually historically has been barely growing has been difficult. How do you get hypergrowth people who know defense? In the US, there is a bit more of that because you have hardware companies that have scaled, they have seen hypergrowth that are not technically defense. But, in Europe it’s very much harder. And even the US defense stuff, like we are talking to number of folks we’re trying to recruit from the larger defense tech companies in the US, and all of them are like, “Yeah, we’ve built shit. Nobody has used it, so we don’t really know if we built the right thing. So we know how to build stuff, we don’t know if anybody’s gonna use that stuff.” And how do you hire that? And they’re like, “And how about hypergrowth? Well, we know how to hypergrow a company on investment capital, but it’s not really revenue-driven hypergrowth.”

Maggie 30:20

Yeah, I think it’s an interesting point that you’re making that a lot of these, you know, international companies have not actually deployed technology yet on the battlefield. And I’m curious, what do you think are some of the things that maybe Western, international defense tech companies misunderstand about what it takes to actually deploy on the battlefield? And what will it take for them to get over that hurdle?

Oleg 30:46

Well, like, everything. There’s only two Western companies that I can think of that have real battlefield effects in Ukraine. It’s Quantum Systems and it’s Tekever, and Destinus. Everybody else, I’m sorry, there’s two wars going on right now, and this is, like, my favorite question for investors to ask other defense tech companies. Ask them how many daily active users they have. Like, there is two active wars right now, and you don’t have daily active users, like people logging in and using your stuff daily? What are you doing? And so to that point, the challenges to deploy are, first of all, just even getting your stuff to the frontline is a whole thing of its own. Like, I was just talking to someone who is like, “Yeah, the, this defense tech company showed up and said, ‘Hey, here is our product. Use it.’ Like, great, I wanna modify something. ‘Oh, you can’t do that. Our agreements and everything doesn’t allow. If you wanna pay us more, we can send in our four deployed techs, and they’re gonna try to do something here.’ Most likely they’re gonna have to ship it back.” That was a real discussion with the top three largest defense tech company in the US. And I’m not even talking Prime, I’m talking, like, hard defense startup company. So that doesn’t work in Ukraine. A general in the PACOM during one of the exercises told me something. He’s like, “Hey, when I’m on an island and you can’t fix your thing with a coconut, I don’t want it.” And so that’s the stuff that Ukraine has figured out, that everything is simple, modular, deployable, doesn’t need experienced MIT PhD field technicians, doesn’t need to be shipped back to the HQ for a software upgrade, or whatnot, and it just works. And unfortunately, defense tech outside of Ukraine is not getting that.

Maggie 32:44

How do you actually scale a manufacturing process or manufacturing facility in the middle of an active war when you yourself as a weapons manufacturer may actually be a target for the enemy?

Oleg 32:58

Well, you approach building manufacturing facilities very differently. Like, nobody in Ukraine builds large, beautiful, brand-new facilities with a big company logo on the roof and kind of people wearing white suits, white space suits or whatever it is, inside, and you can hear a pin drop. Like, in Ukraine, if you do that, you’re gonna get a ballistic missile in 40 seconds, and we’ve, uh... Even without doing that, we’ve lost a number of facilities over the years because you become the prime target. If your kit works, Russia is gonna use their 40 million dollar ballistic missiles to take out the manufacturing facility for your kit. And trust me, every one of the Western factories for weapons is already mapped out by China. It’s already mapped out by whoever needs to map them out, and those things will be gone in the first 30 seconds of a hot exchange. Now, what we do in Ukraine is we use, secondhand or underground facilities for pretty much every critical element so that we can withstand missile strikes. There is a lot of operational security protocols on how to stay under the radar, how to not endanger your people, how to know how to behave when an airstrike is imminent, and how to not use your, not lose your expensive equipment, or don’t use the expensive equipment. So the way we operate our manufacturing processes is it, the factory needs to be built from a local Home Depot using components from a local Best Buy, because you will not have the time to wait for nine months for the machine to arrive, and you’re not gonna have, continuous power, you’re not gonna have continuous supply chain technicians to come fix the machine, et cetera. So it has to be something simple, it has to be something scalable, easy to repair, field deployable, and fast.

Maggie 34:58

How did you all think about designing your systems to be able to be manufactured at scale during this kind of environment?

Oleg 35:06

Well, you take the tools you have, and you build what you can with them, and then when they ask for more, you figure out how to do more of it, and you keep on iterating until you get to large scale. Again, Ukraine doesn’t allow you to build for scale right away has to be... Manufacturing is as much of an iterative process as design and as fielding in Ukraine. You cannot plan for it. Spreadsheets don’t work. You, and the way Ukrainian government is purchasing, it’s all supply-constrained right now. So they walk up to you and they say, “Hey, look, how many can you make? We’re gonna give you margin on top, and we’re gonna buy everything you can make,” versus kinda shelfware and stuff like that.

Maggie 35:49

How have you all thought about managing your supply chain during this conflict? I know today a lot of the systems that Ukraine fields do still come from China or have a lot of componentry coming from China. So how have you thought about that, you know, right now, and then where do you see that going in the medium to long term?

Oleg 36:05

Well, if your stuff really works, your supply chain is gonna be targeted. So we had our supply chain targeted multiple times, and because of that, as a company, we made a decision to insource most of our supply chain. So we make our own drone motors, we make our own cameras, gimbals, battery packs, frames obviously, hulls, you name it. And so, we had to grow up to be fully NDAA compliant and not depend on Chinese and other non-fully aligned national, sources. And so PCBs, circuit boards, all that stuff has to be made in-house. Now, costs are different, but over time you can drive it down, and at our scale, it’s not impossible to execute.

Maggie 36:52

So how are you seeing international demand for battle-tested systems like UFORCE? I guess, you know, geographically, where are you seeing the most demand, and what kinds of products are people most eager to purchase? I mean, it sounds like you have a pretty unique offering on the market as being one of the only scaled or scaling combat-tested defense tech startups.

Oleg 37:15

Yeah. We think about the world in terms of four theaters that are active right now. You have Indo-Pacific, you have CENTCOM, you have EUCOM, and Ukraine, kind of overall. And from that perspective, the, each of these theaters has different problem sets. And so what we are doing, we are figuring out what are the problem sets we can actually solve with the same platform capabilities across the board. It turns out Magura is relevant in all four theaters. In Ukraine, it’s done its job mostly. But in the Baltic and in the Gulf and in the Pacific, Magura can do different things for each one of them. In the Gulf, it’s demining and counter-UAS against Shaheeds. In the Pacific, it’s all kinds of things, from one-way attack to ISR to demining to sub-hunting to C-UAS, you name it. Same in the Baltic. And so, demand is skyrocketing everywhere. There’s a lot more water outside of Ukraine than in Ukraine. At the same time, the distances are much larger, and we are very good at long distances, high endurance, loitering, delivering payloads, working as a truck to get things over there where nothing else can get through. And then the other part is we’re starting to see more and more demand for our Nemesis bomber drones. You know what’s interesting? I don’t think US understands bomber drones. Two days ago, for the first time, I was meeting with a very senior general in the US Army, and he basically for the first time brought up their interest in droppers and how they’re thinking about it. In Ukraine, droppers are Probably more cost-effective than FPVs in some way. And the battlefield damage for droppers is on par with FPVs, it’s just at the longer standoff distance. And so we’re seeing more and more adoption for the dropper technology in Europe. A major European country right now is deploying, is basically upgrading one of their light armor brigades to full CONOPS and TTPs and software and hardware and doctrine we developed for 412 Nemesis, and then rolled out across 40 brigades in Ukraine. And the moment that started happening, other countries with light, started thinking about what is gonna change about what needs to change about their light armored brigades in order to increase their survivability and effectiveness. Because in the world of FPVs, light armored brigades don’t have a future. And so we are seeing a whole queue right now of light armor brigades, which is leading to a whole NATO FLE, the field lethality experiment, which is kind of like a, when NATO as a whole decides, “Hey, we need to change something as a NATO, recommendation across all forces at once.” And so to summarize, demand for Magura where there is more water, outside of Ukraine, and then demand for Nemesis, where they expect a lot of land fighting and a lot of, kind of 20 to 50 kilometer, effects needed.

David 40:29

Well, yeah, I think, what the picture you paint is both terrifying but also in certain respects, like reassuring that opportunity for the US to modernize its capability, its kit, is very much available and very proven. And so maybe just, you know, Oleg, as we kinda come to the end of this, interview, you know, what is the future of UFORCE? We’ve seen some pretty lofty valuations for a couple of these other defense tech companies that have gotten started in the last 10 years, three years in some cases, right? Anduril just raised that, I think 61 billion, and, Saronic raised, I think just sub of 10 billion. Where do you see UFORCE fitting into this picture, across this emerging defense tech landscape?

Oleg 41:19

Well, at some point, customer is gonna ask, “Does this really work?” And that’s kind of where we come in. We’re seeing more and more war fighters and commanders really focus on being combat proven for their kit. And so in terms of valuations cannot comment on it as you can imagine, but, we’re already a unicorn. At some point we’ll be a decacorn, as they say. But the valuation is not the point. What the point is that battle proven kit is how you save war-fighters’ lives and help them achieve their mission. And, the amount of experience we bring to the table is absolutely unparalleled. I think UFORCE has flown together like an order of magnitude more missions than all of the Western defense techs combined and I haven’t done the numbers, but just eyeballing it looks significantly larger. We’ve flown 220,000 combat missions so far. That’s more than all of US forces have flown in, over Iran, for example. Way more. I think it’s, like, 10 times more. And so the future of this is we’re just gonna keep on scaling. We are building stuff that works. It’s not gonna be the most expensive stuff, it’s not gonna be the most exquisite, but you can always rely on it to do the right thing.

Maggie 42:44

Oleg, if you were the American Secretary of War for a day, what changes would you make to the department, the way it buys and what it buys, to ensure that the United States is ready for this next generation of warfare?

Oleg 42:58

That’s a great question. I actually think there are some really good positive dynamics happening at the DOW. The whole team that came in from private equity background is moving fast, and it’s very encouraging. But, what’s less encouraging is just the complexity of procurement with, COCOMs, combatant commanders, basically being in full dependency of Pentagon, where the actual war fighting leaders don’t decide what they need for their region. They can submit a vote, but they don’t really guarantee you get that, is something that needs to change, it needs to change ASAP. Like, Admiral Paparo knows better than anyone else on the planet how to fight the war in the Pacific, and so he should be getting what he wants and needs. Same with the leader of CENTCOM, same with other leaders. And that’s something that I think, only US has for its size. Like, when we work with European countries, the linkage between the combatant commander and the procurement office is extremely tight.

Maggie 44:07

Great. Well, Oleg, thank you so much for coming on the show. We really appreciate it, and we’re super proud to be investors in your business.

Oleg 44:15: Thank you, Maggie. Thank you, David. Appreciate being here. Thank you, Oleg.

A few things that stood out:

• The legacy code problem is bigger than people realize. US weapons systems still run on COBOL, Fortran, and Ada. These are decades-old languages maintained by a shrinking pool of specialists. Modernizing a single codebase has historically taken teams of engineers months.

• LLMs alone aren't enough for safety-critical code. Code Metal pairs AI code generation with formal verification.

• The shift Peter is betting on: Code generation is becoming a commodity. Verification is where the value is moving. Whichever foundation model wins, mission-critical industries will pay for the layer that proves the output is correct.

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

You can listen to the podcast on Spotify, Apple, YouTube, the Shield Capital website, or right here on Substack.

Subscribe now

Transcript

Maggie 00:36

In this episode of the Mission Matters podcast, we sit down with Peter Morales, the CEO and co-founder of Code Metal AI. Code Metal is building the future of code translation. That is taking code written in one coding language and translating it into a different coding language, and then verifying the accuracy of that translation.

Pat 00:57

Code Metal is focused on building code translation and verification tools for several major use cases, including code-based modernization, edge hardware deployment optimization, and code portability. Code translation projects that previously took teams of engineers months of work can now be completed in just minutes with Code Metal. Code Metal’s capabilities are a crucial part of the future of efficiently developing software-defined commercial products and has many military applications, helping engineers build software-defined hardware products and bringing modern software capabilities to the US government and other mission-critical customers

Maggie 01:41

Since it was founded in 2023, Code Metal has raised close to $200 million and signed contracts with groups across national security and commercial sectors, including L3Harris, RTX, Toshiba, and the US Air Force. The founding team has deep experience in building AI tools for defense, hailing from MIT Lincoln Labs, BAE Systems, Microsoft, IBM, Data Miner, and more. Peter, thank you so much for joining us.

Peter 02:08

Yeah, thanks so much for having me, guys.

Maggie 02:10

So I wanna start with just a softball question. Can you tell us, why would somebody actually want to translate code in the first place?

Peter 02:18

Yeah. Um, that’s a great question, and I think, um, you know, we’ve gotten that even, even some of the folks that have been here a long time have gotten that question that worked on some languages themselves, so the authors. Uh, you know, language is essentially really how you talk to the hardware and command what it does, and sometimes you wanna move really fast, and you wanna speak really abstractly, and that’s what we call, like, high-level languages. They’re great for prototyping. They’re great for maybe writing some different algorithms you wanna try. But then sometimes you wanna run really exquisitely fast on hardware. You want it to be really efficient, and that means having a lot of say in how you control things. If you think of C++, that’s a language where you actually get to decide what you do with the memory, where a lot of other languages maybe don’t worry about memory. Um, that level of control gives you optimization, gives you speed, and so being able to translate code into more optimal code, uh, is, you know, one of the hard use cases of what we do.

Maggie 03:15

And I should think of this of, like, if I’m trying to put a computer vision algorithm on a drone or on a satellite or something like that where I may not have access to a whole lot of compute capabilities, that’s where I really care about this kind of optimized code. Is that the right way to think about it?

Peter 03:28

Yeah, yeah. I mean, it doesn’t have to be a drone, right? You want battery life on your phone. You might want battery life on your laptop. But yeah, being able to be efficient is a real reason for translating code. And then on top of that, you might even have different hardware providers, so maybe you’re efficient on NVIDIA, but you wanna be efficient on Qualcomm. Um, having to rewrite your code that, you know, uses their proprietary libraries is a big pain in the butt, but something that I think AI is letting us automate now.

Maggie 03:57

So what does it look like today sans Code Metal? If I am an engineer at a car company or a laptop company or a chip company and I need to build software for these hardware products, or if I’m working in some of these legacy code bases, what does it take to deploy code to these systems, and how can Code Metal fit into accelerating these processes?

Peter 04:19

Well, I, I think there’s a really interesting spectrum here. There’s sort of, you know, I’m building a product and I need to pick and, and really get locked into hardware. So one of the early use cases that came up was folks were asking not necessarily what hardware c- we could get to, but what’s the minimum amount of hardware to make their product as cheap as possible that they needed to run certain code. Um, so, you know, traditionally, that would be maybe you over-spec a bit. You spend a lot of time writing it and hoping it all fits on there, and that means hiring a whole team to do that. Or on the other end of the extreme, we’ve, uh, we’ve talked to companies that actually outsource all of their development. They write specs, and they hire contracting houses that are really specialist in the hardware that they’ve chosen. So maybe they’re gonna write FPGA code on a Xilinx FPGA. They’ve got a favorite shop, and they basically write instructions, wait months for that code to come back, and then have to spend time integrating it back into their product. So it’s a wide gamut, but a really, really slow loop that essentially, you know, our mission is to make that instant.

Maggie 05:21

So I know another major use case you all have hit on is the code-based modernization use case. Could you talk a little bit about some of the customer interest there?

Peter 05:30

Yeah. Where, where we’ve seen a lot of growth, uh, recently is in the Air Force and, you know, DOD writ large or DOW. Uh, you can think of they’ve invested a lot, right? They pay a lot for software. Um, there’s a lot of latent potential in all the different software they’ve spent But these are old code bases. Sometimes they’re reusing systems from the ‘80s, ‘90s, even older. Getting those into something that can be cloud distributed across the entire DOW, uh, is something that I feel like is a consistent use case, where they wish they had access to XYZ tool, um, but right now it takes a specialist with hardware that’s a pain in the butt to get access to, um, and software, and they need to, you know, basically wait months to get answers back. So we’ve been taking a lot of code bases in these sort of older formats, or at least more expert-driven formats, and getting them ready to deploy, uh, you know, sometimes in an easy language like Python.

Maggie 06:22

Pat, I know you’ve talked about how a number of our key weapons systems are written in old programming languages like Ada, which is a programming language from the 1980s. I don’t know how many Ada engineers there still are out there today, but it seems like if we wanna have any chance of modernizing these systems or even just maintaining them, these kinds of capabilities that Code Metal is developing are really going to be crucial.

Pat 06:44

Yeah. Actually, it’s, it’s a mixture of codes. It’s even, it’s not just one old code. It’s COBOL, uh, Fortran, Ada, you name it, uh, uh, develop- large projects the government and industry has developed over many decades is, uh, this in- in- inconsistent, uh, set of, uh, codes that makes it highly inefficient maintaining compilers that are, you know, been out of production for decades, all of that across the board. So that’s, that’s a real world application of this.

Peter 07:16

Yeah, and I, I think you mentioned the mixture of languages, and it’s, that’s, that’s so true ‘cause it’s like they’re... DOW will buy capabilities, and they’re not gonna tell you how to do it. They’re gonna tell you, “Meet these requirements.” Um, and so, you know, some of these systems we’ve built that are mixtures of different code bases, it’s the contractor’s favorite language, and it’s, like, something random like a data science language like R, uh, that they were doing. Uh, uh, I think one of my favorite examples ever is we found a, a, a web app. So it had a Leaflet front end and all these sort of features, but it was an R code base, which is, uh, I guess for all the coding nerds out there, just a very crazy choice that when I tell people, they’re like, “How did that happen?” And it was really ‘cause it was the contractor’s favorite language. That’s what they knew. And they, like, just kinda squeezed the use case into the code base and the, the software tools they knew. So not necessarily always the best choices even to start with. I’ve heard people basically looking to start retraining engineers in Ada ‘cause exactly that. It’s memory safe. They can’t hire enough Rust engineers. There’s enough legacy Ada code that They’re just kind of biting the bullet and, um, for anybody not familiar with Ada, it’s really cool formal methods and, um, sort of security built in, but very old language that never got the momentum of Rust, so not a lot of public support out there for libraries. So really these enclaves of hidden code bases that you kind of have to be an expert in to use.

Maggie 08:38

Yeah. So I want to turn to a couple questions about the technical details of the product you’re building, something that’s really interesting. So unlike a lot of the, the hype out there today, which is, you know, LLMs, AI is everything, you all use a mix of both, you know, LLMs, artificial intelligence, as well as more traditional formal methods and formal verification. So can you talk more about how you architect your system using all these different kinds of technologies to really ensure, uh, trust and verifiability of the code that you’re translating?

Peter 09:11

Yeah, I, I think if you step back and it’s, it’s, it’s really, again, a spectrum of, of validation and verification tools. On, on the high end, you have formally verified. That’s essentially saying, “I’ve proven mathematically these things are equivalent.” And you can’t always do that, but for some use cases, you have to in order to have that confidence. Um, and then on the other spectrum of that, you’ve at least built up enough evidence that you’re giving the customer, you know, sufficient trust that the AI did the right work. And if you think about where we are today in AI, like code almost costs nothing if you’re a company that can use some of these copilots. Where you are spending a lot of time is actually validating now this mountain of code. And so the task has moved to human verification and va- validation of, you know, what the code has written or that the AI has written. And so what we’ve done is we’ve essentially started pairing together, um, these sort of little powerful code generation tools with a suite of test harnesses. That’s where a lot of our IP lives, actually, like validating that these tasks that we think can be fully verified, um, actually are by creating this evidence. This essentially third-party, you know, auditor that isn’t AI-driven that’s able to check the AI in a way that’s automated and lets the teams move really, really fast.

Maggie 10:24

Many of the coding li- languages that you all are working with, and whether it’s Rust or Ada or, um, VHDL or others, these are not super common open source programming languages like a Python or React or something along those lines. How well do these AI models work with the languages out of the box, and how much customization is required to actually get these systems working with these more esoteric languages?

Peter 10:50

Yeah, I think that’s, that’s something that it’s been encouraging to see how much better the language models are getting out of the box with just some form of explanation of the languages. Um, but yeah, there is a huge gap between what it’s used to working with and sort of these more esoteric... I think VHDL is a great example of a, a language that’s more of a hardware spec masquerading as a language, um, that the language models just have trouble grokking because it’s so different than, um, the, the normal languages that they’re used to working with. So What we do is we actually decompose these really difficult tasks using sort of static analysis techniques into really bite-sized, manageable, provable steps. Um, and again, that sort of pulls in the, uh, the non-AI component of the, the product that we’re building. So I think we, we-- You know, our hope is actually that the tools get good enough, the AI tools that is, where we’re not doing as much customization as we are at, ‘cause there’s still the need for validation, verification, all the things that we’ve invested effort in. Um, it’ll just converge a lot faster. So right now, uh, on some of these trickier languages, we do a lot of fine-tuning of models. We do a lot of breaking down the problem into bite-sized steps. We do a lot of, uh, other sort of tricky in-house secrets on getting these things to converge. Um, but you know, we view us to be in synergy with like basically the growth and the capabilities of these models.

Maggie 12:14

And then how do you think about what models to use on the back end? And, you know, maybe carrying a little bit to some of the customers that you work with, a lot of them, you know, are working in air-gapped environments, maybe even classified environments. How do you think about, um, the models that you use that you’re able to actually deploy on those systems, and what are some of the, the trade-offs of deploying in some of those high sensitivity systems?

Peter 12:36

Yeah, and I, and I don’t want to undersell the commercial space either. If you talk to a Japanese automotive company on their treasured code base, like they won’t even tell you what they’re doing. So it feels like you’re, you know-

Maggie 12:46

They’re, they’re not all deployed in the cloud

Peter 12:48

Yeah. It feels like a TSSCI SAP program when like you’re not even allowed to know what they want to do with your, your product. So, um, def-definitely I think writ large our customers want to have a lot of control of where their data’s going, and that means deploying on-prem. I think they’re all looking towards deploying in cloud in some way, and some of the business side has deployed some of those tools. But in terms of like, I’ll call it their treasured code base, like, you know, AMD isn’t putting the IP cores for their, you know, GPUs necessarily in a cloud, um, or at least anything that isn’t locally controlled. So I, I think the way we’ve looked at it is we want to be open to plug and play with any model. Um, you know, from our training stacks to our deployment stacks, we try and support everything. I mean, I think the kind of crowd that we have that work here is The second a model drops, everybody’s excited to immediately plug it into our pipeline and see what the baseline sort of results are. So I think there’s a fun sort of nerdy culture here in terms of like some new diffusion models are dropping, and immediately the team’s figuring out how to get it plugged in and running, uh, benchmarks. But, uh, it, it’s keep up with things. Um, you know, defense definitely wants to run US models, which is getting tougher. Uh, China’s definitely run quite ahead in terms of performance there, so there’s a little bit of a handicap working in that space. But, uh, on-prem and whatever’s the latest is the, you know, the way we’ve taken, uh, our product.

Pat 14:11

Uh, you had mentioned, uh, you are working, uh, in Japan. Uh, what are your thoughts on, uh, navigating international markets that you’ve...lessons learned?

Peter 14:22

Yeah. Yeah. I think for us, that market is one that, you know, we got excited because there is a real hunger for US technology and moving fast, and there’s a lot of socioeconomic reasons where they are looking to adopt AI and looking to adopt new technology. So it’s been a country ready and excited for the types of things we’re working on. All that being said, time zones are hard. Field deployed engineering is hard. Um, you know, and for us that, you know, less than three years old now, um, it, it’s something that I definitely think you wanna go there with a, a, a really sort of locked down playbook. And I think it’s something where, um, we had to kind of slow down the, uh, demand that we had because we wanted to make sure the people that we are working with there, uh, we’re nailing it for them. So we almost, you know, we had to treat Japan a bit like a wait list situation where we’ve got our key sort of tent pole customers, um, that we’re partnering with now. But I think next year we’re gonna be focused on growing that area quite a bit more.

Pat 15:19

Well, speaking about growth, you’re pursuing a, uh, dual use strategy with commercial and, uh, government, uh, customers. Uh, what is the difference you see, and what is your advice on how to manage the, those differences?

Peter 15:36

Yeah, it’s really interesting, and I think it comes into how you talk about what you’re doing. Uh, when I’m talking to commercial space, it really is how are you gonna use Code Metal and sort of fitting to their use case and really focusing in on what our product does. Um, because we’re sort of in the productivity tool suite, a lot of the times when we work with DoD, what makes the things we do possible is our technology, but we’re talking about the capability it enables for them. And so it’s, it’s, I guess it’s a higher level up, um, in terms of when we’re selling DoW versus when we’re selling, um, you know, let’s say Bosch or something. Talking to each client, you know, I have to tell DoW the ultimate use case, the benefit to the warfighter, and it’s just a little bit, you know, higher level in terms of the impact. And with that comes into the way we execute, the way we prepare material, more on site, more sort of, you know, um, longer sort of contract cycles. But all of those things I think, you know, help us because one thing I do think DoW is great for is essentially on those early bets that we’re taking at Code Metal, we’re looking for DoD to sort of springboard and de-risk and build a technology base that then we take to commercial space.

Pat 16:47

And what are the unique challenges you’ve found that, uh, founders should prepare for if they’re gonna work with national security?

Peter 16:54

Uh, well, contracting is something I didn’t realize how little I understood. Um, I think, you know, it was interesting in that like luckily because I have a background in defense, uh, you know, I used to work at BAE Systems, uh, worked at MIT Lincoln Laboratory. Um, but I didn’t-- I wasn’t necessarily on the contracting side. I was in like the make the customer excited by the things we were doing side. And, um, it was interesting when we had customers who wanted to buy and it, it-- When they don’t understand how to buy, and you have to actually go help them navigate, like, their own organization, it becomes really, really interesting. And some of the successful, I think, you know, uh, I’m not sure if neo-primes is the right word, but some of the, the newer defense companies, uh, where I’ve sort of discussed with them and we’ve talked about what’s worked, it’s really being able to help them with that contracting side, helping them with that, like even up to the legislative lobbying side so that they can get what they want. But it’s a really weird situation versus commercial, where you have somebody, like, dying for the thing that you’re doing, and you have to go help them walk all these steps in order to actually pay you for it. So-

Pat 18:03

Yeah. Besides contracting, another area that’s unique to the government that, uh, startups have to str-struggle with is the, uh, working with classified information and the authority to operate. Uh, what was your journey like getting approval for authority to operate on your, for your classified customers?

Peter 18:24

Yeah. I, a lot of this, again, is gonna be driven, and I hate to keep hitting the contract, it’s like we had to do so much work in order to even get the permission to submit for ATOs, um, or submit for classifications, and it was all waiting for essentially the contract to say the words that, like, “You shall need this.” And then that kinda got everything running, which is its own headache, and it, it’s a lot of work, and there’s a lot of great companies, uh, spinning up, I think, to help startups with these problems. But at the core, you need somebody to buy in that, “Hey, Code Metal needs a top secret clearance, and Code Metal, uh, you know, needs to submit it to this, let’s say, cloud provider,” and to really kick off all those processes. And so it was pretty much a crawl in terms of getting these things done, and the second we had the contract in place, uh, I think it was like three months later, we had an FCL, um-

Pat 19:18

Which is a facility clearance.

Peter 19:21

Yeah. And, and I had gone from, you know, basically an inactive TS clearance to now I have my TSSCI. So it was a really fast process once this painful contracting piece had been done in place. And, and friends of mine and, you know, other founders I’ve talked to, similar sorts of journeys in terms of like either getting a prime, maybe they’re subcontracting to you to help them with that, uh, or, you know, their own direct contract.

Maggie 19:46

Yeah. I wanna know, I think you guys have really had a lot of success here just because the customers did get so excited about your product and were ready to go run through walls to help you get the ATO and the FCL. Maybe can you tell us about a moment when you showed the product to a customer and you felt like they really got it, and, you know, what was that experience like and what were they experiencing?

Peter 20:08

Yeah. I think, look, uh, I think as, as venture capital companies in dual use, we have this advantage that we can sort of build ahead of what our customers want and show them and not tell them. And I think a lot of the traditional industry out there is sort of selling through slides, selling through SBIRs. Um, I think you have the advantage of like, you have a customer who has needs, uh, and I don’t see enough founders actually think in the dual use space talking to the customer first. And so we-- I’ll give you an example of, of what really kicked this off We were working a, a project that was more of a, a favor due to expertise of the company to a friend. Um, but the, the customer that they had essentially wanted to come and visit Code Metal. And so as part of that, uh, I briefed them on sort of code translation and what we do before I got into, like, the detail thing we were helping them with. Uh, and sorry to be a little vague. But we, uh, we, we briefed them on the core capability, and the customer asked, like: “Oh, you know, we have this modernization thing. We’re getting bids for about a year to actually take our code base and update it to new. Uh, would you guys be able to do that with your tool?” And I said, “Yeah, sure. Can I get access to it?” And they’re like: “Yeah, it’s Git owned. We’ll send it to you.” Um, and I was... Originally, I was asking for more of, like, a, “Can I, like, see it to scope out the work?” And we just went ahead and did it and sent them back the code. And there was this, like, “Holy shit.” It was that, like, uh, they went from thinking, “We’re gonna take a year to, to modernize this one module,” to like, “Hey, we’ve got about 19 that we wanna do, and, like, we were dreaming about connecting these things and building this bigger platform.” And we were like: “That’s great.” And we, instead of just, like, waiting and trying to do this other end, and, and look, this might not work for everybody, but this is the way we did it. Uh, we just got to work, and we’re like: “We’ll figure out how you guys pay us. We’re just gonna do good work and focus on, on, on starting to build this system.” And, and it’s paid back in spades. So we, you know, I, I can say fast-forwarding to where we are today, um, you know, they’ve done a great job in terms of, like, coming back to us and, and paying for the work and then also expanding the opportunity. And they see it, and the sort of reputation, it’s a small industry, starts rippling around. You know, we were at an event just now supporting and deploying, and folks were coming by from the other services saying: “Hey, you need to come out to visit me. I see the way you guys are here day and night, day and night. Um, I see what you’ve done with them, and, like, this is six months from, like, when we talked to you to IOC that we’re now running. That’s initial operating capability, uh, your platform.” So I think- What I can say is we have an asymmetric advantage in that we’re trying to build, uh, you know, companies that, that scale and, and sort of play this long game. And you have these customers who have needs, so talk to them. Um, don’t try and just invent a thing and then, like, sell it to DOW. Like, there’s amazing problems that they have that, like, I don’t see people tackling. So I guess that’s my advice on selling to them and some of those things.

Maggie 23:06

How have you thought about building trust with some of these mission-critical customers? I mean, I know there’s a lot of distrust out there about AI broadly, so how have you approached that?

Peter 23:18

I think what we get a little bit of inherent in what we do is kind of like a practical thing we’re solving. So we’re not trying to boil the ocean, uh, or, you know, we, we kind of have to limit a bit sort of even the pipelines we do. Like, the North Star is any language to any language. Right now, we have very practical Python to C++, C++ to Rust sort of targets that we’re working. And so I think just hear-them hearing the proof points and sort of all the non-AI bits, um, like sometimes I actually get reminded like, “Oh, you can at least also mention that we’re using AI,” is sort of what we’re selling them. Um, and, and we’ve had pitches and they’ve seen the product where they’ve gone like, “Oh, you’re using LLM, I didn’t know that.” Um, and yeah, I, I think that’s, that’s been some of that trust building, that we’re just really trying to hear what their problem is and focus in on, “Here’s what we do, here’s how we do it, here’s the evidence we show you.” Um, and, and that’s been, you know, a huge part of it.

Pat 24:11

You have a broad experience with, uh, not only national labs but, uh, federally funded research development companies and, uh, academia and industry. Uh, what made you decide to start your own company?

Peter 24:25

Uh, that’s a great question. So I was, uh, I was at Microsoft during COVID working on the HoloLens, very, very frustrated in leadership, working very, very hard, um, to, to essentially solve a lot of problems that CodeML solves today. But, um, uh, 100% transparency, Code Metal wasn’t the first company that I started. I started another one after that, and I was very naive at that point. I was an engineer first, didn’t know anything about startups. I, uh, m-met a fellow who, you know, great sort of partner in business, but maybe not what a VC company would be looking for, and, um, ended up starting a company that, like, got into Techstars accelerator and did these things. And really, I just assumed a startup was like, “Oh, I’m in a job I want and make money.” That was, like, the extent of my business knowledge. Um, I remember being in, like, the Techstars whatever, uh, like, cohort, and they asked me, like, “How’d you get in?” I was like, “Oh, I didn’t know what this was,” but they were talking about stuff I was doing. So, uh, it was, it was a, a big learning curve, and I learned a lot about what a startup was. But the thing I pulled out of that, that, that got me excited was this idea of like, oh, the problems have to be big enough and the founder has to really fit the market to actually, you know, be reasonable as a venture-backed company. And so even though we had a great, you know, I consider it great success that we sold the company that, that I’d started, like, I really got a sense of what is, like, a true venture-backed, venture-scale company look like from that first kinda you know, I’ll call it pseudo failure. Um, and, and, you know, that’s-- a lot of those lessons went into Code Metal. So part of it was the autonomy of tackling the problems I wanted to tackle. Um, that’s a big part of it, like, uh, rather than sort of selling the company to do the things I wanted to do. Uh, and then really understanding that actually that’s a great fit for a venture-backed company. When you have the background, you have a problem that’s big enough to be r- you know, sort of worth venture backing. Um, you know, it seemed like a great fit and all the things I like to do and the ways I like to work.

Pat 26:22

And you mentioned the, uh, challenges of people working in, in venture companies and, uh, uh, venture-backed companies and, uh, uh, dealing with work-life balance comes up a lot, uh, when you’re retaining and growing and motivating, uh, teams. Uh, what have you found is, uh, successful, or how do you approach recruitment, uh, so that folks know, realize, uh, that working in a startup has a huge benefit, but at the same time, it, it’s not a normal nine-to-five, uh, five-day-a-week job?

Peter 26:56

There is a great description of people that fit, um, Valve, which is a video game company that I’ve stolen in, in everywhere I’ve tried to hire, and it was they look for T-shaped people. These are people with, like, a deep expertise through, like, um, you know, one core topic, but, like, broad exposure to a lot of things, willingness to be flexible. And I think, uh, the reason we look for that sort of T-shaped person is we, we look for people that, like, the thing that they like to do is almost their, like, life mission. Like, one of our pillars is passion. And the reason being is, like, I want these people rambling about formal methods or rambling about optimizing some, you know, embedded CPU core and, like, looking for signal on things where they’re doing this in their free time or that they’re, like, taking the extra mile on their own to do it. Because then my job is to give a really good North Star that we can all rally around so that, like, on their off days... I’ll give you an example. We spent a grueling, like, uh, deployment where it was, like, eleven PM, you know, we were wrapping up, and we were back in there at six AM for about two weeks solid and on the weekend. And, you know, coming at the end of that, I told the team, like, “Get out of here. I don’t want to see you for a few weeks. So, like, don’t wait to die. Go, go take a break.” They’re like pushing me things that they like, they still wanted to like fix the problem or, or still work on it. And so I’m getting like architecture ideas or improvement ideas like as they’re going away on vacation. Um, so it’s, it, it’s tough. Like it’s a competitive market. Like you need to have people motivated to put those hours and do that work. Um, I don’t think you can pretend that like you don’t have to put it, but it has to be good work. It has to be thoughtful work. It’s not just work for work’s sake. If you get your work done and you are, you know, you can leave the office, leave the office. Like we take sort of just get your job done attitude to how we do things. So, and a lot of that just comes from passionate people with broad exposure to things.

Maggie 28:47

You’ve worked in the defense space for more than a decade at national labs, at defense primes, elsewhere. What have been some of the biggest changes you’ve seen in the industry over your career, and what are you most looking forward to for the next five to 10 years or most excited about?

Peter 29:01

Maybe this one isn’t as like novel, but it’s still one I think about a lot. Um, it’s been a lot cooler to do defense stuff. And so, um, uh, you know, that, that sort of has its ups and downs. But I remember being, you know, Project Maven kicking off while I was at MIT Lincoln Laboratory and the Google employees sort of walking out, and now you have something similar now with, uh, sort of Claude and what happened, but I think it’s a little bit different. Um, but yeah, I, I think just the fact that people see the sort of value in, you know, doing this work, uh, has been something exciting to me. It’s easy to recruit. It’s, uh, a lot easier to walk on a Stanford campus and, you know, find kids that are excited by the stuff that you’re doing. Um, I think that was one change that I still sort of really appreciate. Uh, the other is I think more recent in this idea of like trying to figure out new ways to actually fix these issues in acquisitions and, and contracting and, um, I’m, I’m actually super excited by it. I think it’s one of the things we are getting right, at least trying things. Um, and so yeah, I’m looking forward to seeing the next two, three years where that goes.

Pat 30:11

Today, you’re having a board of directors meeting. Uh, what are your thoughts about, the benefits or how best to leverage a board for founders and investors that are, um, listening to this podcast?

Peter 30:27

Yeah, I, I think it’s really hard when you’re a founder and you’re waking up every day and thinking, “What’s the most important thing I need to do?” And at some point you’re gonna need to raise funds and build your board. And it’s like, it feels like a luxury when you get told like, “Hey, pick board members you like. Pick-- Work with people that you wanna work with.” Um, I, right now I do, which is what I feel very like lucky that we get to do that. But, um, in terms of like horror stories I hear from other founders and, and things that like basically they blame the company going wrong on, it, it’s a non-insignificant percentage where it’s like board dynamics. So I think it’s, it’s really important to actually like when it feels desperate and you’re like, “Oh man, I really should take this check.” And like I, I get it, as like a founder you might, you know, wanna take money for a certain reason from a certain fund. If there isn’t that fit with like, “Hey, I can work with this person,” um, it, it’s really stupid sort of repetitive advice that every founder gets, but like I’m just stressing it as like, yes, like listen to that. Figure out how to like extend your runway a bit or whatever it takes to like take the right capital in because you are tethered to these people. Um, and at least the way I’ve looked at it is at different stages of the company, we’ve needed different sort of help, and we’ve looked for people that, one, fit the, you know, had the background to provide that type of help, whether it be like technical product guidance or it be, um, you know, sort of moving to commercial is, is another example. Um, you know, giving us connections and top cover as we do defense work. All of those things were the criteria in how we targeted who we targeted, but first and foremost was, hey, I gotta work with this person forever maybe. You know, I have to pick people that I wanna work with.

Maggie 32:15

What lessons, if any, have you taken or has Code Metal taken from overseas conflicts in Ukraine and the Middle East? Or has it changed your approach to the ecosystem and your product?

Peter 32:27

Yeah, I think in, at least in Ukraine, there’s this notion of like, hey, the acquisitions process does not work for a war that’s adapting, you know, every week, every, you know, month. How do we actually start building, uh, ways of acquiring and reacting to, um, immediate sort of situations? So without getting into too much detail, obviously a company that’s like built around like immediately deploying hardware, the latest idea, you know, benefits from, from that sort of change in thinking. So it, it’s one of the things I think DoD still hasn’t quite figured out how to acquire and pay for that consistent adaptivity. Um, but it’s something that’s an open question and, and obviously first and foremost important.

Maggie 33:10

As I say, you guys have done some work as a, a subcontractor to larger primes. Is that right?

Peter 33:15

Yeah, absolutely.

Maggie 33:16

I’m curious how you think about those kinds of arrangements as a way to get access to some of these government customers that might be difficult to access otherwise. Could you talk a little bit about your experience with subcontracting?

Peter 33:29

Yes. There, I mean, there are calls for proposals, customers that you won’t get to see as a startup. Like, they won’t exist to you, they won’t be in the market to you, but maybe you actually solve exactly what they do. Uh, thinking about that early when you’re partnering with the primes, like wanting to be in the room when things get presented, wanting to get that connection is something that maybe when you’re trying to close a deal doesn’t feel like a order one priority, but it kind of is if you’re trying to build a long-term company. So I can say from experience, um, that was one of the things that we pushed back on wanting with some of the agreements that we had. Like, “Hey, we’ll work together on this, but we wanna be in the room for certain aspects of this.” And again, to get exposure to the company or the, the customer who doesn’t have the luxury of... You know, I think there’s a lot of saltiness in the DLE space about like, oh, they’re giving it to the same people or whatever, but they need stability. They need like repeatability. Like they can’t just be trying everything in a lot of these critical industries. So, you know, there’s some empathy to the customer in terms of like going with the same solutions over and over again. And the primes are a great way to actually start bootstrapping that exposure and, and relationship.

Pat 34:39

And what’s your vision for how you see your company growing and the product, the use and adaption, uh, adopting, um, the products that you’ve developed?

Peter 34:50

Yeah. I view we’re starting with a, I think, a really strong baseline in our defense clients, and it’s, it’s just industries that we know it’s a great place for developing, uh, deep tech technology. Uh, but it is a general use technology. Like it doesn’t just impact, uh, DOW. And so you do this first tranche about growth and, and defense of our, you know, sort of core positioning and the things that we wanna care about. Uh, and then, you know, we’ve been growing now out into more sort of initial landing and exploratory work in the industries like automotive, like semiconductor, uh, that skew more pure commercial. So I think that’ll be our phase two. And you know, personally, one of the mantras I’ve said to the team is we don’t wanna be a series Z company. Like we wanna get to, you know, reasonable, predictable revenue and IPO in, you know, three to four years.

Maggie 35:38

What have been some of the biggest surprises building Code Metal?

Peter 35:42

The AI market was moving Fast, but, like I said, the last six months to me have been, like, absolutely insane. So I think, um, I’ve liked it ‘cause we’ve had a clear focus on who our customer is and who our market is, so we’ve gotten to, like, kinda avoid the noise. But man, does it sound crazy out there. So, uh, that’s been, um-- It’s been interesting watching, to tie back to us, like, how smart our customer has gotten in a very quick amount of time. So I can think about two years ago what it was like to talk to them about AI code generation to today, and it’s interesting, like, seeing their evolution across these sort of legacy industries.

Maggie 37:44

Great. Well, Peter, thank you so much for the time, and thanks so much for coming on the podcast.

Peter 37:48

Yeah, thanks. It was great to talk to you guys.

I’m now almost exactly three years into my time on the investment team at an early stage, national security-focused VC firm, and I wanted to share the rhythm I’ve developed on how I spend my time (with the caveat that I am always learning and iterating).

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Ultimately, my primary job is to 1) see, 2) pick, 3) win, and 4) support early stage technology companies building in national security that have the potential to deliver outsized returns to my firm’s limited partners (LPs). To me this means:

1. Seeing: Sourcing and identifying the most compelling investment opportunities before they become obvious to the broader market.

2. Picking: Evaluating hundreds of pitches to select the few companies with the strongest potential to become category-defining outcomes.

3. Winning: Earning the right to partner with top founders in competitive rounds against other leading investors.

4. Supporting: Helping portfolio companies accelerate growth through strategic guidance, customer access, recruiting, fundraising, and operational support.

Fundamentally, everything I spend my time on (professionally) is in service of those four goals.

I spend the bulk of my time on the following tasks:

1. Sourcing and founder meetings

2. Investment diligence

3. Portfolio company support

4. Relationship building and ecosystem engagement

5. Market research and thesis development

6. Podcast and blog writing

7. LP fundraising and investor relations

For those curious, here is an anonymized screenshot of my calendar from a few weeks ago, which represents a pretty typical week (although, of course, every week is a bit different):

In general I start working between 8 and 9AM (sometimes earlier if there are meetings with folks based on the East Coast or internationally) and wrap up meetings around 5 or 6. I typically attend one or two evening events (happy hours, dinners, etc) each week. In general, I travel around the country at least once a month to attend events or meetings in person (the main cities I frequent are LA, SF, DC, Boston, and occasionally New York and Seattle). I try to reserve at least one morning each week for reading, writing, and focus time, as I’ve found I focus best before noon (however, often I end up doing this focus work in the evenings after a workout / dinner or on the weekends, as my weeks tend to fill up with meetings).

Sourcing and Founder Meetings (~5-10 hours / week)

Taking first pitches (“sourcing”) is the core bread and butter of my job. On average, I take between 5 and 20 first pitches each week. I meet companies through all kinds of different channels:

• Other VCs

  • Pre-seed investors whose portfolio companies are raising their next round

  • Generalist VCs that do not specialize in defense or deep tech

  • Trusted VC peers interested in co-investing or co-leading opportunities

• Portfolio company founders / employee references

• References from other friends, former classmates, professors, and broader professional networks

• Events and ecosystem engagement:

  • Happy hours

  • Dinners

  • Hackathons

  • Conferences

  • Tech talks

• Accelerators and demo days

• Online channels such as Twitter and LinkedIn

• Cold inbound outreach through email and LinkedIn

Investment Diligence (~5-20+ hours / week)

If a pitch is particularly interesting, we will conduct “due diligence” on the company to determine whether it is a good investment opportunity. On average, we conduct diligence on ~10% of all the companies that we meet. A diligence sprint typically lasts 3-14 days. Some weeks involve relatively light diligence activity if there are no active opportunities advancing through the pipeline. Other weeks can become almost entirely consumed by diligence, particularly when we are moving quickly to evaluate and win a highly competitive deal. Our diligence process primarily consists of the following steps:

1. Founder meetings: We aim to spend as much time with founders as possible before making an investment decision to determine whether there is a strong mutual fit. Founder-investor relationships often last a decade or longer and must withstand the inevitable highs and lows of building a company. Mutual trust, respect, rapport, and alignment are critical, and the best way to evaluate that is by spending time together. During this process, we also introduce founders to multiple members of our investment team to gather a range of perspectives on both the team and the business.

2. Founder references: As early stage investors, we are primarily underwriting the strength of the founding team. So, we conduct reference calls with former colleagues, managers, employees, classmates, and others who know the founders well. These conversations help us evaluate attributes such as grit, intelligence, work ethic, leadership ability, domain expertise, sales and recruiting ability, and the overall capacity to build a billion-dollar company.

3. Customer diligence: If the company has existing customers or design partners, we speak with them to understand the value the company is delivering and how the product is perceived in the market. We also engage with prospective customers to understand how they evaluate the company relative to alternatives. In many cases, we introduce the company to potential future customers, which allows us to observe the company’s sales process firsthand and gather direct feedback on the product and vision.

4. Tech diligence: We frequently bring in subject matter experts from our network to evaluate the company’s underlying technology, technical differentiation, scalability, and defensibility.

5. Market and competitive research: Outside of calls and meetings, we conduct independent research using public sources, expert call transcript libraries, industry reports, academic papers, think tank reports, and tools such as Claude and ChatGPT. This work helps us better understand the technology landscape, market dynamics, competitive environment, and the broader opportunity available to the company.

For more on how we evaluate companies in the national security space, see this blog post. For reference, we ultimately invest in less than 1% of all the deals that cross our desk.

Portfolio Company Support (~1-5 hours / week)

My firm typically leads financing rounds and often takes board seats in our portfolio companies. As a result, we take a “hands on” approach to investing, partnering closely with founders to provide strategic guidance, leverage our network, and help navigate key decisions throughout the company’s growth journey. While we do not have a large dedicated platform team, supporting portfolio companies is a shared responsibility across the firm. Every member of our investment team spends time helping founders, whether through customer introductions, recruiting, fundraising support, government engagement, strategic planning, or tackling whatever challenges are most critical to the business at a given moment.

I am a board observer for two of our portfolio companies and work closely with several others. The main ways I spend time supporting portfolio companies are:

1. Board engagement: Serving as a board observer and participating in ~quarterly board meetings, providing strategic input and ongoing support to management teams.

2. Fundraising support: Advising founders on fundraising strategy, conducting pitch preparation sessions, facilitating introductions to relevant investors, and participating in diligence calls with prospective investors.

3. Go-to-market strategy: Working with companies to navigate the federal and enterprise landscape, refine government and enterprise customer acquisition strategies, and identify pathways to procurement and programmatic adoption.

4. Recruiting: Leveraging my network to identify and connect high-quality candidates with portfolio companies. I also conduct targeted outreach, participate in first-round interviews during key hiring initiatives, and engage directly with finalists to help companies successfully close top talent.

5. Market intelligence: Engaging regularly with prospective customers, subject matter experts, policymakers, and industry leaders relevant to our portfolio companies to understand the current market dynamics, emerging technologies, policy environment, and competitive landscape.

Relationship Building and Ecosystem Engagement (~10-20 hours / week)

I am always trying to expand my “luck surface area” by building relationships and expanding my network. I make a deliberate effort to build relationships with exceptional founders, operators, investors, researchers, and government leaders. Over time, those connections often create unexpected opportunities: a future founder starting a company, a candidate who becomes a key hire at one of our portfolio companies, an expert who strengthens a diligence process, a new customer for a portfolio company, a differentiated market or technology insight, a follow-on investor for a portfolio company, a co-investor on an exciting new deal, a future LP, or a trusted advisor who helps a portfolio company navigate a challenge. Occasionally, those relationships become something even more valuable: a true friendship 🙂

You never know where new opportunities are going to come from – I’ve sourced portfolio companies from random happy hours (or even introductions from people I met at random happy hours), and key portfolio company engineering hires from random LinkedIn cold outbound messages! Venture capital is ultimately a relationship business, and the returns from investing in people often compound in unexpected ways.

To continuously expand and strengthen that network, I host ~monthly events around the country (happy hours, hackathons, small dinners, tech talks, etc), and regularly attend events organized by investors, government organizations, startups, industry groups, and research institutions.

The communities I spend the most time engaging with include:

• Founders, engineers, and operators outside of our portfolio at startups, national security technology companies (including the defense primes), and commercial technology firms to identify emerging trends, potential investments, and future talent.

• Researchers across university, government, and industry research labs to stay informed on technological breakthroughs and emerging areas of innovation.

• Government leaders and operators across acquisition, technology, and mission organizations to better understand capability gaps, operational challenges, and evolving government priorities.

• Venture investors across stages. Venture is a team sport, and building relationships with other investors helps generate co-investment opportunities, identify promising companies earlier, and support portfolio companies throughout future fundraising rounds.

• Job seekers and emerging talent, including students, transitioning military personnel, and professionals interested in joining mission-driven technology companies. I regularly connect talented individuals with relevant opportunities across our portfolio and broader ecosystem. Please feel free to reach out if you’re interested in our portfolio

Market Research and Thesis Development (~5-10 hours / week)

In addition to learning from conversations across the ecosystem, I spend time conducting independent research (apart from targeted due diligence) on emerging technologies, markets, and industry trends. My research draws from a wide range of sources, including newsletters, podcasts, books, expert network calls, academic papers, government reports, think tank reports, and industry analyses.

Much of this work serves as the foundation for investment theses, blog posts, and podcasts. It also frequently evolves into deeper due diligence efforts as we evaluate specific investment opportunities and seek to better understand the markets, technologies, and competitive dynamics surrounding potential portfolio companies.

For a full list of podcasts, newsletters, and some of my favorite books on national security, technology, and investing, check out my reading list.

Podcast and Blog (~5-20 hours / week)

My goal is to publish one blog post and two podcast episodes each month. Each blog post takes ~5-20 hours to write and edit (research-heavy deep dives like my piece on AI and offensive cyber are more time consuming, while shorter posts like this one take less time). Each podcast takes ~5 hours to prepare, record, and edit. I typically spend ~1-2 hours preparing for each episode, 2 hours recording, and another 2 hours reviewing the footage and providing editing notes (from there, our fantastic editor takes over, handling the audio production and creating the visuals for the podcast).

While the podcast and blog are time consuming, they’ve dramatically expanded my luck surface area. I’ve formed genuine friendships with people who first reached out after reading an essay or listening to an episode, helped portfolio companies attract customers, investors, and top talent, sourced deals at the earliest stages, and even connected with LPs who ultimately invested in the fund.

LP Fundraising and Investor Relations (~1-5 hours / week)

It’s not just startups who need to raise money – VC firms do too! VC firms rely on limited partners (LPs) to provide the capital that ultimately gets invested into startups. Fundraising and investor relations are not the primary focus of my role, as we have an amazing capital formation and investor relations team leading these efforts, but I still participate in several LP meetings each week and attend the ~quarterly events we host for current and prospective LPs.

My role is typically to discuss our portfolio, investment strategy, and market and technology themes we’re most excited about. I also spend a fair amount of time with existing LPs exchanging perspectives on emerging technologies, market trends, and the evolving national security landscape.

Conclusion

Overall, I genuinely love what I do and feel incredibly fortunate to spend my days learning from exceptional founders, LPs, engineers, operators, researchers, investors, warfighters, and policymakers. No two days (or two weeks) are ever the same. What I enjoy most is that the job is a constant exercise in learning and iteration. I’m always refining how I spend my time, searching for better ways to identify and support the most consequential national security companies at the earliest stages of their journey (so if you have any suggestions on what I can be doing better or differently, please let me know!)

As always, please reach out if you or anyone you know is building technology for national security. As you can see, my calendar is always open to learn more about the cutting edge of technology and national security.

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Note: The opinions and views expressed in this article are solely my own and do not reflect the views, policies, or position of my employer or any other organization or individual with which I am affiliated.

In this episode, we break down the $1.5T FY27 President’s Budget Request, the Pentagon’s infamous “J-books,” appropriations vs. reconciliation vs. supplemental funding, and what all of it means for startups, investors, and the broader defense innovation ecosystem.

We cover:

• How the PBR and J-Books relate to Congressional budget bills (appropriations, reconciliation, Iran supplemental)

• Why the J-books are one of the most important tools for founders building in defense

• Where the DoW is requesting for AI, autonomy, space, and other commercial technologies relevant to startups

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

Some obligatory PBR charts courtesy of Obviant:

And of course, if you aren’t already doing so, you should subscribe to Matt’s newsletter Defense Tech and Acquisition:

Defense Tech and Acquisition

Enabling defense and industry professionals deftly navigate the world's biggest bureaucracy to deliver better solutions faster.

By Pete Modigliani

Transcript

Maggie 00:36

In this episode of the Techquisition Edition of the Mission Matters podcast, we’re diving into an important ritual in the defense innovation ecosystem. That is the president’s budget request, the Pentagon’s program objective memorandum process, AKA the POM, and the release of the infamous J-books, or justification books.

David 01:11

And unlike a lot of defense acquisition conversations that happen behind closed doors, this is one of the few times the government essentially publishes a roadmap of priorities, programs, spending assumptions, and capability needs in plain sight. Though publicly available and well understood are two different things. These budget docs are strewn across multiple websites and dozens of PDFs. Until recently, it took real insiders to understand what was going on and how to make sense of this Byzantine process.

Maggie 01:41

To be clear, the president’s budget request is not the appropriations bill or reconciliation bill. It’s not a law that requires that money is allocated in a particular way. It’s simply what the executive branch is requesting that Congress fund in the ensuing fiscal year. But ultimately, it’s still up to Congress to actually write and pass a budget bill officially appropriating the funds to the executive branch. And while the president’s budget request is a guide to Congress, Congress often does not actually follow the exact numbers written into the request. If you wanna learn more about the congressional appropriations process, check out our past Techquisition Edition episode, that is episode number 17, that we did with Johnny Kaberle, where we really break down how the congressional appropriations process works. But to help us decode the president’s budget request, we’re joined by Matt McGregor, who spends quite a lot of time living inside these budget documents. Matt McGregor and his co-conspirator, Pete Modigliani, are the founders of Creative Defense, and they happen to publish one of the best defense acquisition newsletters out there called Defense Tech and Acquisition News. I personally read it every single week and am a huge fan, have learned quite a lot by reading their newsletters.

David 02:56

Indeed, it is required Saturday morning reading over a cup of coffee. Now, the reason why we are just getting to talking about the president’s budget request is that the timing matters. And while the president’s budget request, or the PBR, has been out for a while, we intentionally wanted to wait until the justification books, or as Maggie alluded to, the J books, dropped, because that is where the budget finally starts to become operationally useful for companies trying to understand where the money may actually flow to. The president’s budget request really talks about a top-line number across the various agencies, not just the Department of Defense, but also including other federal agencies. The J books really start to get into the individual programs to help identify over the next five years or the future year defense plan exactly how much funding is gonna be going and whether or not that budget is intended to increase or decrease.

Maggie 03:53

So today we’re gonna break down how the federal budget process actually works, why the president’s budget matters, what the J books are and how to use them, what stood out to us most in this year’s defense budget, and what all this means for startups trying to navigate the defense market.

David 04:10

And because this is a Techquistion Edition, we’re also gonna talk about where the hype is real and where programs may actually have money behind them, and where founders should be careful not to confuse PowerPoint strategy with executable budget authority.

Maggie 04:23

All right. Well, with that setup, let’s bring in Matt.

David 04:27

Well, Matt McGregor is a co-founder of Creative Defense and a co-author of the Defense Tech and Acquisition newsletter, which has become required reading for a lot of people trying to understand how defense budgeting, acquisition, and modernization actually works.

Maggie 04:42

Defense Tech and Acquisition news, it’s not just a weekly headline roundup. They actually spend an enormous amount of time digging into the underlying budget materials like the J books other, documents that are coming out to really identify where priorities are actually translating into real dollars.

David 05:02

Okay. So with that it’s an honor to welcome my longtime friend, Matt. Welcome to Techquistion Edition.

Matt 05:09

Yeah. Thanks for having me, you guys. Appreciate it.

Maggie 05:11

So Matt, let’s just start out with a basic question. At a high level, how should people be thinking about this $1.5 trillion defense-related spending package? What exactly is the president’s budget request? And then how does this relate to the emerging reconciliation package as well as the annual appropriations bill? What are all these different documents?

Matt 05:37

Yeah. We used to live in a simpler world where there was one budget and we got to track that. And then this year is even a little crazier because there’s gonna be three pieces, I think, that potentially play into what the total ‘27 budget’s gonna be The base budget of course, is 1.1 trillion, so even, by itself that’s still big. If we got that, I think that’d be, a huge win. Definitely getting in the right direction for all the challenges that we have. They added 350 billion on top of that for reconciliation, and then the other piece of that is there’s a supplemental, right? The Iran war. So there will be money in there that will impact the investment accounts for sure on the procurement of munitions. But also some other things in there. I think there is some debate on the Hill. I’m not the expert on all that, but there is some debate on the Hill about is a second reconciliation even possible? ‘Cause they just got the DHS one they’re working now, and there’s a lot of thought that the second one’s gonna be too hard. So there’s some push of well, do we try to cram some of the defense stuff into this first reconciliation bill this year and make that the big package, or do they do a second one and push it, or they push more on the supplemental? So still a lot of moving parts, but the only thing we officially know right now is there, there is a 1.5 trillion, a big part of it, the 1.1 is discretionary. The rest is up for debate on one of these other mandatory accounts.

Maggie 07:12

So just to make sure I’m understanding this right, so we have the president’s budget request, which is out, and this is just a request to Congress. It’s not actually the budget. Then we have the $1.1 trillion appropriations bill, or what we expect would come out in the appropriations bill, which is just the normal spending bill, and then another 3 to 400 billion that would come through some combination of this reconciliation bill, which is not a normal funding process, and then potentially a special bill just for the Iran war.

Matt 07:41

Yeah, the really only difference is that the, for the reconciliation, is that in the Senate you typically need 60 votes to, to pass a bill. With reconciliation you just need a majority. So that’s the difference is the 60 votes in the Senate primarily is the difference.

Maggie 07:57

And so when we look at the president’s budget request, I know one of the big topics of conversation is there’s different colors of money, right? So you have procurement money, RDT&E money, and O&M, which is operations and maintenance money. So maybe could you talk about what are those three different kinds of budget, and what is the breakdown between those categories in this budget request?

Matt 08:20

Yeah. So yeah, the big difference O&M is a big pot of very flexible money. Some of that can be used for, capability for sure especially as we move into an age with buying services, capabilities of services. But generally the O&M, and it does fund a lot of modifications to legacy platforms and things like that, but generally a lot of that goes to sustaining, right? Just keeping the existing things alive maintained, ready, all the readiness stuff, all the, you know- Just general housekeeping kind of things that, that DoD needs to do. But where we really focus, for the founder groups and for all these defense tech companies that are coming out, they’re generally more focused on the investment accounts because that’s where you’re gonna see your RDT&E dollars. This is all your prototyping, moving into a program of record, all the development test is funded on that. There is some big modification money too in there that sometimes, will be maybe become available for founders as they mature a capability that can be fielded on an existing platform. So RDT&E has a lot of potential for people that are entering the defense space. Procurement, of course, is more of those m- mature things where there’s we’re actually fielding them. So that’s the one where it gets down to there’s actually a production line or there are some software kind of things in there too, but generally it’s the big stuff that you see flying around tanks and missiles and all those ships and all those kind of things in there that that are there. But just going back to the overall breakdown, so within the base budget, and that’s the discretionary, there is $1.1 trillion. 218 of that is RDT&E, 257 is procurement, and then a big chunk in O&M, 382, and then some of these other accounts like military personnel and military construction. So of the base budget, you have, basically, 470 billion of the 1 point trillion. But in the reconciliation package, there’s a much bigger chunk. A lot of that is investment.

Maggie 10:37

And then Matt, I also wanted to ask, how do we think about the ratio between procurement to O&M to RDT&E funding? I know this is something that you’ve written about before. What can we read into the ratio of the current budget request?

Matt 10:51

Yeah, no, this one is a really exciting thing because we, we wanna see more in procurement. I know it’s not always the right thing for some of the smaller companies coming through ‘cause they, they really want that RDT&E money to seed some of their products. But as a military force, right, we definitely wanna see procurement to get the joint force up and ready for the future fight. We know in the China fight that there’s, we’re gonna, we’re gonna go through a lot of stuff really fast if that happened, and so we wanna be prepared to be able to stay in the game. So yeah, this year there was a big push towards increasing procurement 80 per, 82%. Now this is combined, combining like we talked about discretionary, mandatory. It’s combining both of those. But when you look at the combined piece, 82% increase in procurement from last year and 62% increase in RDT&E. While the percentages are not totally different from past years, like we always measure that- And they’re still in that roughly 57% procurement, 43% RDT&E. A lit- 1% bump up in procurement. So the ratio is not totally off, but because the numbers are so substantial it’s promising to see that much went into procurement. But a lot of those big procurement dollars were in reconciliation were basically driven by a lot of the missile stuff, a lot of the Golden Dome stuff, a lot of the space stuff, and things like that, that were in those accounts. We definitely need reconciliation for some of these big items.

David 12:18

Yeah, I think that is an interesting indicator. For a long time it seemed like the R&D spending, outpacing procurement not necessarily what, a venture-backed startup is looking for. And there’s almost a recognition that some of the R&D costs can be underwritten by the private capital markets, right? Especially when you introduce OSC that’s de-risking some of these loans, allows more money to pile in. And then really what the signals that are needed from the commercial innovation ecosystem are just buy the thing, operationalize it, use it, right? And that’s where you get the procurement and then O&M funding on the follow-on. But Matt, that was awesome. Thank you for helping us understand the top line, right? I think we call that the TOA, ... inside in, in building parlance. Maybe let’s dive into the actual nitty-gritty of the J books or justification books, which are essentially, the government or the executive branch saying, “This is why I am requesting this amount of money.” Right? What else can you see inside of these J books, and how are they broken down, and what’s useful information to extract from them?

Matt 13:41

Yeah, that’s a really good question because we were talking offline about, if you’re an AI company, for instance it can be a little bit confusing because you could look across all the J books, and I just did a quick search, and there’s 431 lines, right, across artificial intelligence. So clearly if you’re an AI company, there’s... That shows there’s a lot of potential but you do have to do the hunting for where is your particular thing going to fit into one of the broader efforts. So there is some detective work, if you wanna call that here that you have to do. But one of the helpful things with the J books that I would encourage, companies that are trying to figure out where their piece might fit in- Is if you go into the JBook, they can be a little daunting because there’s kind of these PDF files that’s hundreds of pages. But you can, do some keyword searches. Aviant is a company that y- also has a great tool that you can do searching and it’s a little much easier to m- navigate. But if you wanna do it the hard way, go in that PDF file and find s- a line that looks y- like something that you could support. So you’ll have to, you’ll have to flip through and you’ll see things like artificial intelligent reinforcements autonomy AI-enabled tools, AI-enabled DW. Like I said, there’s a little bit of detective work, but when you click in that line that maybe has some applicability, you think, to, to what you’re doing one of the helpful things is that there are m- things called major thrusts. And what that essentially just means is in that bigger budget line that maybe is like $100 million, you can actually go down and see more discrete projects under there, and you can say maybe this project has $10 million against it, this project has $20 million against it, and there’s a little bit more detail about what that’s about. And then sometimes they even have a helpful schedule with some milestones. Their schedules are weak generally, but you can at least see generally the flow of what they’re trying to do. And then I think the next step is if that’s something that really looks like, hey, I could really help here, is go figure out is that something that’s already been awarded? So you can start to tie that information, do some other searching and find out if there’s, already contracts against that. And what’s their period of performance? Maybe they’re coming up for a re-compete, or maybe it was just a prototype and there’s still, there’s still money in the FY DIP that, that you could potentially get after. So I think those the J-books are good signals for companies to be able to filter down and find their target areas for where they can see potential for contracts or maybe target customers. “Hey, I should really talk to this customer a little bit more because they’re planning this big thing that has exactly what I’m working on.” So they won’t tell you everything, but I see them as a signal to direct your attention. But yeah.

David 16:28

Yeah. And as a former author of my own RDocs for specific program elements, PEs, which are associated with these wonky, string numbers and letters, they’re not all, RDocs or R2s, which get down to the specific program elements, are made the same. Some have a lot better detail than others. Oftentimes you can see which other program elements one is related to, and so you can go check out them. And when you’re talking about, looking at the schedules or potential contract structures, it’s in there. I would say, maybe you brought up Aviant. I think a really nice thing about some of these tools that are helping aggregate all this publicly available information Is it’s now also creating the relationships between the budget, the program office, and the contracts. Because in these justification books, it’ll tell you, “This is the money we intend to spend against these priorities,” but it doesn’t necessarily tell you who or where, like what program office. Now, in certain cases it’ll say, Defense Innovation Unit, and Defense Innovation Unit has a program element ascribed to this, like this amount of money. Okay, DIU is expected to execute it. Of course, in those instances it doesn’t necessarily tell you exactly what projects or programs or who the end customers are that are going to be receiving it. This is one piece of the puzzle, but I think if you’re looking for market demand signal from the department about whether or not the technology you’re building is important, you will see that laid out over the future year defense plan if, in fact, it’s expected to grow over years. Well, that was awesome. Thank you, Matt. Maybe we just start talking a little bit about w- where and different line items that we thought were interesting and stood out. And Maggie, maybe if you wanted to start us off here and anything that you found that was interesting, we can go around the table.

Maggie 18:39

Yeah, of course sitting in San Francisco I always have to look for, do my keyword search for artificial intelligence. Where is the department looking to fund that? It’s something the administration has, of course, made a priority. The top line, it says there’s $53 billion for AI broadly. A lot of this was actually going to sovereign AI. They did not specify exactly what sovereign AI here means, but said something like 50, $46 billion for multi-year mandatory investment in a sovereign AI arsenal prioritizing enterprise-scale AI infrastructure investment to build an enduring strategic advantage. They actually have not released the J-books yet for the Chief Data and AI Office, at least as of the time of this recording. So there’s not more details on what exactly that means, but definitely will be interesting to see. Of course, a lot of these big AI data center build-outs, AI training runs are extremely expensive, so it would be interesting to see if there’s a way for the US government to play into some of the investment in American AI development. I also saw AlphaOne, which is one of the platforms that Chief Data and AI Office, CDAO, runs, got a big increase in funding. But then at the same time it appeared that CDAO itself actually got a decrease in funding. So I’m not entirely sure what to make of that. Matt, I don’t know if this is something that you’ve tracked at all or have more insight into.

Matt 20:07

Yeah, I do think with CDAO getting pulled under R&E I think and DIU for that matter- I think both of them are being recalibrated and having a little bit more targeted portfolio. So yeah. So I think, for CDAO, I think you’re gonna see, the OpenDagger stuff continue the guide experiments and the, data integration layer sort of efforts. And then I think AlphaOne, I think that- that’s probably something they’re gonna own as well ‘cause this could have some frontier AI and some theater cloud sort of efforts. So yeah, I still think CDAO is gonna be highly relevant. I wouldn’t take too much signal that they’re losing too much, but I think you’re right that there’s the department, as part of its whole requirements revamp, they definitely have refocused some efforts and so yeah, I think there’s a lot more lot more of that focused on the multi-domain joint operations stuff and long-range kill chains and different things like that, that maybe took a little energy away from CDAO but I think they’re still quite strong. One other interesting thing on the AI front, though since you brought that up, that I noticed is I didn’t see-- I looked at the J-books. The J-books did not-- were... When they when they first released the budget without the J-books, I saw this OSD equipment account, which historically has been ATFWIT money, been the predominant piece of it, and it got this huge plus-up, and I was really excited because I was like, “Oh, yeah, ATFWIT’s finally gonna get its huge bump,” because it’s been in the $100, $200 million range, and I was like, “Oh, maybe that’s gonna go to a billion.” Anyway, I finally saw the details on that, and there’s $29.5 billion that’s going to this effort called Next Generation Technology and Autonomy. And the way it’s described there is that it’s basically to trans- transition from funding scattered clusters of GPUs to more organized AI infrastructure for strategic to tactical AI compute, so in- it’s gonna include SCIFs and data centers and all this stuff. So anyway, that’s something interesting to watch on the AI side is that OSD equipment account which this was buried under.

Maggie 22:17

Yeah, and then maybe something similar I also saw this is actually under the Cyber Command J-books. They have a large line item for AI for offensive and defensive cyber operations. I think it’s $140 million, so maybe not a lot for the DoD, but a lot for some of these early-stage startups. And part of that for them was also building out GPU capability and other compute capability to actually run some of these AI models. I know to date when working with some of these more classified customers, I’ve heard startups talk about literally bringing GPUs in suitcases or in Pelican cases loaded with open-source models to the customer ‘cause they know they can’t rely on the customer having the right infrastructure to run these models. So I think it will be interesting to see just more of the infrastructure build-out for DoD to actually take advantage of a lot of these AI models. And then one more AI related item I’ll call out. I saw Maven’s smart system has $2.3 billion budgeted. This is, of course, one of the big AI initiatives. They have played a large role in Iran in targeting and battle space management. I think there’s also talk that it played a role in Venezuela. This is a Palantir effort, although it also has some Anthropic Claude models built in, and it was announced last month that it’s officially becoming a program of record and now has $2.3 billion going towards it.

Matt 23:42

Yeah, no, I think that’s a good rundown.

David 23:44

Maybe one that I’ll call out right from my alma mater at Defense Innovation Unit. So I think this is a good example of where the president will submit a budget to Congress, but, Congress, as we know, has power of the purse, and they get to then ultimately decide how much funding is going to go into these specific accounts, and then the department is responsible for executing it as authorized, right? We don’t want any Misappropriation Act violations, right, Matt? But if you look at the DIU account, and of course, they haven’t released the specific J books, but we’re seeing the top line program element n- numbers for the OSD accounts. DIU, right, came in at five hundred and twenty-two million. Last year, DIU got one point eight billion, and so you would say, “Oh, well, that’s a far cry from what they got,” except the president’s budget request last year for fiscal year ‘26 was a hundred and forty million. So what we’re seeing is Congress has stated with congressional plus-ups that programs being executed under DIU are very important, and now we’re finally seeing the president’s budget start to catch up, though that is a huge delta between one point eight billion and five hundred and twenty-two. So it’ll be interesting to see if Congress for the third year in a row pluses up the DIU account, right? And that started to really occur I guess j- two years ago when DIU’s budget and program element really got congressional plus-up big time. Those are things that I think are interesting.

Matt 25:21

I was initially discouraged by that one too, David, but then my understanding is that a lot of the DAWG funding, they will be intimately involved with executing. If that passes, they will have more work than they can handle. So maybe taking a little cut to, a little cut in relative terms to the DAWG request maybe it’s not such a big deal ‘cause we’ll have, fifty, fifty billion to possibly do some thing, things with over the next few years.

David 25:51

And that’s why I think seeing the J books is so interesting ‘cause you can start to see how are the different program elements interrelated with each other, right? So like another one that, I think is a closely watched item right now is Golden Dome And, it’s really-- There are definitely some explicit program elements tied to it. In fact, you saw a $1.3 billion request for space-based interceptors, specifically under a PE inside the Golden Dome apparatus. But if you look across a lot of other Space Force programs like Next Gen, Overhead Persistent, Infrared, e- and OPIR, or the, Matt, you referenced the Satellite Defense Network. They’re all talking about how these programs support initiatives within Golden Dome, and that’s a political crutch that you’ll see often within these budget documents, that you tie these programs intricately together so that if Congress wants to just cut one, you know that there’s a reciprocal effect to maybe a higher priority program that they don’t want to impact. And so you see those types of machinations. And again, you can extract that through the J books, where there is just a little bit of nuance across these, otherwise stovepipe program elements. But Matt, you highlighted the Defense Autonomous Working Group, the DAWG, right, which is all about mass and attritable capabilities. Was there anything else, like maybe on drone dominance or the JIATF, the counter-UAS programs that were worth highlighting?

Matt 27:31

Yeah, no, a lot of lot of stuff with the DAWG is definitely gonna be a lot of the autonomous systems, definitely drones, small UAS small USVs things like that. But yeah, if I go through, just if I do a quick run-through of the services maybe just call out a couple things here. One o- one overall is that and this is another one, David, you mentioned about how Congress sometimes steps in and helps, is the S&T accounts. Th- Congress is definitely known for giving more money back in the S&T account, but I do feel like there was definitely some slashing going on there across the Army and Navy. There was a 30% kind of reduction in some of those accounts. But on the Army side, while they slashed a bunch of other things across a bunch of different areas, they really went hard on counter-UAS, counter-small UAS. So I think you’re definitely gonna see more focus on that with all of the things we’ve seen in Iran. Long-range precision fires is definitely a priority, so for the Army and EW. So I think you can start to look at some of these accounts, and even when there’s big reductions overall, when you start to dig in, you start to see, okay, this is where the Army is probably heading. Their leadership is thinking is they need to get after and focus their efforts a little bit more on counter-UAS, long-range pr- precision fires, and EW and then when you look at like prototyping stuff, you can start to see where some of these accounts are starting to be a little bit maybe less prioritized because there’s other programs that are growing, and so maybe they need a little less prototyping money because they’re gonna be programs of record. But you can start to see that they actually do wanna get after some, new types of missiles and improve their ability to do more mobile stuff. So I think that’s one of the big things too, is like there’s a lot more focus now on being able to operate in a distributed manner. I think you guys nailed it with the AI thing about being able to get to the tactical edge and pushing things forward. So some of these things you start to see as they’re really starting to focus 100% on the INDOPACOM theater, and a lot of those things reflect it. And hypersonics is a theme throughout all of this that, if you have anything to do with hypersonics realm, there’s definitely a lot more money going in that direction. Yeah, some of the other cuts you do see, I think there are some opportunities here for some of the legacy programs. I I saw things like the Army Tactical Command and Control where, you know, some of these existing efforts just had money at year after year and there was some big pullback there. So that’s another thing to look for in the J books as an opportunity, is if you see a legacy program that’s maybe gotten a lot less money than it normally would that could be an opportunity for you to step in and maybe offer some solutions that, for that. So yeah. So that’s one I would call out. UAS Launched Effects got a huge plus-up from the Army so four, four hundred and forty-three million there. So if you’re in the loiter ammunition business that’s definitely, a signal that I would take as they’re definitely more serious about that. That’s like over two hundred percent increase from last year. And then yeah, going down to the Navy. Yeah, Navy took a big, real big cut to S&T as well. So Marine Corps, had a big cut on their advanced technology demonstrations, which I think you will see with this administration, and it’s something to expect maybe over the next couple years, is there is a really big focus, I think I think you saw this with the critical technology areas update, where we had sixteen amorphous tech areas, and they really winnowed those down to things that are applied, things that could be fielded, really focusing on getting things out in the field and not doing these sort of long science projects. So I think some of these cuts in the S&T world reflect that. But definitely on the Navy side, big push on shipbuilding. If there’s any contributions that you can have to the shipbuilding helping in the industrial base in any way whether it’s from workforce development, to new kind of materials and new manufacturing processes and things like that, there definitely seems to be a big push to make help in any way on that as part of the maritime industrial base. There was one point eight trillion that was added to this new line called Advanced Shipbuilding Industrial Base and Future Ship Experimental. So that’s something to keep an eye on. Big increases on Marine Corps ground combat support systems. So if there’s-- you have a system that’s more focused on supporting those Marine type, d- expeditionary type units, they’re definitely looking for new ideas. If that’s any indication in terms of how much more money they added there. Directed energy i- is getting a lot more money. You start to see that. There’s more programs coming online. Navy has some, Army has some, so that’s another area if you’re in that business. F-35 probably not a lot there out there for small funders. F-35 definitely got a lot of money this year. EW across multiple accounts got some big plus ups. So I think if you’re in the EW space, there’s probably... You could look across all the J-books, and you could probably find multiple places that you could start to have conversations at the right levels and start to play in that space. EW sup- readiness support was one line in the Navy, one that got a big increase, and then Marine Corps also got a big increase in that line, three hundred and fifty-seven percent.

Maggie 33:12

Yeah. I was gonna say, one thing I was curious about, I think we’ve seen a lot of talk in the last year or so about acquisition reform, moving from PEOs to PAEs, program acquisition executives, and I’m curious to what extent, if at all, that is showing up in the budget. I saw that PAE robotic autonomous systems in the Navy had its own call-out in the Navy budget overview. They had a couple hundred million each for unmanned underwater vessels, small unmanned surface vessels, unmanned aerial vehicles. So I’m curious how we’re seeing the PAEs show up in this budget.

Matt 33:49

Yeah David mentioned the Golden Dome stuff. That was one of the big ones. But yeah, for the so I didn’t see a lot of it at the like the Army and Air Force because i-i-it, there’s a lot of nuance there with those services. The Navy, because they stood up a brand new robotic autonomous system, was a little bit more clear. I think on the Space Force, on some of the new PEs that have been stood up there, like the space-based interceptors going to combat power and then the all the space data transport and AMTI and GMTI going to the SB, space-based targeting PAE. You could start to see some correlations there but I do think you’re right. I think the PAE RAS was the most clear and explicit and they actually laid out the specific programs under that and the amount of money across the FYDP, which was which was really helpful to see, small USVs, medium USVs- the one sad thing about this is that we’re still not seeing the amount of money go. While they called it out and it’s very well organized, we’re still not seeing the increases that we wanna see, so they do have 2.2 billion across all the unmanned accounts, but it’s a lot less than we would’ve liked to see given the focus on building a hedge force. But yeah.

Maggie 35:09

And David, how’s the Air Force looking?

David 35:13

Yeah. So Matt, you talked about all the other services and components except for your alma mater, right? The Air Force- Oh yeah, I was about to-

Matt 35:19

I know. I was about to. I was getting there…

David 35:21

I, well, I have some opinions here, right? So collaborative combat aircraft, which seems to be the Air Force’s big push-

Matt 35:29

Ah. I know. Where’s the money? Where’s the money?

David 35:32

I mean, 1.3 billion in the fiscal year ‘27 request, but that’s less than what the B-52- Yep ... is getting in budget activity seven, I think for their engine upgrades, which is 1.4 billion in RDT&E. So we are spending more money to maintain an aircraft that’s been around for multiple generations, and then when you contrast it to the F-47 right, which is, went from 2.3 billion in FY25, now is up to five billion in ‘27. To me, these are, like, the specific trade-offs between incorporating autonomy versus relying on manned fighter aircraft, and it’s so much more expensive, and we don’t really get to invest the budgets that we need to get to a force structure where we have more mass. And so I don’t know what’s your kind of take on the Air Force overall? I also saw AFWERX got completely decimated. Yes. They’re basically just a SBIR shop at this point, which is really sad to see though there have been some announcements coming out of AFRL that they’re reorganizing and there’s a big meeting happening in a couple weeks to help engage industry. But yeah, curious on your takes with our beloved Air Force.

Matt 36:48

Yeah no, you’re right. I was gonna say that about the AFWERX is I am hopeful that the reorg that General Bartholomew has will hopefully keep the AFWERX mission alive if it’s, if not the organization. No, yeah, I think overall I think there was disappointment that there wasn’t more of a focus on autonomy, but I think you do have to look at where this administration’s focus has been, and it, it has been on mainly building on the, getting the big ships fielded, getting some of these big new aircraft programs going, like the F-47 and accelerating the B-21. And then on the Army side there, there’s, there, there is a shift there at least from the big tanks to moving to- towards more distributed kind of things, but still not fully leaning into the autonomous vehicle space. So I think overall with autonomy, it is a little disappointing. The Air Force put a little bit of down payment there on the CCA, but would’ve liked to see that be triple that. I would’ve liked to seen the Navy go, at least triple to really get after the MUSV, which they just announced a new marketplace. A better demand signal there would’ve been a lot more money next time. And then, yeah, for the Air Force overall, they’re retaining a lot of the same aircraft. They’re gonna extend the B-1. They’re gonna, extend the F-15 EX they’re buying a lot more of. And there’s one other aircraft. Yeah, they’re gonna keep the A-10 till 2033 or something. So yeah, there’s a, there’s definitely a more higher prioritization on the big platforms that historically we thought would be maybe less relevant in the Pacific Theater, but I think they are leaning into that, and hopefully we’ll see in ‘28 that’s the one gonna be the one to watch. If these programs, maybe they were not mature enough to make the case in the building, people could say, “Well, the MUSVs are still haven’t fielded that many of them. We haven’t matured the CONOPs.” Same with CCA, right? The experimental operations unit’s still playing around with the CONOPs piece. So maybe this is the year, ‘26, ‘27 is the year they see data as maturing all that, and then they’ll go hard in ‘28. So I have high hopes for the ‘28 budget on those fronts.

David 39:04

At least they did try to zero out Wedgetail the E-7. But we’ll see.

Matt 39:09

Oh yeah they did kill the E-7. Yeah.

David 39:11

We’ll see. I’m sure Congress is gonna plus that back up, so of course that’s a trade-off, and we’ll see where that goes. But yeah, okay. So I think we, we hit a lot of areas. Of course, for our founders out there, this is certainly far from everything, that’s in this defense tech innovation ecosystem. But again, this is a huge marker to help identify is the thing that you’re building an emerging or an already solved pain point, right? And whether or not there are active programs of record with specific vendors that you would need to break into. This is a good data point to, to bring into your marketing materials, whether you’re trying to raise from investors or talk to customers or differentiate your technology versus what’s currently available. So yeah, this is a big step in the process, but, where do we go, where do we go next? So we’ve got the president’s budget. We’re already seeing senior leaders testifying on Capitol Hill, to defend the budget, and so you’re seeing a parade of generals and senior executive civil servants and appointees articulating the merits of this budget. And then what? Congress goes into a black box, and they start figuring things out. What happens next, Matt?

Matt 40:37

Yeah, I think you’ll see some of the initial markups on the approps bill in the June timeframe. So hopefully we’ll get to see... Yeah, your point on the E7s a great one because, yeah, we know some of these things they will add back in. I think by June we’ll also have a little bit better sense of where reconciliation is going. So one thing that you could see the Hill do is really have to make that balance of if they can’t get that 350 billion, they’re gonna have to fit all of their priorities in with all of the other budget requests. DAWG, maybe DAWG if the reconciliation bill doesn’t look like it’s gonna happen, maybe they take a piece of that. It’s not 43 billion, but maybe they, support five billion or something like that. So you could see some of these accounts shrink, but hopefully move from reconciliation into the base budget. And then, yeah, they’ll pr- they’ll bump up all their priorities, but we’ll probably get a first look at that sometime later in June. And then yeah, we’ll see how things go with the supplemental, which will help, also help inform do they have to move more money to missile accounts to, to compensate if the supplemental hits a snag? Will they try to push maybe some of these really big priorities they know for the President? I don’t know if you picked up on that, but when you looked at the one of the things that I’d never seen before in the budget overview from OSD, they actually had the table, the pi- the pie chart, and they had a slice of it that was, like, presidential priorities, and I think that was, like, maybe a little signal that if you don’t fund these things you’re gonna get a call from the White House. So it will be interesting to see as they’re moving through there what things, what are the, what part of the presidential, President’s priorities move from reconciliation possibly into the base budget, and then what things get decremented. So yeah, I would say June and then there’ll be there’ll be some defense of that, and we’ll see the we’ll see the final hopefully before October. But time will tell.

Maggie 42:30

Great. Well Matt, thank you so much. This was incredibly informative. I know the federal budget process can feel very opaque and archaic to those of us on the outside. I was feeling a little bit of despair last night downloading the J books, trying to figure out what all the different acronyms mean, trying to figure out which of the 900-page PDFs, each item that I was interested in fell into. So it’s always great to talk to an expert like you. And of course I read Defense Tech Acquisition news like the Bible to really help me figure out everything that is happening in this space.

Matt 43:08

Thank you. Appreciate it. Thanks for having me.

David 43:10

Yeah. No better way to start your Saturday. Though I would be remiss not to highlight, right? This, the President’s budget, and we still haven’t seen all the J books come out, very late to Congress, right? Yes. This is something that’s supposed to happen in February traditionally. And so we’ve squeezed Congress who already seems to be-

Matt 43:29

Actually by law.

David 43:31

Okay, by law. So we’ve already squeezed Congress on their timelines- to get out the NDAA and the appropriations bill to do all of their horse trading and back and forth with the department. So all but I can say this is an interesting time for people at the Pentagon as they now have what’s called staffer days, where they start to defend the budgets that they’ve been putting together for the better part of 18 months encapsulating this entire POM process. So yeah. Well, Matt, thank you so much for joining us. It’s a pleasure to have a real subject matter expert like you. We missed having Pete on the podcast as well, but we’ll try to maybe we’ll get him next time for a different topic.

Matt 44:16

You bet. Nice to be here. Thanks for having me.

Maggie 44:19

Wow, Matt was really great. He definitely knows his stuff. The federal budget process can feel incredibly opaque, but conversations like these really help translate what’s happening inside government into actionable insights for the broader defense innovation ecosystem.

David 44:36

And for the founders listening, the key takeaway here is simple: The budget is strategy translated into resource allocation, and if you wanna understand where defense markets may emerge over the next several years, you need to understand where the government is placing its money, not just where officials are giving speeches.

Maggie 44:53

And of course, if you aren’t already reading Defense Tech and Acquisition, you definitely should be. Again, Matt and Pete are seriously consistently doing some of the best work breaking down what these budget documents actually mean. So David, I have to ask the question that we end every Techquistion episode with. What do you think the next Techquistion Edition episode is going to be about?

David 45:14

Well, I think we alluded to it a little bit given that we’ve got three budgets in one that are being bandied about, right? Between the president’s budget or the base budget or the discretionary budget, then you’ve got the mandatory budget or what they’re calling the reconciliation bill, and then this extra funding, geared towards specifically the actions in Iran. And I would imagine that we may be talking about one of the latter two, either the reconciliation budget and what was in it and what does that mean for startup founders and the programs that money’s tied to, or for any supplemental funding that’s tied to the Iran war.

Maggie 45:53

So sounds like there will be no shortage of content for future Techquistion episodes here. Well, David, thank you again, as always, for helping break down some complex issues, and looking forward to the next one of these.

David 46:05

Always a pleasure, Maggie. Thank you.

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Despite this massive increase in private capital funding for defense, in the past, American defense tech companies have fallen flat when faced with real-world battlefield conditions. Infamously, American drone companies struggled to operate in Ukraine during the early days of the conflict, as their design and testing was inadequate to operate in areas where electronic warfare was deployed.

However, the war in Iran appears to be a turning point in U.S. military use of commercially-developed unmanned systems and AI technologies. The conflict’s economics demand a shift toward innovation. Currently, the U.S. relies on million-dollar missiles to intercept $20,000 Shahed drones – a strategy that is both financially unsustainable and depleting our stockpiles. While legacy U.S. military systems still dominate the battlefield in Iran, U.S. forces are starting to use commercial unmanned aerial and maritime vehicles, low-cost counter drone systems, commercial space assets, and AI decision support tools out of necessity in order to counter cheap, asymmetric Iranian capabilities.

Unmanned Systems

First and foremost, like the Russia-Ukraine conflict, cheap, unmanned systems are playing a major role in the Iran conflict. Perhaps most notably, Iran has launched thousands of Shahed one way attack drones against U.S. and allied forces since the start of the conflict (Russian and Ukrainian forces have also made extensive use of Shahed-type drones, which cost ~$30,000-$50,000 depending on the exact make and model).

In December 2025, CENTCOM established Task Force Scorpion Strike (TFSS), a new task force dedicated to the U.S. military’s first one-way attack drone squadron in the Middle East. In February 2026, TFSS debuted the Low-cost Unmanned Combat Attack System (LUCAS) – a $35,0001 American-made Shahed alternative – during combat operations in Iran. LUCAS is an excellent success story for the power of innovative small businesses and innovation focused contracting mechanisms. LUCAS was developed by SpektreWorks, a small business based in Phoenix, Arizona, that reverse engineered an Iranian Shahed airframe that was captured by the U.S. military. LUCAS development was funded by an APFIT award, a contracting mechanism designed to enable rapid award of production contracts with novel vendors, and CENTCOM’s Rapid Employment Joint Task Force (REJTF) quickly delivered the system to deployed forces who used the system in combat less than a year after the initial APFIT award.2 While SpektreWorks developed the first set of LUCAS systems, the Department of War (DoW) plans to award contracts to multiple vendors to build LUCAS. According to Pentagon CTO Emil Michaels, LUCAS drones were not being mass produced before Operation Epic Fury, and only a few dozen have been used in combat to date, but is likely that the DoW will scale manufacturing and procure many more LUCAS drones in the months to follow, alongside initiatives like the Drone Dominance Program.

CENTCOM also appears to have some FPV drones present in theater, although it is not clear if the drones are being used in combat (most FPV drones have limited ranges that are not conducive to large scale naval operations). An X post from U.S. Marine Corps Forces Central Command shows Marines testing a Neros Archer FPV drone on the USS Tripoli, which is actively operating in the Arabian Sea as part of a U.S.-led blockade against Iran. The USMC previously awarded Neros a $17M contract for 8000+ FPV drones. There have not been any additional details released on how the DoW is using these drones in the conflict or if other drones procured via the Drone Dominance Program are in use in Iran.

In addition to aerial drones, the DoW has also turned to defense tech companies for aerial drone defense. Before the conflict began, the U.S. was woefully underprepared to defend against cheap drone threats like Shaheds. The U.S. is largely reliant on multi-million dollar missile interceptors, including Patriot and Terminal High Altitude Area Defense (THAAD) batteries, both fired from land, and Standard Missiles launched from Navy warships at sea, for Shahed drone defense.3 However, as stockpiles for these expensive munitions dwindle, the DoW has begun to turn to lower cost alternatives developed by startups.

For example, Matt Steckman, the CBO and President of Anduril, stated that Anduril is a “heavy participant in the current conflict in the Middle East, mainly on the defensive side,” responsible for one of the “principal” systems used against Iranian Shahed drones during Operation Epic Fury. Anduril’s Wisp infrared detection sensor, jet-powered Roadrunner drone, and Lattice battle management system could all potentially play a role in countering Shaheds. In March 2026, the Army’s Joint Interagency Task Force 401 (JIATF-401), the DoW’s primary group responsible for developing and deploying counter UAS technologies, awarded Anduril an $87M contract for Anduril’s Lattice software to serve as the tactical command and control solution for C-UAS.

In addition to Anduril’s C-UAS solutions, the U.S. Army has also purchased 13,000 low-cost Merops Surveyor drone interceptors, each of which cost ~$15,000, from Perennial Autonomy, an American defense tech company founded by former Google CEO Eric Schmidt. Notably, Merops interceptors have been successfully deployed on the battlefield in Ukraine against Russian Shahed-type drones. Army Secretary Dan Driscoll stated that he expects the cost of Merops to drop to $3,000-$5,000 per interceptor as they are manufactured at scale.

Both U.S. and Iranian forces have also employed maritime drones during the conflict. Iran has used small, explosive-laden unmanned surface vessels (USVs) disguised as wooden fishing vessels to attack several oil tankers in the Strait of Hormuz. The Iranian USVs are not autonomous, relying on basic remote control capabilities and potentially basic GPS waypoint navigation.

The U.S. Navy has deployed BlackSea’s Global Autonomous Reconnaissance Craft (GARC) USVs, which are capable of hosting kinetic, communications, and surveillance payloads, for patrol missions during Operation Epic Fury. The Navy also plans to use unmanned underwater vessels (UUVs) for mine clearance missions in the Strait of Hormuz, however, they did not specify which UUVs they will use.

Commercial Space

Commercial space companies have played a meaningful role in the Iran conflict. When the war began, the first confirmation that U.S. forces had launched strikes against Iran came from commercial space companies Planet Labs and Vantor, even before the U.S. government itself announced the mission. Planet Labs is now indefinitely withholding all imagery of Iran from non-government customers, while Vantor has implemented “enhanced access controls” to imagery from parts of the Middle East, restricting who can purchase and view certain data. Both Planet Labs and Vantor have significant DoW contracts. It is likely that other commercial earth observation providers are also privately providing valuable data to DoW.

On the satellite communications side, DoW is likely using SpaceX’s Starlink (and / or Starshield4) communications products. In one photo of a LUCAS drone, the drone appeared to be equipped with a Starlink terminal (or perhaps a Starshield terminal) for communications.

Artificial Intelligence

Palantir CTO Shyam Sankar described the war in Iran as “the first large-scale combat operation that was really driven, enhanced and made substantially more productive with technology, with AI.” Palantir’s Maven Smart System (MSS), which is expected to become an official program of record later this year, with $2.3B in funding requested in the FY27 defense budget, has played a central role in the Iran conflict.

During the Iran conflict, the U.S. military has used MSS to automate parts of the “targeting” process – that is, the process in which DoW identifies objects or installations to be attacked, taken, or destroyed in warfare. The targeting process has six functional steps: identify entities of interest, locate them, filter to lawful targets, prioritize, assign to firing units, and fire. Previously, intelligence analysts would have manually combed through data to identify and prioritize targets. MSS can automate many steps of this process, identifying, filtering, and prioritizing entities of interest based on a certain mission set. MSS has clearly helped to accelerate the targeting process – in the first 24 hours, CENTCOM managed to strike 1000 targets, with another 10,000 targets struck in the first month.

At its core, MSS is an AI-enabled command-and-control (C2) data platform that ingests operational data from many data sources (ex: satellites, drones, sensors) and uses AI classifier models like computer vision models to detect, classify, and geolocate objects like military vehicles, buildings, and weapons systems.5 Within the DoW, Maven has more than 20,000 users, and according to Navy Rear Adm. Liam Hulin CENTCOM is “heavily using MSS.”

In 2024, Maven integrated Anthropic’s Claude models into the platform as a natural language interface and unstructured data processing tool, and since then, Claude has been used within MSS to generate proposed targets, track logistics, and provide summaries of intelligence coming in from the field.6 Note that Claude and other LLMs do not perform tasks like object detection, which are conducted by more traditional classifier models (ex: computer vision models); rather, LLMs are used for natural language processing and workflow automation like query generation. Palantir has built “AIP agents” on top of MSS which can automate workflows like data science tasks. For example, rather than writing a complex query to search for particular objects in the MSS database, users can ask an AIP agent a natural language question like: “Show me detections of tum22s” (a specific type of Russian airframe), and the agent will automatically generate and run a query to find the specified data.

Conclusion

While the Iran conflict marks a clear inflection point in the U.S. military’s adoption of AI and startup-built unmanned systems, these capabilities remain in an early stage of deployment and still represent only a small share of overall military platforms used in theater. Outside of a handful of unmanned systems and AI decision support tools, the U.S. military is still heavily reliant on traditional exquisite platforms rather than new technologies developed by innovative contractors.

In mid-March, CENTCOM released a list of the primary U.S. weapons systems used in Operation Epic Fury. As defense acquisitions experts Pete Modigliani and Matt MacGregor point out, LUCAS is the only major weapon system on the list that was designed in the last 15 years that has been used in combat in Iran. U.S. forces have only used a few dozen LUCAS systems to date (in contrast, Russia and Ukraine deploy hundreds of Shahed-type drones Russia-Ukraine conflict every day), and thus far USVs have only been used for relatively limited ISR missions. According to a CENTCOM spokesman, GARC boats had logged 450 hours in the first month of the conflict, which suggests only single digit numbers of GARC boats are deployed in the region. Again, compare this to Ukraine where Ukrainian Magura USVs operating in one-way attack mode reportedly destroyed eight Russian warships and damaged six more, causing more than $500M in damages to the Russian fleet.

It is clear that relying on legacy systems alone is not sustainable, as Iranian forces deploy cheap, asymmetric capabilities against exquisite American forces. Expensive U.S. drone defense systems are economically unsustainable. Further, the Strait of Hormuz is closed, in part due to swaths of mines deployed from small, cheap ships, and ongoing mine clearing operations are dull, dangerous, and time consuming – a task that could clearly benefit from scaled deployment of unmanned maritime systems.

U.S. forces must quickly take the lessons learned from the Iran war and put them into practice, scaling manufacturing of cheap unmanned systems and counter-drone technology to rival adversary forces and extending the usage of AI to improve targeting, intelligence analysis, military decision making, and back office tasks.

The Iran conflict has made one thing clear: the question is no longer whether commercial technology belongs on the battlefield, but whether the United States can scale and integrate it fast enough to keep pace with adversaries who already have.

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Dan has a phrase that stuck with us: “AI drags infrastructure.” Everyone sees the value of AI. The hard part is deploying it where it’s actually needed, like oil rigs, mine sites, aircraft carriers, and national labs. These are places where the cloud simply can’t reach, and that’s where Armada comes in.

In this episode, we cover:

• Why the cloud breaks at the edge (latency, sovereignty, and cost)

• How Armada is enabling real-time AI in fully disconnected environments

• Armada’s role in the DOE’s Genesis Mission, the most ambitious AI project in U.S. history

• Why winning the AI race is just as much about infrastructure as it is models

• What it takes to build mission-critical technology for mission-critical customers

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

You can listen to the podcast on Spotify, Apple, YouTube, the Shield Capital website, or right here on Substack.

One more quick reminder that registration is now open for the third annual National Security Hackathon, taking place May 1-3 in San Francisco! We are partnering with the U.S. Army to award $50,000+ in cash prizes to hackers building solutions to crucial U.S. military problem sets. 🇺🇸 Register now here.

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Transcript

Maggie 00:36

In this episode of the Mission Matters podcast, were joined by Dan Wright and Pradeep Nair the founding CEO and CTO of Armada AI. Armada is building the future of distributed AI at the edge.

Akhil 00:50

Armada is a quintessential company addressing both a commercial and national security pain point, and that is how to get connected compute to the edge, to these potentially remote or disconnected environments for mission critical applications. That’s whether it’s an oil rig, a mining site, or even the US military and its allies. You can think of Armada as orchestrating both the compute via its containerized mobile data centers, as well as the connectivity associated with connecting those together to enable and accelerate AI applications, data analysis, where it is needed and in the timelines in which it’s needed.

Maggie 01:31

I mean, essentially you can think of Armada’s Galleon product as a bunch of CPUs and GPUs in a hardened Conex box with Starlink connectivity and all of the software infrastructure that you need to actually put AI applications on that edge. Armada’s technology is particularly useful in situations where you cannot assume reliable connectivity back to the cloud. Today, if you look at LLMs ChatGPT, the vast majority of these applications rely on having unbroken access to large cloud data centers to do all of the processing that you need to use those AI models. However, you know, you can imagine if you’re deployed out on an aircraft carrier in the middle of the Pacific during a conflict or on an oil rig, or even at a mine site or an oil and gas site, you might not have access to those cloud compute capabilities, but you still want to be able to use these powerful AI models to make your tasks your life easier.

Akhil 02:27

Yeah, Maggie. I think a lot of us here at Shield Capital, whether we served in the military or have been deep in the space, recognize that. A lot of these environments, you just can’t connect back to the cloud and you have to be able to analyze, assess, and compute near the point of friction or the point of influence, so where it needs to be done. Even if you have that connectivity back to the cloud, it’s critical that analysis, that timeliness associated is done nearest to those who are actioning.

Maggie 02:57

Yeah, it’s also valuable having this edge compute capability as it allows you to process the data potentially where it’s actually collected, and it allows you to have those data centers right near your energy sources. Dan and Pradeep have both had long careers as AI and data infrastructure, technology company executives. Dan served on the executive team at AppDynamics and DataRobot while Pradeep was a vice president at Microsoft Azure for 10 years, and a VP of engineering at VMware. Now onto the conversation. Dan and Pradeep, thank you both so much for coming on the Mission Matters podcast. I wanna start out with a question, Dan, where is the Department of War today in terms of AI adoption and infrastructure build out, you know, what’s actually being used? There’s lots of buzzwords, lots in the news right now about how the DOW is actually using ai, but what are you seeing are some of the specific. Use cases that you’re excited about that are driving real value for the war fighter?

Dan 04:01

Yeah, I mean, we have a saying at Armada, which is that AI drags infrastructure and what is meant by that is that typically how things work, not just with the DOW, but with any customer that we work with, is first they see the value of the ai and then they’re like, oh, how do I enable this everywhere? And so that’s kind of the stage we’re at now, where now the DOW has obviously understood the value of drones. I mean, I think everything that’s happened in Ukraine and other conflicts has really highlighted the necessity of not just drones, but drones at massive scale, you know, drone swarms. And then the obvious question becomes how do we process all of that data? Locally, including in these more remote areas. And then on top of that, you see a lot of the foundation model companies now working with the DOW in a very close way that wasn’t happening in the past. And those capabilities too, it becomes, okay, well how do we actually deploy this? So then you heard Secretary Hegseth recently at Star Base talking about, you know, deploying these types of technologies at the edge. So the Edge is now really a focus, but that infrastructure rollout is happening as we speak right now.

Maggie 05:25

Yeah, Pradeep, we’re starting to see some of these use cases expand drones, others, what are some of the existing technical challenges that still exist for actually adopting AI in these mission critical organizations?

Pradeep 05:39

I think a couple of things it’s what we are seeing with a lot of our customers, we are actually deploying into countries or places where there’s an existing cloud region, right? So that, that’s something interesting to notice like most of our deployments are starting to happen and hey, there’s a, you know, one of the existing hyperscaler cloud region, but they want an edge deployment and that’s driven by. Primarily three things. One latency. They want to have you know, the compute close to where the data is generated. The second portion is sovereignty, right? That’s where the AI stuff is very important because if you see what’s happening as Dan was mentioning, a lot of large language models being, you know. But many of the enterprise customers or even government customers want to take it, you know, fine tune it on their you know, confidential or sensitive data and then push it to the in front for the edge, right? So that’s what we are enabling. One of the struggle has been, Hey, I have all these models, but I want to have the compute on the edge. Now how do I bring all this together? Which is one of the pain points we are solving is, Hey, okay, you can have all these AI models, you know, generated in the cloud, but how do you put to action on the edge that requests like, you know, distributed compute, a single amazing customer experience that allows customers to focus, to switch between cloud and edge. So that’s one of the things. And the last one we see is cost as well. Like in terms of the problem we are solving overall. Hey. Yes, I have the models in the cloud. I don’t want to keep pushing all the data to the cloud if I want to like, you know, run inference and get output out the edge and then push the post-process data to the cloud. That’ll save obviously you know, significant on my, cost as well, because you know, people are spending lots still on ai, cost, all the training, et cetera. Now how do we start, you know, optimizing it so that you don’t keep spending just on the large models or the large data and push all of that to the cloud.

Akhil 07:43

Pradeep, you’ve experienced this built on the cloud side and now the Edge side. And Dan, you mentioned I love that sort of statement, AI applications are dragging the infrastructure. I think something we’ve observed, and this is not just in the national security spaces, when that does happen, I mean it takes a hot minute for the, in infrastructure to get developed, in fact, much longer than it does necessarily to take an AI application, right? And to build the potential use cases. And so Pradeep kind of curious on, as we think about the challenges, not just in the application development, but you know, as we think about that dragging infrastructure. What are the challenges of actually building and adopting that scaled infrastructure in a distributed manner for some of these mission critical organizations? And that’s not just national security, that’s oil and gas. These organizations that that, that have similar mandates when it comes to the deployability and challenges associated there.

Pradeep 08:36

Yeah so interesting. I think as a, as you said, I was you know, fortunate to be part of the, you know, building the cloud journey for over a decade. What I significantly saw was what Cloud enabled was, hey, you can think about developers around the world could actually focus on the application and start deploying anywhere in the world, right? They don’t really care where the infrastructure is sitting. It’s just a dropdown for them in the broader experience. And I just go focus on my application deploying that. That is a similar thing we are doing here. Hey, you can think about distributed edge compute sitting across everywhere around the world. You focus on the application now what challenges we see? It’s literally if your application is modernized running on Kubernetes, like you’re able to do that. Then, you know, moving to the edges relatively straightforward. Where we see challenges, if it’s set of legacy applications that have been done that has very legacy dependencies, then you actually have to go through sort of a transformation or the second thing we have seen is. If you are actually too much tied to one of the cloud provider, right? You have so much dependency on some of the cloud services or specific cloud services coming from a cloud provider, then you have challenges transforming. But what we are also seeing a lot of the like, and if you think about you know, journey of multi-cloud like enterprise customers are deploying on multiple clouds, which means that. The app developers are like transforming the application to say that, oh, I should be able to run my applications on an Azure or A GCP or on Oracle, et cetera, right? That’s how they are thinking. Which makes our job easier because, hey, if you have you know, transform your application or you built your application from the scratch, that it can run on primarily any infrastructure, any cloud provider, then running it on engine infrastructure becomes relatively very easy. For example, we are at, we are one of the applications we actually, they were running on Azure. We were able to actually, you know, you know, enable them to run on the edge within less than 24 hours, right? Because it’s all you know, native Kubernetes stuff. So it is very easy for us to, you know, migrate them over.

Akhil 10:51

Thanks for that, that’s great. And I wanna pull on something you mentioned with a lot of these legacy industries. You know, legacy is not necessarily the right word, but with a lot of industries, like in national security. Basic dev tools, infrastructural tool just don’t exist in those environments. And what we’ve been finding, Maggie and I, with our portfolio companies here at Shield Capital that are on the AI application side is they’re allocating 20, 30% of their critical engineering talent. Not to the application, but to the deployability infrastructure and how it relates to the edge. And so I’m curious a little bit about how do you think about working with startups in these. Really advanced AI application companies, figuring out what that edge deployability looks like and maybe taking the burden off of them so that they can focus on, I think as I’ve heard before, focused on just making really good beer or making that really good application.

Pradeep 11:43

Yeah. So super interesting. You know, we, you know, we spend a lot of time between, you know, Nvidia of the world and then, you know, and the cloud providers like Microsoft. If you think about the stack, what we are seeing is there’s obviously the infrastructure layer which is you know, hardware and all of those things. Then you have the past layer with Kubernetes. Then you have a lot of ML ops platforms, and then you have the AI applications, right? That’s. The stack is starting to work, and this is where some of the customers struggle because if they have to do it all by themselves, they have to go all you know, together by themselves. And then there are startups, to your point, is working on couple of these portions and oh, they have a really good ML off platform, or they are, you know, developing really apps. So what we have been is like we think about partnership very key. Like how do we make the experience simpler and easier for our customers? Is the partnership with these, you know, ML ops and AI apps. And we work with the, for example, have a specific team what we call as the marketplace team. What they are actually, their full-time focus is to like, you know, work with partners, onboard them onto our platform, make their deployment very easy. They don’t have to worry about Hey, what infrastructure, et cetera. Very similar as I explained in the cloud. So they can actually scale faster, right? And what that gives us the abilities, Hey, we deploy the infrastructure. The number of ML ops platform integration or the number of AI apps we support goes really well. So that’s and my team is. Deep infrastructure specialists and you bring in the application teams from the, you know, the startups or the app companies is what we are focused on. So that’s really what we are focused on and how we do through is partnership. We see that struggle like very much. They e even for example, even if I’m an app developer company and I can deploy it in cloud, then I don’t know how to move to edge, right? So we actually take care of that easily for them. So that’s really a problem. And through partnership is what we are solving. That

Dan 13:49

Just to piggyback on that, I mean, we say pretty, but I like to say our value prop is the three S’s. Speed, scale, and sovereignty. And the speed part is really important for the end customers that we’re serving, where it’s all about. Hey, I’ve got, you know, mission critical problems in these edge locations. I need them solved yesterday. And you know, for example, with the Navy, and this is public, we did a UNITAS exercise where we were able to rapidly deploy one of our Galleons on a ship. And we were able to show, Hey, you can take these really powerful models and for the first time, it’s never been done before. Run them at scale, you know, totally disconnected from the public cloud in these very remote locations. The speed piece of that is really important. And then once you do that, you create a ton of value, both for the end customer and then these model companies, which also look at us as a fast way to get deployed in these sites. And then you start to scale. And then the sovereignty piece is really important. I mean, I think what we’re seeing is that you need to take a broader lens when it comes to national security. And we work not just with defense, but we work in, you know, energy. Also thinking about like other critical infrastructure, like airports, right? All of it is really national security where you need to be able to do 24 7 monitoring of these sites, secure them, and then run all of these really powerful AI models securely locally at the edge.

Akhil 15:20

That’s awesome. Thanks Dan. And yeah, I think very much aligns with how we think we, I mean, it’s mission critical, right? It’s about how do we. Safeguard and enable the varied use of AI applications with the right associated security measures if and when uncertainties happen. And that could be just a commercial cloud outage, which happens more frequently than we care to admit, or something more nefarious that affects not just the national security domain but our businesses and commercial enterprises. Dan, can you gimme another example? Maybe not from the military. Going to Pip’s comment about how you think about partnering with the best in breed of AI applications.

Dan 15:58

Yeah. One example I really love ‘cause of the impact that it has is the example with Alaska Department of Transportation. And this started with us managing all of the connectivity as well as other connected assets for the state, like drones. They use Skydio drones, which are really great for emergency response, specifically using it for things like avalanches and floods. And obviously Alaska’s a huge, very remote state, and so a lot of times when these natural disaster strike people are affected, stranded in very remote locations and you can’t wait. For intelligence to respond, you need that in split seconds, just like you do in a defense scenario. And so what we did is for the first time, we deployed one of our Galleons, these modular data centers in Alaska, and we were able to cut their latency from over a day to near real time to respond to these things using all the data from the drones. Right, and that’s using AI models that are very, people are very, you know, familiar with. But the difference between deploying those at the edge locally versus deploying those in the cloud is literally, you know, life and death. You know, 2020 over 24 hours. I mean, people cannot wait in that scenario. You have to have the intelligence in the moment for it to be useful if you don’t, responding the moment the data’s almost like useless. And so that is our focus. And I like that example because I think that is something that is true everywhere in the world. And you’d be surprised how many different locations have this same problem around the world. I’ll just give you another example. I’m about to fly out to Australia. We’re making a big announcement with a customer in Australia and. I was talking to one of the former Prime Minister there yesterday in preparation for that trip, and they said, Hey, we have that exact same problem, you know, very remote part of the world. There are no large data centers outside of, you know, maybe Sydney and Melbourne. And you know, when fires break out or you know, even just to provide the opportunity to you know, educate the population, provide infrastructure for education, obviously huge area for mining and oil and gas as well. So going back to energy, your stuff is mission critical and we don’t have anything like it. So we just see a huge amount of opportunity with those types of high impact use cases in these more remote locations that have been underserved. From infrastructure historically.

Maggie 18:50

Yeah. Dan, an another pretty interesting use case. I saw you all announced it was late last year. You announced that Armada is going to be an official collaborator on the Department of Energy’s new Genesis mission. So I wanted to see if you could talk a little bit about what that mission is and the role that Armada will play.

Dan 19:07

We are really excited about Genesis mission. I’ve really advocated for a project like this for my whole career, so I’m just. Pumped that we’re doing this as a country. The things that we’re doing there are twofold. So one is we’ve been working with secretary Wright and Dario Gill and the whole team Anthony Pugliese over there. And they’ve been great about just connecting us to all of the 17 national labs so that we can go there. We can meet with them and we can understand what are the gaps in infrastructure across the labs. Because again, AI drags infrastructure. Genesis’s mission is the most ambitious AI project in the history of the country. We’re talking about doubling productivity when it comes to you know. Science and engineering within a decade. That’s the goal. So if you’re going to do that, you’re going to need to deploy AI at a scale that has never been done before. But you can’t do that unless you have the right infrastructure to enable it. So that’s the first thing we’re doing, is we have gone to all of the national labs and we found out. Where are those gaps in infrastructure? And again, our value prop is speed, scale, and sovereignty. We can fill those gaps in infrastructure right away to enable us to. Accomplish the objectives of Genesis mission, which include getting, you know, big wins this year, right? We can’t wait, you know, years for traditional brick and mortar data centers to be built. So that’s number one. The second thing is there is a goal to create a common AI platform across all of the national labs. They don’t wanna operate in a siloed fashion where each Napa National Lab is doing its own thing, right? The power of Genesis mission is taking all of the data from all of the national labs and bringing it all together and having them work in unison. And so what’s really unique about our platform is the full stack nature of it. The fact that not only can we deploy. These Galleons you know, faster, more flexibly where you can scale up versus overbuilding and do it totally sovereign and disconnected from the public cloud in a way that nobody else can. But the full stack piece of it where each one of these things acts like a node to a distributed private infrastructure that can be leveraged locally, but then also. Coordinated across sites. And a very tangible example, getting into the weeds of this a little bit is take you know, take one of these model companies, right? If you look at who are the collaborators, we’re one of them for Genesis Mission, but also all of the Frontier model companies are part of it, all of the major ones anyway, you’ve got pretty much all of the GPU. Know, companies participating in it as well, but then the question becomes, okay, if I deploy those models on one of my sites for cybersecurity and other reasons, I’m gonna wanna use that locally. It also helps with cost, which is a big issue. Running the models is much more cost effective at the edge versus running it in the cloud. And we can get into that. But then I want to take. All of the improvements that I get, fine tuning the models on all of that data, and there’s a huge amount of data at each one of these labs, and I wanna leverage that across all of my different sites. And so what you can do is you can take one of those models, whether it’s from OpenAI or Xai, or you name it, you can run it on that data locally. You can fine tune it to the data, and then you don’t have to ship all the data back to leverage that across. All of the other labs, you just ship the fine tuned model back and then you leverage that across all of the other labs.

Akhil 22:57

Hey Dan, you hit on something that I think some folks first learning about Armada may not entirely know or have a perception around. It’s not just about the data center in a box, right? Armada is not, Hey, I’ve got this galleon and I’m just gonna plop it somewhere and it’s gonna have some compute, some GP, you know, a couple of server racks. And have some power. The whole thesis is how do you interconnect those in a way that allows for this nearly hybrid compute environment, depending on the type of application and depending on whether you’re optimizing for cost or resiliency.

Dan 23:32

Yeah, exactly. And I’ll let pretty comment on this ‘cause he, he saw this firsthand at Microsoft where, what, like when PIP and I were first talking at the beginning of Armada, the opportunity was. Oh, wow. There’s 30% of the world that has these big hyperscale data centers. But what about the other 70%? There’s all these gaps globally in infrastructure, and that’s why we call ourselves the hyperscaler for the edge. And you know, the Galleons are super cool and they’re very impressive, which in some ways is a big advantage for us. But in some ways, you know, we try to really make it clear it’s not just about one galleon. It’s about. The full stack nature of it in the fact that each one of them is a node to a distributed system that can plug all of these gaps in infrastructure globally, and then allow you to leverage your intelligent across all of your different sites.

Pradeep 24:27

So I think Al interestingly, we talk about the world as, I mean, hey, there is you know, cloud for training. And then there is like what we see the world evolving to fine tuning and inference, right? That’s really it where we are with this thing. So what Armada is really playing a key role as being the platform for fine tuning and inference right now. All the edge boxes we are talking about is mostly for inference deployment. So that’s where we, basically, what we do is. We give the platform, but we also put the entire full stack solution with hardware and with the modeler data center. That’s what we’re doing. And there are cases in fine tuning, we are actually partnering with, you know, data center providers or colo providers where hey, they will actually bring in the hardware and it sits in a colo. And we give the platform, right? So what we are focused on is that customer wants a single platform for both fine tuning and inference, and then I bring down the models from the cloud then fine tune it like on my sensitive data. And then I click a button and I push it to inference for the edge. So that’s really like what. What Dan is talking about, that’s where an edge is actually evolving with that per premises. An edge can be like a small, you know, box sitting in a, you know, department of transportation vehicle, a police car. Then we are thinking about an edge box sitting at the bottom of a cell tower. And then you are starting to expand into a co, right? So that’s really like what we are looking at as, hey. That can be small to you know, a colo. Definitely not a cloud, but how do we have a single platform that spans across multiple? And where we are doing the hardware are both those like ruggedized boxes where we also have partnered with, you know, some of the folks on smaller boxes because they are already deploying those things. Then we want to run our software stack on top of it. So that’s how we are you know, helping customers.

Akhil 26:27

Thanks, Pradeep. I wanna nerd out for a second here on fine tuning and inference, if that’s all right. I think we have a group, and I’m doing this because I think our listeners tend to be somewhat technical, but also a lot of functional experts, right? That recognize that the current models and what the applications look like cannot get to the level of fidelity for their specific use case and deal with the tail of outcomes without some of that. Inference or fine tuning towards the edge, but then comes in all the factors, cost, resiliency, et cetera. So maybe my first question here, Pradeep, is what is wrong with the current state of infrastructure to be able to support this fine tuning and inference and five years from now? What do you want that to look like with, as you said, Dan, with Armada as the edge hyperscaler?

Pradeep 27:13

Pradeep: Yeah so I’ll give you a real example. We work with one of the you know, logistics customer. They had some physical security challenges. They had some like specific worker safety rules. And they had like literally somebody sitting in front of a camera or like a monitor looking to see if they were detecting some sort of violations, right? And they were like, you know, looking at maybe trying to look at their own models, et cetera. And their long-term plan was, Hey, it’s not just developing the models. They have you know, hundreds of sites and all of these models needs to run on those edge sites, right? So this is where hey, they tried a bunch of models. They said, Hey, there’s a bunch of consulting companies who came in, but everybody tries to solve the R piece. They’re like, oh, I will create the models for you, right? And then like then the next thing they have to deal with this. What’s the accuracy of the model, right? How do you keep you know, retraining the models or fine tune the models and then are you going to enable me to deliver it end to end, right? Many companies says, oh no, I don’t do this. You ought to go talk to somebody else and then it’s your job, right? So this is a case where you know, our AI team came in, we, you know, sat with the customer, they gave us like two weeks of data. Like we had we had our base model developed on the cloud. We, you know, we fine tune it or it drained the model on that. We actually pushed it onto the edge and then you won’t believe, like the first week we were able to detect seven out of 10 scenarios. Like before it was like a one or a one out of 10 or maximum two, because when the person looks away from the screen, they don’t see it. And from there we went to seven out of 10. But what the customer loved it and said, Hey, it’s not this one time. I wanna make sure that because new scenarios will pop up. How do you do that continuous training and then make sure that hey you can push it to the edge because we know what is the capacity available on the like edge. So it is not going to be hundreds of GPUs. So that is something which we are seeing, like where people are. Like in some ways when people are developing models, they assume that there’s infinite amount of capacity, right? And now how do you take that and run at hundreds of sites with a finite capacity is like the transition and that’s where. You know, we are helping customers or even partners are starting to look at saying that, yes. Okay, if I say I have got 4G Ps on the site, right? If I take like a small suitcase a deployment, you are barely one GPU, right? How can you like run the same models you know, what you need to optimize is what we are looking at.

Maggie 29:48

Dan. I’m curious, turning back to, you know, what it’s like actually engaging with some of these customers. You know, when I think of oil and gas, national security, energy, I don’t think of the most tech forward-leaning customers. So I’m curious, you know, how much customer education have you all had to do with these customers? How forward-leaning have you found them to be and how do you get them to trust you to actually help them deploy, you know, really valuable, meaningful technology.

Dan 30:17

Yeah. The good thing is when we first start talking to customers in general, they already have a clear set of goals at the edge, and they already have a backlog of use cases that are low hanging fruit. Once we deploy the infrastructure, there is an initial bridge that you have to cross, which is you have to demonstrate the value of each one of those use cases at these sites. And then they also almost every single one of them has a very stringent cybersecurity review that you have to get across. But then once you do that, and once you deploy at one site, going from one to many is much, much easier. And the reason is there is a huge amount of value that directly ties to their objectives. And if you look at what is a common pattern to go to, back to Pip’s point on pattern each one of these. Customers, whether you’re talking about defense or you’re talking about you know, oil and gas, mining, any one of them, they have a common set of things that are happening. So one is they have very distributed remote sites where they have a lot of data being generated and they understand that the value of that data is dependent upon it being used on the site. For primarily latency reasons, but also a lot of these are critical national infrastructure. And for that and cybersecurity reasons, you actually can’t take the data off the site. So you have to do all the data processing locally. And then once you deploy, there’s a huge amount of value to be generated. And I gave the, you know, the defense example and I gave the, you know, emergency response example with Alaska. But if you think about. An industrial example, like a remote oil rig or mine refinery manufacturing facility. I could go on. Each one of those things has a lot of value to be delivered in. Number one, not sending all of the data to the cloud because one, you’re reducing risk and secondly, you’re typically, if you’re, especially if you’re running AI on that data, saving a significant amount in terms of cost. But number two. Just making sure that those sites work 24 7 as they’re intended, has a huge amount of value. Every single one of them, whether you’re talking about an oil rig or a mine, or a refinery or a factory, they have the concept of unplanned downtime and unplanned downtime costs a lot of money. Then at the same time, each one of them is moving towards automation. And so you can help them on that journey as well. And just to give you a sense, like a large energy company, we work with some of the largest in the world. They’re all moving towards fully autonomous operations over the next three years. And so immediately by deploying this, we’re able to avoid unplanned downtime. And a lot of them have. Days or weeks of unplanned downtime every year, which can cost hundreds of millions of dollars or billions of dollars at scale. So that’s an easy business case right there. And then there’s a bunch of other use cases. But then the second thing is all of them are planning to go towards full autonomy at these sites, or nearly full autonomy. Maybe there’ll be one person on these sites. Within the next few years between now and 2028. And the only way to do that is to have local compute. So we have this same pattern across all these different areas. And Akhil, to go back to your point on inference, if you take a step back, that’s why you’re seeing this super cycle shift from just the training of the models now to the fine tuning and the inference of models is that everybody sees that they have now reached A level where if you do that fine tuning on all of that data at the edge. Then you can actually move towards autonomy and the use cases there are through the roof and the values through the roof when you do that.

Akhil 34:18

Super helpful. Dan, lemme just recap for the audience here. What I’m hearing, I think coming into some of these discussions, I think a lot of folks might see this as, hey, this is, you’re really paying for resiliency. You’re paying for whatever it is. What you’re saying is it’s not resiliency, it’s efficacy. There’s a matrix associated with, some people do want that resiliency, right? In a disaggregated, disconnected environment. Others are actually like, wait a second, this is the most effective way to do fine tuning and inference. And to be able to get that last, you know, not to use a football analogy, the last, you know, third and five, the last five yards to the application efficacy. The only way to do that with all the data sovereignty, all of the. Local nuances is to do it at that edge, and you need to be able to do it in a way that is connected across multiple nodes.

Dan 35:05

Yeah, I would almost say it’s first about enabling all of these models, enabling local data processing at the edge in the way that was never possible before, which creates a huge amount of value. And then the resiliency is like a nice bonus. It’s oh, and by the way, these are a part of a really resilient. Distributed infrastructure that if something ever happens with your cloud or something ever happens, even with one of the nodes, you have really resiliency between nodes. But that’s like a bonus. The thing that gets people to say, Hey, I’m all in, is number one, there’s like a huge amount of immediate value to be generated. And then secondly, it aligns with these you know, multi-year initiatives to move towards autonomy in each one of these edge locations.

Pradeep 35:56

Yeah, and I, just to add to what Dan said, we have a mining customer, like they have around 30 mining sites, a large mining customer. They are going through this whole process right now. They have all of these IOT assets sitting in. They all push that to a cloud. It goes to some central region. They were like, Hey. This is not the way I want to do modern edge or modern, like a distributed architecture. So they’re like working with us to re architect the whole thing from a distributed you know, architecture where hey, you want all of these it devices to actually send, you know, data to be processed in the gall. And then post-process data that pushes to the cloud for, you know, you know, for their compliance reasons, backup, et cetera. And that would also be used for larger training as well, right? You get you know, you know, the what the events which are really useful rather than pushing everything to go sit in some storage account and keep paying for the storage, right? So that’s why say, hey, it helps me in also that when you do this. At the edge, you can actually take actions because you’re immediately processed within seconds. You have the output so the people on site can take action. At the same time like I’m not trying to pay, I also, in many of these cases, egress cost is high as well, right? If you think about the network, if you’re pushing all of this data, raw data, it is you know, somewhere you’re paying the network bill too, right? So that’s, those are the way they are reaping at the architecture from a distributed computer is what they’re looking at.

Dan 37:28

Yeah, this was actually a big eye-opener for us and our co-founder John, when we started Armada. You go actually talk to these mining companies just to use that example, and they have what’s called a hard segregation of it and ot it from operations. And you might ask what, why does that matter? What is the practical implication of that? Well, in mining, like in most businesses, especially industrials, time is money, right? And we work with a lot of the largest mining companies in the world. They’re constantly doing exploration for new projects, right? And a lot of times those things can take years. Well, why do they take years? They’re almost all in very remote locations. Then because of this hard segregation between IT and ot, they have to do the exploration work at the site. And then they ship this stuff in batch, like the same way they did decades ago to, you know, hq. And they analyze it and then they send it back. And we talk to a lot of companies where we ask, how long does that take you? Well, every time they do that, it takes them a month or maybe more. And so by actually bringing. Something like a galleon to the edge and deploying it behind the firewall on the site. You go from more than a month to real time, right? Which speeds up these projects, which creates a ton of value and also allows them to out-compete the competition. And so it’s really eye-opening where a lot of people just assume Hey, everybody’s doing things. You know, the kind of real time way now. Not with a lot of these types of businesses because of this hard segregation between IT and ot, and the only way to actually enable real time is to deploy behind the firewall on the site.

Akhil 39:18

Very helpful. And Dan, as you were saying, that can’t help but think about the national security parallels of, you know, your analogy between the IT and OT world, right? We’re listening and observing what has happened over the past couple weeks in the Middle East. We’re recognizing that the ability to quickly sense what is in the environment and make use of it before it gets into the large IT systems or in the process of is absolutely just as critical. And a lot of those systems too are far. I’m reminded by some of the stories Raj here at Shield Capital shared about coming back from, you know, a, a fight or flight, a fighter pilot flight, and you know, manually downloading the sensor data. Just think about the latency associated with that. If you could do that in a way that that did not require that for the immediate analysis that needed to be done.

Dan 40:12

Yeah. And Shield’s, obviously, one of our founding investors, you guys co-led our seed rounds, so thanks for all your support over the years. But I remember talking to RA about that when we started the company. Literally, it’s and that is happening globally. You cannot have a situation where you have. Very important data just sitting there and you have, you know, days or weeks or months of latency to try to do anything useful with it. You have to be able to use it in real time at the edge. And that’s the common thing we see playing out across all of these different areas, whether you’re talking about, you know, defense or you’re talking about energy, or you’re talking about you know, any other area.

Maggie 40:53

Dan, I know that you all recently released a white paper on what it’s gonna take to build US AI dominance, and we know that a lot of our, you know, potentially adversary nations like China are investing very heavily across the stack in talent, in compute, build outs, in mining, in energy. What is it gonna take for the United States to maintain our AI dominance? What are some of the sectors that we’re going to need to invest in over the next five, 10 years?

Dan 41:24

Yeah. It was funny how that played out. We didn’t plan it this way, but when we released that white paper, I was in Washington DC with some of our team and we were at the. Winning the AI race summit that the president spoke at last July, and that was the same day that the White House released its AI action plan. And we had been talking to them a lot and so I don’t think it’s coincidence, but they were very closely aligned our white paper to that. And the idea is number one, one of the biggest blockers to AI is energy, right? And if you look at how that is playing out globally, China has made very fast progress there. And that is a national security risk, right? We have to solve the energy problem. How do you do that? Number one, you use all of the energy that is available to you and I mean all of it. And one of the things that we highlighted is that in the US there’s about six gigawatts of stranded energy. And it’s not being used for ai. Why is it not being used? Well, it’s because we’ve been requiring that energy to somehow travel to these far away data centers, and that is very difficult to do. And so what we are instead saying is, let’s flip the script a little bit and let’s actually bring the data centers to the energy and enable that energy to be used right there. And a nice thing is that’s also where a lot of the data lives. And so that’s kind of our philosophy with Armada. The data centers are an enabler and they should go to where the energy and the data lives, rather than this dynamic where you’re having to have the energy and the data sail to some far away data center. That’s one of the reasons why we call the company Armada, is like each one of these things is a ship sailing to the data. And that’s why we call the data centers galleons. And then the other thing that we need to do is we need to use all different types of energy. And that includes, you know, stranded natural gas that includes things like some of these, you know, micro nuclear reactors. We think that you gotta invest in nuclear, you gotta invest in solar. You gotta, you know, be willing to look at things like data centers in space because the sun is like the ultimate source of energy. We need to use all of these different. Energy sources and then have the data centers go to those energy sources and enable ai. And we need to do it really fast ‘cause China’s moving fast. And so that’s what we’re focused on. The other thing, and this is the third pillar of the AI action plan and also in our white paper is you need to work with allies. The allies also have huge amounts of energy that is available for ai, and we can utilize that. And that also has other good impacts, like making sure that we don’t end up in a 5G situation like we did, you know, with China last time, where you’ve got other nations adopting that technology. We need to make sure that the world does run on the US AI stack, and so you kill two birds with one stone. When you work with allies, you are able to utilize all of that energy. Constantly improve these models, improve the entire stack, and then, you know, five years from now, instead of running on Chinese infrastructure, the world be running on the US AI stack.

Akhil 44:46

Yeah. And the AI race, as we think about in this geopolitical competition, is not just about the large language models, right? It is also about the infrastructure and the deployability across the globe. And I mean, this is what you’re seeing, right? Pradeep, both your prior experiences and what you’re seeing as you deploy Armada, not just. The United States, but across the globe.

Pradeep 45:08Yeah. I think, actually great question. I’ll tell you an example. In 2006 I was working on some of the telecom infrastructure stuff in Africa. What, interestingly I saw was like, you know, Huawei and some of the Chinese providers were actually setting up almost giving away free infrastructure. So they would set up all the telco infrastructure. You know, I didn’t realize that point of time, but they were actually taking sort of the backbone of the country, right? When you have all the infrastructure in your control, you have you know, the data and everything flowing through under sort of your control. I’m actually seeing similar thing. If you look at you know, the minerals industry, the mining, et cetera be like in a, if you have to build a lot of infrastructure to run AI models, you need all the, like silicons you for the silicons, you need all the minerals, right? So it’s a super interesting thing while I look at it as a LLM race, I also think about it’s a, you know, a race. For grabbing control of all the minerals and the mining sites and the oil and gas, right? So it’s very interesting to see that’s what I’m seeing. Hey you want those minerals in hand to produce more compute infrastructure to run better models, but, and also you want those to be deployed. So who has controlled all of this becomes super critical. And that’s where we have been talking about, hey, having a full American AI stack is super important from that perspective.

Akhil 46:39

Yeah, interesting. Pradeep, if you actually tie that line together, you can start with AI dominance and the geopolitical aspect there. Then you go to the infrastructure dominance and then you tie to the use cases. I mean critical minerals, right? I mean we’re talking about that right now. We’ve been talking about it. Your experiences from 2008 honestly predates some of the news around Huawei. And we’re only just now seeing or have for the past couple years the. The real challenges and limitations and the desire to have a critical mineral access point, and all of that is predicated upon knowing where they are and being faster about acquiring those resources.

Pradeep 47:18

Yeah. And I think that’s what to like really underline Dan point. It’s not just about within America, it’s about the allies too, right? You have to help and be partnering there to win the stack. Not because there are a lot of natural resources outside of us two, so we gotta be helping the allies to that.

Maggie 47:39

Last question to wrap up, what advice do you have for founders looking to build mission critical technologies for mission critical customers?

Dan 47:49

I’ll start and then Pradeep you chime in my first piece of advice is very simple. Be clear on what your mission is and write it down before you ever hire anybody. Like the first thing that Pretty, and John and I did when we started our motto before we hired a single employee was we sat in a room at Founders Fund and we said, okay, let’s write down our mission, our reason for existence. Let’s write down our vision and let’s write down our values and let’s make sure that every single thing we do from this moment forward aligns to that. And let’s make sure that everybody who joins our company understands what we’re about. And it’s a simple thing to say, but 99% of companies do not do that. So if you do that, you will stand out and you’ll get the best talent in the world because people want to work for companies that have missions. They wanna work for, especially the best people they wanna work for companies that are solving the biggest, hardest, most complex problems. And so we did that. We, we had our manifesto that we published, you know, while we were still in stealth, people were like, who’s this company? But apparently they stand for something. And then we even did a founder’s film and we did a launch film when we launched outta Stealth. And it was all about our mission. And it’s funny how. You know, those things are now a few years old, but you go back and look at ‘em. It’s all the things that we’re doing now. It’s all the things that we’re talking about in this interview. It’s just real. But being very clear about what you’re gonna do, what you stand for, and then, you know, walking the walk is really critical.

Pradeep 49:27

Yeah. Just to add, actually, as, when we were writing that thing, I remember in in one of our investors office, that time we didn’t even have an office. It’s funny that we actually took some of the hardest industries to go after, right? Because we believed that was the right focus area. And in some of the, you know, some of those industries are very hard to move because as earlier mentioned, they are legacy. So you’ve gotta believe in it and then you gotta be at it every day. So don’t do it if you’re not passionate about it. Because solving the hardest problem, you have to have the belief, passion, and you have to grind through it in many ways.

Maggie 50:07

Great. Well, Dan Pradeep, thank you both so much for your time and for coming on the podcast. We’re super excited to be investors and can’t wait to see what you all do next.

Dan 50:17

All right, thanks a lot. Great talking to y’all. See good. Thanks. Bye.

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• Mission Command and Control

• Digital Defense and Cybersecurity

Something special about this hackathon: because we are using Army prize challenge authority to award prizes, hackathon winners will be able to win follow on prototyping OT contracts from DoW following the event, as the hackathon counts as a competitive process. This event is a real opportunity to connect with DoW stakeholders to build needed technology that can lead to long term contract opportunities.

Here’s what’s happening:

• Hackathon Kickoff Event – May 1 @ Stanford

• Hackathon Weekend – May 2-3 in SF

Shield Capital is proud to co-host this event alongside Cerebral Valley, Palantir, IQT, DCVC, OpenAI, Scale AI, Armada, Deloitte, TENEX, Shack15, and Skyrun.

If you’re a builder, coder, designer, student, engineer, or analyst looking to apply your skills to problems that actually matter—this is your moment. Please forward to anyone in your network who may be interested in joining!

🇺🇸 Register now here.

Hope to see you there. Please reach out with any questions or comments.

As a result, many national security startups are rethinking how they operate, developing novel business structures to more effectively deliver capabilities to the warfighter. This article explores several of these approaches, including M&A-driven conglomerates, tech-enabled services, holding companies, “Americanization” strategies, roll-ups, contractor-owned/contractor-operated models, and factory-as-product.

Unlike traditional business to business (B2B) and consumer markets, the defense market is a heavily regulated monopsony market (a market dominated by a single buyer) with multi-year budgeting processes, often dominated by special interest groups beyond the control of the Department of War (DoW), that do not neatly align to the priorities of the end-users. Product end users (soldiers and intelligence analysts) do not get to make final product purchasing decisions, and the DoW has limited control over its own budget, as Congress ultimately determines appropriations1 (at times in ways that diverge from the Department’s stated priorities).2

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The DoW is not accustomed to buying technology products off the shelf or as a service. Instead, the DoW tends to award services and integration contracts, hiring contractors to build and integrate custom, exquisite capabilities like fighter jets, missiles, and even travel management software.3 Many leading defense contractors like Lockheed Martin are as much systems integrators as product manufacturers, combining in-house engineering with vast subcontractor ecosystems to deliver complex, exquisite platforms. These systems integrators typically charge the government under Cost Accounting Standards, billing for direct labor, overhead, general and administrative expenses, and other costs (such as materials), with a fixed profit margin of around 9% under cost-reimbursement (often called cost-plus) contracts, rather than offering a firm fixed price for a defined product.

In a single-buyer market for high-risk, exquisite first-of-its-kind systems, cost-plus contracting becomes the rational choice: development costs are uncertain, and with few potential customers to amortize upfront R&D, systems integrators need a structure that ensures cost recovery and preserves predictable margins. This model is the inverse of the quintessential VC-backed startup, which heavily invests its own capital into R&D upfront and then makes profits by selling products into large markets with strong operating profit margins. As a result, startups in the defense ecosystem have had to chart their own path, building businesses that depart from both cost-accounting-driven contracting and traditional SaaS or consumer playbooks to align with how the government actually buys and funds technology.

M&A Driven Conglomerate

Over the past three decades, all traditional defense primes have aggressively pursued mergers and acquisitions as a major source of growth. Companies like RTX, Lockheed Martin, and Northrop Grumman – each bearing combined names formed through successive mergers – are large conglomerates made up of many different business lines acquired over decades. Conglomerates are able to add additional value to each acquired asset by integrating disparate systems together, and building inter-operability, ultimately making the whole system more valuable than the sum of its parts.

Several new entrants, most notably Anduril and UForce have pursued this M&A-focused conglomerate approach. Since its founding in 2017, Anduril has completed nine acquisitions that now underpin much of its core IP. For example, its Fury platform, which is now competing for the Air Force’s CCA contract, was originally developed by Blue Force Technologies and acquired in 2023, while its Dive-LD platform, which was selected for the Navy’s XL-AUV program, was developed by Dive and acquired in early 2022. A core element of Anduril’s acquisition strategy is integrating disparate hardware into its Lattice software platform, creating a unified, interoperable system. Anduril also centralizes go-to-market and business development functions, giving each platform far greater reach into the DoW than a standalone company could achieve on its own.4

UForce is a Ukrainian defense company which has taken a similar approach. During the Russia-Ukraine conflict, a wave of small Ukrainian defense companies emerged, each focused on developing specialized battlefield systems. While individually these companies lack the scale and resources to become multi-billion-dollar businesses or navigate complex international defense procurement processes, when merged into one company they can reach a much broader market. UForce is a strategic consolidation of nine specialized Ukrainian defense companies, whose portfolio of products include some of the most important battle-tested platforms in Ukraine. Its most well-known is the Magura unmanned surface vessel, which was responsible for sinking a significant portion of the Russian Black Sea fleet. Its other products include Nemesis strike drones, Liut unmanned ground vehicles, Sunray counter-UAS laser system, and Bucha fixed-wing UAS interceptor. Similar to Anduril, UForce integrates all its product lines into a centralized command and control (C2) software and autonomy layer. Since consolidating these product lines into one company, UForce has onboarded an American-Ukrainian CEO, moved its headquarters to the U.K., raised more than $50M from international investors (becoming Ukraine’s first defense tech unicorn), and struck deals with European NATO allies.

Tech Enabled Services

A significant amount of the defense budget goes to services providers – that is, businesses whose primary product is human labor which they bill by the hour. Over the past few years, a new generation of startups have emerged using AI to provide services much more efficiently while achieving high gross margins. This new crop of businesses is poised to disrupt a number of services industries, including legal, HR, and finance – and defense is no exception.

For example, consider cyber operations: both defensive and offensive DoW cyber operations are dominated by contractors. Services firms provide the government with everything from security operations analysts to incident response teams to vulnerability researchers to exploit developers. Already, startups are using AI to disrupt these services-heavy operations. Companies like TENEX provide AI-enabled security operations, detection, and response services, while companies like Autonomous Cyber use AI to automate vulnerability research and exploit development services.

Advanced code generation models are also enabling a new set of companies to disrupt traditional engineering services businesses. The DoW often hires engineering services firms to manage projects like codebase modernization, custom software development, system of record implementations and migrations, and more. However, as code generation models have improved, the need for large, legacy teams of software engineering service providers has decreased. Palantir, known for its engineering-services-oriented “forward deployed engineer” (FDE) model, has introduced an “AI FDE” offering, deploying AI systems to perform work traditionally done by human FDEs, and is now using these models to execute engineering services tasks such as data migration. Similarly, companies like Code Metal and Cognition5 are exploring using their automated code translation capabilities to work on government codebase modernization and optimization contracts. Projects which previously would have required armies of contracted software engineers now require just a few engineers armed with powerful coding models.

The power of AI to disrupt services extends beyond engineering and cybersecurity services. For example, Hedral develops tools that automate architectural engineering design, a traditionally human labor heavy industry, and, according to Obviant data, has won several contracts to provide automation-enabled architectural engineering services to the DoW for building design. One could envision a future where legal AI startups like Legora and Harvey provide the DoW with automated solutions that displace traditional law firms for low-value, routine legal work.

Roll Ups

In recent years, a number of startups have raised VC funding to “roll up” mature, cash flowing companies in fragmented industries and drive operational efficiencies using AI and automation, taking a new, tech-enabled spin on a traditional private equity investment strategy. The defense industry, particularly defense manufacturing, is no exception.

Much of the U.S. defense manufacturing sector is fragmented and composed of a number of small, family owned businesses, with predictable cash flows, many of which have aging owners looking to exit their businesses. Modernizing the playbook of private equity roll-ups like aerospace component manufacturer TransDigm,6 several startups are buying up various manufacturing facilities, particularly those focused on tier 1 and below component manufacturing, and outfitting them with systems like AI-native ERP, MES, MRP, supply chain management, procurement, and quoting tools, as well as with robotics capable of automating key parts of the manufacturing process.

Re:Build Manufacturing, which has raised more than $120M, has acquired a number of small engineering and manufacturing firms, including battery designers, precision component manufacturers, composite manufacturers, and more, leveraging expertise and economies of scale to streamline marketing, product commercialization, supply chain management, and manufacturing processes. Wilder Industries, which initially started out as a manufacturing robotics automation company, has since acquired several manufacturing and aerospace component companies across CNC machining, sheet metal fabrication, and UAV manufacturing, and is working to equip these acquired assets with more efficient manufacturing technology. Amca has raised more than $75M of VC funding to acquire legacy aerospace component manufacturers including a pressure switch company, an electromechanical avionics company, and a magnetics company, bringing modern manufacturing techniques and business practices to these legacy businesses. In March 2025, Jeff Bezos announced that he is launching a $100B fund to acquire manufacturing firms and transform them with AI.

Factory as the Product

Rather than selling individual products, acquiring legacy facilities, or retrofitting incumbents with new technologies, a number of startups are pursuing a “factory-as-product” model – building next-generation factories designed to produce custom goods for aerospace and defense customers using more efficient, lower-cost, and modern manufacturing processes. In particular, many “factory-as-product” businesses automate processes like quoting, tooling design, and tooling manufacturing, which can take up the majority of time needed to manufacture complex parts.

For example, Hadrian has built a large, software-defined CNC machine shop that uses automation to improve margins and reduce lead times. Its proprietary software streamlines CAM programming, quoting, and quality inspection, while integrated robotics handle material movement across the factory floor. Rangeview has built a factory that uses advanced investment casting techniques, centered on 3D-printed molds, to produce precision parts for aerospace and defense customers. Its software automatically designs and prints casting molds, while integrated robotics automate much of the physical casting process.

Atomic Industries uses AI and generative physics simulation and modeling to efficiently design and build optimized molds for injection molded parts crucial for automotive, aerospace, and defense industries, significantly reducing tooling costs (which can run $50K+ per mold) and lead times. It operates a vertically integrated “factory-as-product” business model where customers purchase injection molded parts directly from Atomic Industries.7 Layup Parts sells composite parts to aerospace and defense customers, leveraging techniques like automated quoting, generative tooling design, automated layering, and factory robotics to reduce lead time from several months to several days.

Contractor-Owned Contractor-Operated (COCO)

Several startups are exploring contractor-owned, contractor-operated (COCO) business models. Rather than selling a product directly to the DoW, COCO businesses maintain ownership of their products and operate the products on behalf of their customers. For example, consider an ISR8 drone use case: in a non-COCO model (also known as GOGO – government-owned, government-operated), the DoW would purchase an ISR drone, and U.S. military personnel would fly and operate that drone. In a COCO model, the vendor retains ownership of the drone and operates it on behalf of the military customer, delivering ISR data to the DoW rather than selling the drone itself.

This business model is attractive for several reasons. First, DoW does not need to spend the money to purchase and maintain an expensive platform. Second, DoW does not need to spend the time and resources to train their own personnel to operate potentially complicated technology. Third, it allows the DoW to have access to the most cutting edge technology, without going through complicated contracting processes every time technology is updated. Because the contractor owns the underlying technology platform, they can continuously update the platform (or even replace it entirely) with the latest technology and capabilities without needing the DoW customer to purchase the new technology system.

Several startups have already begun operating COCO services — Shield AI and Aerovironment were both selected for a Navy ISR drone COCO contract. Earlier stage startups, like Atropos, are also exploring this business model for aircraft (Atropos “is building the future of autonomous flight as a vertically integrated, design-build-test-and-operate service”).

Similar to COCO, some companies leverage a contractor-owned, government-operated “as-a-service” model. Vector Defense, for example, offers “modern-warfare-as-a-service” by integrating hardware and software to develop attritable, autonomous systems, and selling those systems “as-a-service” under operations and maintenance (O&M) services contracts.9 Instead of selling drones outright, it sells a subscription that provides continuous access to drone capabilities, replaces attrited systems, and keeps fleets updated with the latest technology. Beyond hardware, Vector delivers upgrades, training, and tactical integration, drawing on field insights from active conflict zones to refine TTPs and operational effectiveness.

“Americanization” Companies

Today, significant military technology innovation is happening outside of the U.S. on the battlefield in places like Ukraine and the Middle East. However, generally, outside of a handful of exceptions, the U.S. military does not purchase technology directly from foreign companies, unless that company has a U.S. subsidiary. Often, when the DoW is interested in some foreign capability, U.S. defense primes establish teaming agreements with foreign companies to bring that capability to the U.S. For instance, in 2015, Kongsberg and Raytheon announced a teaming arrangement to bring the Norwegian RGM-184A missile to the U.S.

Several companies have entered the market to procure battle-tested technology from live conflict zones abroad (most notably Ukraine and the Middle East) and adapt that technology to the U.S. military by helping shape doctrine, tactics, techniques, procedures, and training for these foreign-developed systems. For instance, Revenant Technologies, which is founded and operated by U.S. veterans, partners with select foreign technology firms with battle-tested systems, enables U.S.-based demonstrations, pilots, and training, for those systems, and manages U.S. sales, program integration, and on-shoring of manufacturing for those systems.

Holding Companies

Unlike most traditional VC-backed technology startups, several young national security startups have structured themselves as holding companies. A holding company is a parent entity that owns controlling stakes in other businesses (referred to as subsidiaries), typically without managing their day-to-day operations. For example, Alphabet is a holding company that owns multiple subsidiaries including Google, Waymo, Google Ventures, Nest, and Google X.

Holding companies are common in the defense industry. For example, L3 Communications Holdings, which later merged with Harris to become L3Harris, the sixth largest U.S. defense contractor, was initially established as a holding company to acquire and hold certain business units from Lockheed Martin in the 1990s. L3 Communications managed a wide range of businesses across training and simulation, command and control, communications, intelligence, surveillance and reconnaissance (C3ISR) systems, ocean products, navigation products, and more.

This model offers several advantages: legal separation between subsidiaries limits risk while the parent company centralizes functions like legal, compliance, IT, and facilities to reduce duplication and create leverage, especially valuable in the complex regulatory environment of defense contracting. It also simplifies government engagement by providing a single counterparty instead of many small vendors. Scale further improves access to capital and purchasing power, allowing the parent to raise debt and equity more efficiently, secure better vendor terms, and achieve manufacturing economies of scale. Finally, consolidated finances provide flexibility, enabling profits in one business to offset losses in another and allowing the parent to redeploy capital from mature units into newer efforts without relying on external funding.

Holding companies can provide scale to more market-limited business. Many defense products are crucial for the warfighter, but have limited market sizes that make them unattractive for VC investment. Ultimately, VC investors are looking to invest in companies that can have multi-billion dollar exits (either via acquisitions or going public) within a 10-12 year time frame – a model that most defense companies do not fit.

In response, a new class of startup holding companies has emerged, assembling portfolios of smaller, mission-critical businesses whose combined scale can meet venture expectations. A leading example of this new wave of defense holding companies is Valinor. Valinor has raised over $85M and is developing a suite of defense products including a mobile modular medical system, modular charging nodes for unmanned systems, and an augmented-reality platform. While each subsidiary maintains an independent engineering team, Valinor centralizes functions like defense business development, go-to-market, compliance, security, and marketing, allowing its portfolio companies to share infrastructure and scale more efficiently.10

Conclusion

In order to successfully deliver the technology needed for the U.S. to remain competitive in the face of peer adversary competition, startups must be creative in how they structure their businesses to deliver value to customers. Like the legacy defense primes before them, national security startups cannot rely on traditional VC-backed business models like SaaS to succeed with national security customers. Instead, they must adapt to the realities of a regulated, single-buyer market, experimenting with models that better align with how the government and defense primes buy, fund, and deploy capability. The companies that win will not just build superior technology; they will design business structures that navigate procurement constraints, accelerate adoption, and ultimately translate innovation into fielded capability at scale.

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A modern defense and government technology company requires a modern corporate infrastructure. We are at an inflection point in the defense and broader government technology industry - finally, technologists are flocking to build for the mission. Engineers do not just want to build e-commerce solutions and social media apps. They want to build drones, s…

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2 years ago · 39 likes · Valinor Enterprises

In this episode of the Mission Matters podcast, we sit down with Chris Benson, the CTO of Istari Digital and an Air Force acquisition pioneer who was one of the architects behind the modernization of the Small Business Innovation Research (SBIR) program during his time at AFWERX.

We discuss:

• How SBIR evolved from a slow, lab-driven R&D program into a real commercialization pathway

• Why Open Topic and TACFI/STRATFI changed the game for venture-backed defense startups

• What the new Strategic Breakthrough Awards mean for scaling to production

• Why founders need to think about Phase III and production contracts from day one

• How proposal caps, foreign due diligence, and other new rules could reshape the program going forward

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

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Transcript

Maggie 00:19

On this episode of the Techquisition Edition of the Mission Matters podcast, we’re breaking down something that really sits at the center of the defense innovation ecosystem — that is the reauthorization of the Small Business Innovation Research and Small Business Technology Transfer Program, better known as the SBIR/STTR program. Although, for the purposes of this podcast, we’re just going to truncate it down to SBIR, which is how it’s commonly referred to. Additionally, while SBIR is a government-wide program administered by the Small Business Administration and executed at every government agency, we are primarily going to focus on the Department of Defense, which we will just refer to as DoD. And to help us do that, we are joined by someone who has a front row seat to the evolution of the program — Chris Benson, the CTO of Istari Digital. Before joining Istari, Chris served as an Air Force acquisition pioneer and was one of the architects behind the modernization of SBIR during his time at AFWERX, including initiatives like creating the concept of open topic and the extremely popular TACFI/STRATFI program that many startups and investors today see as the best on-ramp into defense.

David 01:51

All right, Maggie, but before we bring Chris on, I think we should level set for our founders listening, because SBIR is one of those programs everyone in defense Tech has heard of but very few people fully understand exactly.

Maggie 02:05

You know, depending on who you talk to, SBIR is either the single most important funding source for early stage defense technology, or it’s this useless bureaucratic maze like program buried somewhere deep inside the federal government. You know, I even heard somebody refer to it once as welfare for PhD students.

David 02:24

Well, that’s some pretty good ramen. But I guess historically, you could say that both of those things have been true. But at its core, SBIR is the federal government’s venture capital program for small businesses. Since its creation in 1982 it has invested more than 77 billion in research and development funding across over 33,000 startups or small businesses supporting everything from defense technologies to medical breakthroughs and importantly for founders, this isn’t just grant money floating around Washington. SBIR is one of the primary mechanisms that the government actually uses to discover, test and transition emerging technologies into real programs of record.

David 03:06

But as you’ll find out later in the podcast, the program has gone through some pretty dramatic changes over the past decade. For a long time, the SBIR program was mostly run out of government labs, places like Air Force Research Lab, Office of Naval Research, Army Research Lab, and until recently, not super conducive to venture backed startups, and candidly, has had a pretty poor track record in transitioning into meaningful war fighter capability. For years, most small businesses that received SBIR funding never meaningfully productized or deployed the technology that the SBIR program funded.

Maggie 03:43

But then things started to change,

David 03:45

So around the late 2000 10s, let’s say 2016 2017 a group of acquisition leaders inside the Air Force, who I am proud to call my friends, including our guests today, began experimenting with new ways to use SBIR to attract these venture backed companies and start to transition the technology. They started with a simple idea like open topic, and upon success, opened up the aperture of funding and established the TACFI/STRATFI program,

Maggie 04:13

if you’re a founder or investor in defense tech. Today, those programs probably sound pretty familiar.

David 04:20

So like those initiatives, essentially turned SBIR from a science project funding mechanism into something much closer to a commercialization pipeline, and now we’re seeing Congress codify a lot of that evolution.

Maggie 04:33

So that brings us to the big news of today, after more than a year of debate and uncertainty, including a multi month lapse in the program when authorization lapsed back in September, Congress has finally passed the Small Business Innovation and Economic Security Act, which reauthorizes SBIR and STTR for five years through 2031

David 04:54

and in addition to extending the program, the bill also introduces several structural changes. Founders. Should understand, and we’ll get into that a little bit later.

Maggie 05:04

All right, let’s bring on our guest for today.

David 05:08

Well, it gives me great pleasure and pride to bring Chris Benson on, who is one of the key figures in modernizing the SBIR program during his time at AFWERX, which is the innovation arm of the Department of the Air Force, and he’s helped shape reshape how the program engages startups

Maggie 05:24

today, he’s on the other side of the table as CTO of Istari Digital, a fast growing dual use defense technology company that’s also leveraged SBIR as part of its growth.

David 05:36

Chris, welcome to the Mission Matters Techquisition Edition podcast. We’re so fortunate to have you on here. It’s definitely great to have a friend and a colleague, and I guess, an Air Force veteran, maybe a quitter as well, join us here. Now that you’re on the private sector side, I guess to start off when you were working inside AFWERX, helping evolve the SBIR program. What problem were you trying to solve then? And what wasn’t working about SBIR at that time? Yeah.

Chris 06:09

Well, first off, thank you so much for having me, and I will second my excitement about the bill that was just passed by the Senate on Tuesday, and then we were just talking about what the House is about to do with that. So I think there’s a lot of really interesting things that are getting pushed forward. And I guess I’m very, very encouraged by Congress continuing to try to improve on the SBIR program. After, I guess, 40 plus years, there’s been a lot of improvements on it since we started working on it back in the 2016, ‘17, and ‘18 timeframe. So going back to your original question — what were we actually trying to do there? If you remember, during that timeframe, that was in the early days of, I would say, a wellspring or Cambrian explosion of many types of innovation organizations, right? So DIU, the original, which you were at, David, as well as a number of other folks. And then we had AFWERX, and then we had NavalX, and there were a few other organizations that were around there as well. And so at AFWERX, when we were working on this, we got brought in and were originally tasked with the idea of trying to encourage innovation within the Air Force. And so we tried to do a number of different things by focusing on individuals and empowering the airmen and the folks inside the organization. But then they also brought us some folks who were working on acquisition — who were acquisition officers — that would include myself and some others, to try to think about, well, what are some of the acquisition tools we have in our tool chest to be able to figure it out? And we — one of the first ones we looked at was the SBIR program. So at the time, that was several hundred million dollars a year of funding that was taken from a large number of different accounts and was spent through kind of a central process, through Air Force Research Lab. And the thing that we noticed with that, that was interesting, was the fact that the number of dollars that we had in that SBIR bucket every year was increasing, which is good, right? Okay, so this is more money for innovation, trying new things within the department. The thing that was concerning was that at the same time, with the dollars increasing, the number of unique companies that were being awarded was actually decreasing. And then so we dug a little bit deeper, and we realized that, oh, actually, not only was the number of companies being awarded decreasing, but the number of unique companies even applying for these ever-increasing number of dollars was decreasing. And so we saw this as a demand problem, or kind of a problem with the solution that we were offering to attract the best companies to work with us. The number one thing we were trying to solve is: if we are getting more dollars, how can we also get that to be given out to more unique types of companies and have more competition for those dollars? And so we went after a couple different things, and we saw really kind of two of the biggest challenges that we heard when we were talking with companies about why they were not coming and working with the SBIR program. The first one being that the process for how they were applying was rather opaque, and so they weren’t exactly sure what they were supposed to be doing with this. It wasn’t clear — there was a whole bunch of “you have to apply for a DUNS number, and you had to go get a SAM account” and all these different kinds of things. And so we tried to spend a lot of time making that process as transparent and as straightforward as possible. The other thing that I think is actually probably the most important one was it was just slow, right? So you would submit an application, you would wait. You would wait maybe three months, and then you would hear something back. Sometimes you would be selected; other times, we would wait six months, and then you might be hearing, “Hey, you’re selected” or “not selected.” And then you might wait another three months to start. And now it’s been nine months, and you’re starting a $150,000 phase one contract, and for a lot of these companies, the timeframe just didn’t work. The two big underlying problems we were trying to solve behind that were the clarity about how companies could engage with the government, and also the speed at which they could engage with the government through that process.

David 10:36

Yeah, that’s great. And I think time to execution is often overlooked and maybe taken somewhat for granted with some of the more recent language and then sort of just the vigor with which AFWERX started to actually work with these companies, which has probably then increased the volume of participants. But you know, to me, I think when the SBIR program really came onto the scene was with this unique concept that you all came up with. And I think you highlighted, you know, the fact that the industry base was shrinking, right? We had less performers, despite the fact that there are more entrepreneurs in the United States than ever before, and yet somehow less are choosing not to participate in the national security environment. Of course, that was a big part of the reason why Defense Innovation Unit was stood up. But you guys kind of took it a step further, and you created this idea called open topic. Seemed pretty radical when it launched, yeah, and I can imagine that there was some pushback. So maybe you can talk a little bit about how you came up with the idea of the open topic. What were some of the reservations behind it? And then how have you seen that maybe proliferate across other parts of government?

Chris 11:52

It’s interesting that you mentioned that the open topic was novel, right? So actually, both the original things we were trying to do — moving fast and trying to have clarified instructions — we leveraged a lot of lessons learned from you all out of DIU to do that for the kind of overarching SBIR reform. And the open topic we actually leveraged from the British. So there was this organization called DASA — which I wish I could remember the full acronym for — in the UK, and they did these open calls for innovation. And so the original open call solicitation for AFWERX was modeled almost exactly off of the open call from the British. Now, you’re right. There was some pushback from folks saying, “Hey, you know, we’ve tried this before.” In the past, there actually had been a topic within AFWERX called a blue sky topic, and it had actually received zero applications in the past because people didn’t know what to apply to it. And that was, I think, in the early-to-mid 2000s or something like that. And so people were saying, “You know what? Fine, go ahead and try it. Last time we did this, we got zero applications.” And so it was actually interesting to see how they let us do it. But the real reason why we did the open topic was really, once again, trying to solve a particular need for the warfighter at the time, right? So we were seeing a bunch of companies — they were starting to apply, it was faster. There were a bunch of companies saying, “Okay, I have this capability. It doesn’t fit in any of the buckets that you guys have, any of the topics that are currently out there.” And I was like, “Okay, well, you’ve got to get to talk to somebody who’s writing these topics — a warfighter, if you will.” And they’d go, “Yeah, no, I have a warfighter. He really wants it.” And they would find an actual operator, right? Who really wanted the solution. But then we realized there was actually a timeline problem, not just post submission of the application, but beforehand. So there was this process where, in order to get into a specific topic we had at the time, you would submit an idea for what an SBIR topic would be, and you could wait — I don’t know, I think between when you submitted the idea, it would go through several gates and checks, which made some sense. But between when I submitted it as a warfighter, or usually as an acquisition person, and when it actually hit the streets for companies to see it, that was between six and 12 months, right? So now add it up. I’ve got an idea as a warfighter, a need as a warfighter or an acquisition person. Now I’ve got to wait, let’s say, 12 months until it actually hits the street. It’s going to be open for one to three months. So now we’re at 15 months. And now between when somebody submits their proposal and they’re actually starting a contract, that’s another nine months. So now we’re at 24 months from when the warfighter has a need. And that is completely outside of the realm of what we were being asked to do by our leadership — which was to move fast. And so we said, “Well, look. If you’ve got somebody who really wants it, then how about you just have them write a letter saying, ‘Hey, I could actually really use this.’ And what if we made a topic that said, ‘All right, if you’ve got somebody who really wants to use something, you’ve got a really interesting idea — then let’s just have an open topic for things that really need to move fast and have a really serious defense need, have some good technical backing, and have a real pathway to commercialization.’”

Maggie 15:23

So Chris, another initiative I know that you worked on at AFWERX was the TACFI/STRATFI programs, and now we see in this new reauthorization bill the Strategic Breakthrough Awards, which award up to $30 million for phase twos. They look very similar to STRATFI in that they have the idea of matching government funding with private capital. So I’m curious, can you talk a little bit about what you were trying to accomplish with TACFI/STRATFI at AFWERX, and now that we see the Strategicbreakthrough award, do you see this as Congress basically institutionalizing that model that you initially pioneered?

Chris 16:01

But, yeah, I think the Strategic Breakthrough Awards are definitely, I think, the spiritual successor of what we started in the beginning with TACFI and STRATFI. And I’ll go back to why we did that originally. It was because we had warfighters, we had acquisition folks who had a demand, right? They came in and said, “All right, well, look, I can write you a letter, and we can get on a phase one or a phase two. But really, in order to make something that’s truly useful at scale — that can cross that valley of death — $2 million is actually not going to cut it.” I mean, some of these programs that go into production — $2 million is a rounding error on some of these very large things. And so we had some folks from the acquisition community who would come and say, “Hey, look, I’ve got a warfighter. I’ve got some money, but $2 million is not enough.” And so we said, “Well, unfortunately, we can’t write that big of contracts.” And then, fortunately, in that case, I was wrong. We went back and looked at it, and it turns out you actually could write larger SBIR contracts if you were able to work with the Small Business Administration to prove to them that, “Hey, this is actually a good use of the SBIR funds, and you’re not concentrating it for no reason.” And so part of our discussion with the folks and a lot of different stakeholders working with the SBIR program and the STTR program at the time was saying, “Hey, look, we are okay with you guys trialing out writing larger awards for things that you think can make strategic impacts for the warfighter or for a particular acquisition. But we don’t feel like it’s right, and we don’t think it’s necessarily the right answer to have the SBIR program take on all of that risk. If there really is going to be a transition, then what you don’t want to do is say, ‘Okay, fine, SBIR program, you build the entire bridge across the valley of death, and we’ll just meet you on the other side — on acquisition land over here.’” Rather, what we said is, “Well, look, how about this? The SBIR program could build a little bridge from one side, and the acquisition folks can build a little bridge from the other side — we can kind of meet in the middle. That way, there’s some skin in the game as you go across.” And that kind of narrative, I think, made a lot of sense to all the stakeholders at the time. And they said yes. And then one thing that actually kind of ended up fitting in the middle is: what if there’s just not enough money? It’s a really hard thing. But actually, private capital can come in, and it ended up working quite well. I mean, I don’t know the transition rate for a lot of the STRATFIs, but I know personally, I think of the first 20 or so, we’re easily in the mid double digits in terms of percentages that are actually transitioning over to programs of record, and that’s what you want, right? You want to be able to place these big bets, to have actual significant changes to how we’re approaching the valley of death and bringing new capabilities to the warfighter.

David 18:55

Yeah, that’s great. So I guess real quick on that — was the leveraging of third-party capital or VC funding not necessarily part of the original recipe when thinking about building larger STRATFI awards?

Chris 19:11

So it was both. When we were talking with folks from the SBIR and STTR offices, they were very focused on commercialization, right? It’s a core commercialization program. They were saying, “Hey, look, we want — if we’re going to put X number of SBIR dollars in there, we want to see you commercialize.” Now, commercialization can happen either through selling to somebody else in the Department of Defense, or selling to somebody like a large defense prime or even a commercial company. And so the — it’s not a perfect measure, but a useful heuristic — is basically non-SBIR dollars to SBIR dollars. And so we found the addition of private capital from, you know, places like venture capital firms or other types of investment firms to be a very useful indicator of the probability of transition to commercialization, whether it’s within the DoD or elsewhere. And it also has the added benefit of saying, “Hey, if I can put in $1 of SBIR, I can actually get two or three or $4 worth of capability.” And what we found actually — if you go back and look at the numbers — I remember we had this chart where it’s like, we would put some money in for all the STRATFI companies, and then very quickly after that, the amount of money they would get from all other sources combined would dwarf the amount of SBIR dollars. And so it was really trying to crowd in that funding — for the political scientists out there, it’s like the idea of: you put a little money in there and it acts as a catalyst to crowd in the other funds. That’s what we were looking to do. And we saw — I mean, I was blown away by the first response to the first open call, and it really was a huge, overwhelming response, both from the private investment community and from the warfighters.

David 21:00

Yeah, no, that’s awesome. Well, so Chris, you know you’re now on the other side as CTO of Istari Digital, building a dual-use defense tech company. Have you been a user of the SBIR program, and what’s it like being on the other side of the table leveraging some of these programs that you helped institutionalize?

Chris 21:20

I mean, I think we like to practice what we preach, right? And so we think that starting with some of those early phase one, phase two pitch day-type SBIR awards, and then as soon as you’re getting on those awards, immediately start thinking about that transition — both to where you’re going to get the non-SBIR dollars and getting over into the commercial sector as well. And I mean, I remember our very first — when our first SBIR phase two started, my first conversation with our program manager was like, “Hey, look, this is only meant to get you in the door. We want to be focusing right now on how to cross the valley of death.” And so we went through the exact same pathway. We kind of mapped out where we started with a couple of those doing this STRATFI, and we have now kind of transitioned out of leveraging heavily SBIR dollars, certainly the last couple of years, but it was very helpful in the first couple to get us off the ground. So the focus now — I always tell startups: “Hey, look, there’s kind of two different go-to-market motions when you’re working in the federal areas. The first is getting in and getting your initial foot in the door, and the second one is going and getting your production contracts.” So the initial ones are phase ones and phase twos; the ones further out are going to be production contracts, and hopefully you’re leveraging the SBIR phase three rights. I will say that I don’t think I’ve seen a lot of people talking about all the stuff the Senate passed — and the Strategic Breakthrough Awards are really, really cool. Love all these things. I think that’s certainly one of the things I’m most excited about.But a sneakily important aspect, I think, of the bill that was passed yesterday was the fact that there’s a requirement for agencies to have templates for the phase three contracts. One of the biggest challenges we still see today in 2026 is the fact that a lot of contracting officers are still not comfortable writing contracts or transactions using SBIR phase three authorities. And the more folks can get comfortable with that, I think the more you’ll see folks be able to transition those things across the valley of death. And so that’s a sneaky, kind of under-heralded part of the bill that came through, from my perspective as well.

Maggie 23:41

So Chris for founders listening, how should they think about SBIR today? What advice do you have for founders to best take advantage of this program?

Chris 23:51

Just know that as soon as you start that first go-to-market motion of getting your foot in the door, you need to start immediately building that muscle of moving to production. You need to start having those conversations right away — talking with the warfighter or program managers about this: “How are we transitioning this? Where’s the PEO line where the funding is coming from? Let’s start talking about SBIR phase three, or production follow-ons, or whatever else you may want to be going through.” And just know that’s a different set of skills than getting your foot in the door. But I will still say that, between what they’re doing with the SBIR program and what David was able to create at DIU, I don’t think there’s been a better time for startups in general to get their foot in the door. But once you get your foot in the door, you immediately need to change your mindset and start focusing on that transition to production.

David 24:43

Oh, absolutely. So I think, yes, production and scaling, that is how we all win. That is how the startups sort of showcase their value. It’s how the war fighters get access to compelling technology with economies of scale. And I mean the ultimately, I think, the taxpayer, you know. Gets better leverage on on what they’re paying in for government operations. So Chris, it’s always a treat to reconnect with you. You know, I should also shout out that Chris is part of the inspiration around sweat equity. So if you read my blog on that, you’ll have noticed his name being mentioned there as well. And you know, you are just kind of, you’re not going to beat me in the beep test this year. Fine. We can do the two-mile race then, I don’t know.

David 25:33

We’ll see — perfect, on reserve duty. Well, Chris, thanks again. Appreciate your time here. Appreciate everything that you’ve done for the SBIR program — taking it out of the doldrums of backwater lab work and into the forefront of innovative, cutting-edge technology. We salute you for that, and thanks for coming on this episode of the Techquisition Edition. Thanks, Chris. Awesome.

Maggie 26:01

now that we’ve heard a little bit about the history of the SBIR program from Chris and how the program came to be such an important part of the defense ecosystem today. Now let’s turn to discuss some of the major changes that were made to the program in the recent SBIR reauthorization bill. So first, one of the big changes made in this bill was that Congress created something called strategic Breakthrough Awards, which allow phase two SBIR projects to scale up to as much as $30 million over four years, provided the company can bring matching funds from another government agency or third party capital provider.

David 26:40

And as you learned, it seems that the origin definitely came from the TACFI/STRATFI model that AFWERX pioneered. So this is the government trying to pair funding from other sources and help accelerate transition, whether that’s with private capital or other government funding.

Maggie 27:00

So the idea there basically is, if I can go get another DoD agency to give me $10 million to fund some project, then I can get another 10 million from SBIR. Is that the right way to think about this?

David 27:14

I think so, yeah. It’s all about — and in certain cases, it’s also looking towards the future. So if you are addressing something that has future funding programmed, you can win a STRATFI now — that funding doesn’t come to you until you’ve exercised that milestone and the matching funding has also been released. But yes, it is all about big-time signaling and leveraging other pots of funding.

Maggie 27:42

Another major change that founders will notice is proposal limits. Agencies now have the authority to cap how many SBIR proposals a single company can submit in one year, which reads like an attempt to prevent what people sometimes call SBIR mills, right?

David 27:58

You are right, Maggie. I mean, it’ll be interesting to see how this one plays out. I certainly feel for the government SBIR evaluators, who are deluged with proposals, and you know, advances in AI mean larger volume proposals — a lot of it being AI slop — and that is a pretty big drain on your evaluators trying to separate the best solutions from the rest. My personal hope is that this will help curb the SBIR mill enthusiasm for submitting to every topic under the sun, even when they’re unqualified. But time will tell, and the agencies will exercise their own autonomy around this. I think it’s also worth noting — and Chris alluded to this in the interview — around improvements for phase three transitions, including some standardized procedures and better acquisition workforce training, so that contracting officers can understand how SBIR technologies can be fielded beyond R&D funding. And like anything, you know, education is absolutely key, and it is a great authority that the SBIR program provides to help companies transition from these R&D stages into something that looks more like production.

Maggie 29:11

And then there’s another area that’s recently gotten a lot of attention that is foreign due diligence.

David 29:20

Yeah, this is a big one. Congress has significantly expanded security screening requirements for companies participating in the SBIR program.

Maggie 29:29

So David, help founders understand what that actually means. You know, if I’m a startup applying for SBIR funding today, what kind of scrutiny should I expect?

David 29:39

Yeah, this is probably the biggest structural change for founders that they need to understand. Congress has essentially expanded the national security screening process for SBIR participants. Under the new rules, agencies now have to conduct due diligence on companies applying for SBIR funding to determine whether they pose a security risk. The government will evaluate things like financial, employment, or technological connections with foreign entities, and whether the company or its partners appear on a number of national security watch lists such as the Commerce Department’s Entity List and the Treasury Department’s Chinese military-industrial companies list. So for founders, the takeaway is pretty simple. SBIR is still very much open to venture-backed startups, including those with international investors, but transparency around ownership, capital sources, and foreign relationships is going to matter a lot more. And if there’s a questionable connection to entities in countries of concern, the agency now has the explicit prerogative to deny such awards.

Maggie 30:43

So we’ve covered what changes made it into this SBIR reauthorization bill, but I also want to discuss what didn’t make it in. There’s been a lot of debate over the last year about SBIR reform. I know David last year, you actually testified in front of the Senate Small Business Committee right as Senator Ernst unveiled the Innovate act to institute more substantial reform of the SBIR program. What were some of the key provisions in this bill that were not passed in the final bill, or what were you hoping might make it through that was ultimately left on the sidelines?

David 31:16

Yeah, good point. And you know, it probably doesn’t do any good to dwell in the past, but a couple elements that Senator Ernst included was this unique phase one, a program which was aimed at helping new entrants on ramp faster into the SBIR program. So it was almost like a carve out before a phase one, and it was only available to first time participants that did not make it into this final bill. Additionally innovate act, wanted to apply a lifetime cap for how much funding an individual company could win through the SBIR program that also did not make it in. And then, personally, I had hoped for some language promoting firm fixed price contract types over cost reimbursement, or at least giving a significant preference from Congress that isn’t in there either. Though I do feel good about a lot of different agencies across the DoD who seem keen on trying to promote firm fixed price, which is far more conducive to a venture backed startup, and you know, just more aligned with how the commercial world does buying in general.

Maggie 32:27

Well, regardless, I think we’re all happy that SBIR is officially reauthorized. The wait is over, and that just means there’s going to be more innovative small businesses getting funding to build the future of defense innovation, which I personally am excited about.

David 32:44

absolutely, and I can maybe stop fielding calls from founders and other investors about what’s going on with the latest with the SBIR at least for the next five years, we don’t have to think about that authority going away, though. I’m sure you know, in four years, we’ll start to re engage and and see how we can make this program even more conducive to just the way technology is developed and where the national security apparatus needs it. So I guess the battle is over for now, but modernization never sleeps.

Maggie 33:18

All right, David, as we wrap up, I want to ask you a closing question. What do you think the next Techquisition Edition episode will be about? If you had to guess?

David 33:28

Okay, great. I did think, I think we got this one correct.

Maggie 33:33

We did get this one correct. We correctly guessed SBIR reauthorization was next. So let’s see if we can keep the streak going.

David 33:39

Well, yeah, and the other one that I think I alluded to was around the President’s budget, so we’ll see if that one transpires, but that’s what I believe will be the next Techquisition Edition.

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Vector isn’t just building drones. They describe their business model as “Modern Warfare as a Service.” Instead of waiting years to push hardware through traditional procurement pathways, they deliver integrated capability — technology, tactics, training, and battlefield feedback loops — under service contracts that tap into O&M funding.

We discuss:

• Why the Pentagon’s $1B Drone Dominance initiative is the clearest USG demand signal for attritable systems yet

• How “Drone as a Service” business model unlocks O&M funding (the largest color of money)

• Lessons from Ukraine & Israel (and why it’s not copy-paste for the U.S.)

• Building a China-free supply chain and re-industrializing American drone manufacturing

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

You can listen to the podcast on Spotify, Apple, YouTube, the Shield Capital website, or right here on Substack.

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Transcript

Maggie 00:38

In this episode of the Mission Matters podcast, we sit down with Andy Yakulis, the CEO and co founder of Vector Defense, a startup building the future of American Drone Dominance.

David 01:22

For an acquisition nerd like me, I get super excited when I get to analyze and dig into a business like Vector. Vector has a pretty unusual business model compared to other startups we’ve had on the podcast. And describes Vector as delivering Modern Warfare as a service, providing war fighters with a full package of modern technology, Battlefield insights, tactics, techniques and procedure development, tactical integrated services and training, rather than solely tapping into research development, training and evaluation or RDT&E funding and procurement dollars, like most companies, Vector also receives operations and maintenance, otherwise known as O&M funding, for their products.

Maggie 02:09

Vector’s first product is Hammer, a long range FPV, that is first person view, drone capable of deep sensing and deep strike. As I’m sure many of our listeners are already aware FPV drones and other attritable software defined systems have proven to be an integral part of modern conflict. FPV drones now cause an estimated 60 to 80% of casualties on the battlefield in Ukraine. However, the US is woefully behind in FPV manufacturing and procurement as China dominates the FPV drone market.

David 02:41

However, late last year, Secretary of War, Pete Hegseth, announced the $1 billion Drone Dominance initiative for the Pentagon to procure hundreds of 1000s of these FPV drones over the next two years. This signals a clear turning point in the Department of War demand signal for FPV drones.

Maggie 03:03

Since it was founded, Vector has raised more than $60 million, and they have an incredible founding team to execute on this vision. Andy, the CEO, spent 18 years as an Army officer, specifically as a helicopter pilot, with time spent at Special Operations Command, Army futures command and the Office of Strategic capital. His co founder, George Matus, began developing novel drone technologies all the way back in high school, and founded Teal Drones, a company he scaled into one of America’s leading drone manufacturers, winning the US Army’s Short Range Reconnaissance program of record, which is one of the first major US military programs related to small drones. Additionally, the founding team includes Matt Long and Larson Jensen, who also spent time in the Special Operations community as Navy SEALs.

David 03:51

This conversation covers everything from the current state of U.S. attritable drone capabilities to the challenges surrounding drone manufacturing and supply chains and how the lessons learned in Ukraine translate to the United States forces.

Maggie 04:06

All right. Well. Andy, thank you so much for joining us today on the Mission Matters podcast. I know one of the big reasons that we decided to do this podcast really trying to spread the word about one of the administration’s new initiatives, which is Drone Dominance, great name. So could you just tell us a little bit about Drone Dominance and the significance of this initiative?

Andy 04:30

Well, Maggie, David, great to be doing this with you. We’re really excited to to go after the Drone Dominance program, or what we call a DDP, the Drone Dominance program is exciting for a variety of different reasons. One, it’s this major demand signal that we’ve been waiting for for many years from the Department of War. You know, I think the relationship with me and David goes back many years. We used to always lament about how we had these unclear demand signals. From the Department. This is the first time where we have a multi year program, multi-year funding, and large budget dollars of congressionally appropriated dollars. And so obviously there’s a lot of risk still in the market, but the Drone Dominance program has taken away a lot of that uncertainty that we usually see in defense.

David 05:18

Yeah, and Andy. I mean, definitely thinking a lot about drones demand signal. What do you think it is like this time and moment today that is allowing the department to announce something like Drone Dominance? And then maybe, where do you think it goes from there?

Andy 05:39

Yeah, it’s a great question. You can’t talk about drones without talking about Ukraine. Obviously, Russia invading Ukraine in February of 2022 set off this revolution in military affairs, where we see drones or unmanned systems used in ways we’ve never seen before, where you can take a drone that used to be used for racing, strap a bomb to it and have this outsized, asymmetric impact on the battlefield. And we as a nation, we as a company, both have been paying very close attention to how unmanned systems, or drones, are used on the battlefield in Ukraine and Israel and all over the world, and the Drone Dominance program is a clear indicator that the Department of War has also been paying attention, and it is now time for America to show its dominance in all areas of technology. For this program, in the drone industry and as the dominant superpower in the world, we need to also have a very resilient supply chain, a very resilient, powerful, competitive drone industrial base, and that’s what this program is incentivizing, is more competition, so more vendors like Vector are competing on that battlefield to build the very best system for our warriors.

Maggie 06:58

I mean, there’s no doubt in my mind, right, the FPV drones have been just a tremendously powerful force in Ukraine. But I know a lot of critics point out the US military and our threat landscape is very different from the Ukrainian military. We have significantly more resources. So how do you see these systems translating to be powerful for US forces in conjunction with our other exquisite systems.

Andy 07:25

Well, there’s a lot to be learned from the war in Ukraine. Maggie, there is a lot to be learned for how the Israelis use unmanned systems on the northern border against Hezbollah and then throughout Gaza and more like an urban setting. What I always tell folks is, there’s not a copy-paste from Ukraine or Israel to the United States military. The United States military has a very specific doctrine, and they are going to use unmanned systems in the way that makes the most sense for them. That doesn’t mean that because the Ukrainians or the Russians use drones in a certain way that there’s not lessons to be learned from them. I think that’s where the innovation of our company and other companies like Vector comes to play is how do we take those lessons learned from the overlap of tactics with technology and apply that to the American military? A lot of what Vector does is not just the production and the manufacturing of an unmanned system, but how that unmanned system is tactically employed. And I think having both sides of the company come together, you know, I think a lot of that is coming ahead in this Drone Dominance program, and having both sides of our company come together is a defining characteristic of this company, but it’s also a defining characteristic of where we see the drone ecosystem going in the United States, where the United States military is playing a little bit of catch-up right now, to be honest, that’s what this program is designed to do, is to rally the drone industrial base. But also, the drone is sort of worthless if we don’t know how to tactically employ it, and so we need to do a lot more work. We, as a military and as an industry, need to make sure that we are leveling up our game on how to tactically employ unmanned systems.

David 09:05

So Andy, I definitely want to build on that. One of the things that you talked about early on with the company, and that really just couldn’t take my mind off of, is the approach you’re taking to the military, right? I think you call it drone as a service, or modern warfare as a service, getting in with the tactics, techniques and procedures, with the special operators and and the standing army as well. What has like tell the audience a little bit about your approach, because I think it is relatively unique to most venture backed startups engaging with the national security system.

Andy 09:47

Yeah, absolutely. David, so when we first met, I was still in the Army. I was at Army Futures Command. You were, and still are, a venture capitalist, but we were always trying to work on this concept of how do we streamline technology through the acquisition system faster? How do we make transitions easier? How do we make sure that we are this dominant technological superpower with our defense technology? And I’ve been working on this problem set for five, six years of how do you push technology through the procurement system faster, so it’s still relevant when soldiers get their hands on it. You know, when I was in the Army, we used to have this saying that we’d get a laugh at conferences. I just don’t think it’s funny anymore, where we give our soldiers yesterday’s technology tomorrow. And that comment has actually turned into a national strategic vulnerability. The technology exists — this is not a technology problem. We’ve got great, innovative companies and amazing entrepreneurs and engineers that can produce great technology. What I kept looking at was, well, this is a contracting problem. This is a procurement problem at times. This is an administrative bureaucracy problem. And I think when you’re fighting sort of a long, sort of bureaucratic process, when you’re fighting the status quo, sometimes it’s a good thing to take a step back and like, why even try to go this way? Is there another way to attack this problem? And that’s when the idea of Vector was sort of born, which is like: what if we didn’t try to sell a drone through the procurement system that could take five, seven, or ten years. What if we attack this problem totally different, and flip the whole concept on its head? And what if we sell a service? What if we sell integration and training? What if we sell the innovation ecosystem that we were developing with those that we are working with? And then, what if we could sell unmanned systems underneath a service contract. And the more that we studied the problem, the more that we studied the Federal Acquisition Regulation, the more we realized this was actually a pretty innovative go to market to achieve a couple of things at once. And if you think about the concept of attritable systems, an attritable system is a consumable piece of technology. When you consume that technology, you have this opportunity to update what was just consumed with a better product. And that sort of fits in this sort of approach of, well, if you’re on subscription contract, or if you’re providing drones as a service, as the drone attrits, why not provide a new, innovative drone than the one that you sold before? And so that’s been our approach ever since we started the company, over 18 months ago, which was actually to attack this as a service contractor, still building products, still selling products, but all underneath service contracts. And I’m proud to say, every drone, every component, every kit that we’ve sold to date has been underneath the service contract.

David 12:38

So you must have just a giant other direct cost contract line item, CLIN, within that contract, is that correct?

Andy 12:46

That’s correct. Yes, that’s That’s correct.

David 12:51

Awesome, because I think I mean, for a venture backed company, you do still have to be mindful of margins. And if you’re doing services, I presume, some somewhat of a time and material type contract, you’re not going to get the types of margins that you’re looking for, but I guess that’s where then the quantity of the types of systems that you’re looking to sell, the constant refresh rate. You could look at your TTP development as a bit of a moat over time.

Andy 13:22

That’s absolutely true, and you’re right on the margins with service contracts. But again, there’s no limit to the amount of systems you can sell underneath a service contract, and so you can sell large quantities of system as long as they’re below a certain price point. This doesn’t work for a tank or a jet fighter, but for attritable systems, the strategy makes a lot of sense, moreover, and I think this is what gets a lot of folks excited about the the business strategy here is, if you get into the different appropriations for what we call different colors of money, you have operations and management dollars, and that’s what we’re talking about right now, service contracts, leverage the O&M budget, which just happens to be bigger than the procurement budget and the R&D budget. But because we’re still building systems, there’s nothing that says I can’t go after procurement contracts as well. There’s nothing that says I can’t go after R&D contracts as well. And most defense technology startups are just in those latter two bins and leave the O&M budget completely alone, but that’s a huge untapped market that most companies aren’t going after, and there’s competition there that for us to go after. But Vector is attacking those three main buckets, those three main colors of money all at the same time, and a lot of times the work that we do on the service side can benefit the work we’re doing, going after different procurement contracts.

Maggie 14:46

Something else that I think makes a lot of sense with this as a service model. You know, when I think about SaaS software as a service, you know, the whole point behind that is that software is constantly changing, so you don’t actually want to buy one static piece of software and then use it forever. You want to pay kind of a recurring fee that allows you to always have the newest, latest, best technology. And I see that applying really well to the drone space. And I think we see on the battlefield in Ukraine, in Israel, people say these drones are changing basically every day. You might actually have to throw out all of your drones every three months, the DOTMLPF is changing all the time, and I’ll just define that for listeners. That’s doctrine, organization, training, materiel, leadership, education, personnel, facilities, and policy. So how are you all keeping up with what is actually happening on the battlefield in the technology space, and how do you bring that back into the tech that you’re building today, into the TTPs and DOTMLPF that you’re discussing with your customers?

Andy 15:51

Yeah, well, let me say first, Maggie, it’s very hard. I mean, it’s very hard to keep up with how fast the Ukrainians are moving, the Israelis are moving. So necessity being the mother of invention, the Ukrainians have gotten so good out of innovating because their survival depends on it. They are constantly trying to find a new way to incorporate advanced technology and the unmanned systems they’re using to keep the Russians at bay, and they’ve done a fantastic job. And the fact that the lines have barely moved over the last four years is is evidence of that. And so we have gone to where the Ukrainians are. We have a team in Ukraine, we have a team in Israel, and we maintain a very consistent leader presence back to those two locations, you know, not to do anything operational, obviously, but to study the tactics, techniques, and procedures, to study the cross section of technology and the tactical implementation of that technology used on the battlefield, we now do a monthly report, which we call the Vector report, which is our learnings from the modern battlefield over that last month, of how unmanned systems or other modern warfare technology was used on the battlefield in different parts of the world, and so it’s been very, very challenging to incorporate all those lessons, to put that into a training course, or put that into the next generation of product development. We use training courses with the United States military to mimic that innovation cycle. And like I was saying before, it’s not a copy paste of what the Ukrainians are doing and what the Israelis are doing with unmanned systems, because the American way of war is different. But we take a lot of inspiration from those battlefields, applying it to your point, David and Maggie, to the DOTMLPF, and the cross section of how the American military will leverage unmanned systems from their doctrine all the way down to the facilities and the policy.

Maggie 17:49

What have been some of the biggest technical challenges that you all have had to work through as you’re trying to build these systems to operate on a realistic battlefield?

Andy 17:59

Yeah, it’s a great question. Maggie, unfortunately now, and I say unfortunately because we need to do better as an industry, but unfortunately now we’re still very much in a one-to-one, one pilot operator to one drone. The next phase of warfare, the next phase of the technological development for unmanned systems, needs to go from one to many. And so it’s kind of interesting, if you if you think back to the global war on terror, where we had multiple individuals piloting, operating, launching drones, predators, reapers and things like that. We are very much in a many to one. Now, for the most part, we’re in a one to one, one operator to one drone. We need to go to the one-to-many concept, and this is a technological challenge to be able to put enough processing power, enough autonomy on a drone, which can be done but a low enough price point. So the unit economics makes sense to realize this vision of what we call a triple mass, again, “triple” being the idea of consumable or throwaway technology, mass being we want to have large quantities of unmanned systems. The economics only work out if you can have just enough autonomy at the right price point on a low-cost system, so you can produce in mass, and the United States military can buy in mass, leveraging the right amount of autonomy and finding that balance, to not put too much R and D into a drone, but still have enough automation and keep the unit economics low enough so the Department of War can buy not tens of thousands, but hundreds of thousands or millions of drones. That’s really the technological challenge, right there.

Maggie 19:35

As we think about this constantly changing technology, as autonomy technology is getting better, electronic warfare, resilient communications is constantly changing and improving. How do you think about the government’s plan to stockpile hundreds of 1000s of these drones? How do we keep them updated and make sure that you know when the war fighter needs these systems, they have the most cutting edge version of them.

Andy 20:01

Yeah, so I think there’s actually two questions in that. One: how do we keep the stockpile current? How do we even have a stockpile? And then, how do we keep it current? To the first part of your question: we learned this lesson the hard way during covid, that our supply chain was not as resilient as we thought, and that’s everything from medicines to toilet paper, to the components that go into drones. And what we have done at Vector, you know, really, over the last 18 months, is to shore up our supply chain, to make sure every component is decoupled from China and, where we can, to lean on the domestic, the US supply chain, which is very, very hard to do when we, as an industry, are trying to create this decoupled, China-free drone supply chain almost overnight. That’s what the Drone Dominance program actually requires, and is designed to do, is to stimulate and energize the drone industrial base, making sure it’s clear and decoupled from China. You know, a lot of money needs to be poured into this ecosystem to make sure the price points can come down so we can realize this concept of economies of scale. Because China is just this manufacturing powerhouse, and they’ve got incredibly cheap labor over there, which is basically very, very challenging to compete on price. And so, you know, I applaud the Department of War for launching the Drone Dominance program, because this program is doing a fantastic job to energize the drone industrial base, to make sure we have the components decoupled from China at a low enough price point so that we can produce drones at scale. So I think that is happening. We need to see even more come from the Department of War and other agencies. But we’re really excited about where this is going on how to keep things current and up to date. I think this goes into our strategy, which is to have a very much more open architecture, a much more modular design. That goes into everything from how we design the drone, how we engineer the drone, how we manufacture the drone — all in a very open-architecture way. We like to say at times, we’re like the Android of drones, where a lot of other companies, for better or worse, are more like the iPhone of drones, very close, very proprietary. Our philosophy is, in order to capitalize on these constant innovations, just as you said, Maggie — the constant evolutions from one piece of software or hardware to the next. The only way to do that is to have a very open, modular architecture, and that’s how we design from the start.

David 22:32

Andy, I think that was really great. I would love to maybe dig in a little bit more on the supply chain and manufacturing and how you all think about that buy versus build conundrum that I think a lot of hardware companies go through right SpaceX, famously completely vertically integrated, and then others, you know, there is a robust supply chain, and you’re picking out different partners for the drone industry specifically, given that a lot of components come from China, I think some of the main ones include the motors and the batteries, and there being kind of a lack of an industry base for those types of sub components, I guess. How do you differentiate your product if you were to go to the same suppliers, that’s, you know, fairly in its infancy. But then too, like, you know, how do you make that decision about this is the thing we’re going to do in house, and this is the thing that we’re going to outsource to a domestic partner.

Andy 23:39

Yeah, another great question, and I think this actually takes us back to, like the evolution of Vector. When we first started Vector, we wanted to be a systems integrator, a tactical systems integrator of unmanned systems. We did not want to build anything, and we started working with a variety of partners and incorporating integrating their drones into different DOTMLPF, going through the DOTMLPF, incorporated them into different war fighting exercises for our customers, we would do mods, we would repackage into different strike kits. But our customers kept asking us to build very bespoke drones for them. They wanted different features that just didn’t exist on the market, so we started manufacturing our own drones in low quantities in probably the middle of 2025 but as we looked into the supply chain to your question, David, we realized that the components that were going into the drones either weren’t getting us the results we needed when we were buying off the shelf, or they weren’t meeting the compliance requirements for the Department of War, especially as they have refined the interpretation of the National Defense Authorization Act, the NDAA compliance scrutiny has definitely grown over the last 18 months, and to that end, we have gotten much more vertically integrated over the last six months, out of necessity, because we had to, because. We could not leave any room for error on compliance. And you know, going back to last year, we thought we understood what was required for NDA compliance, and it wasn’t really until the last six months where we really, really dug in, where we hired some really, really top talent on supply chain. We really did a forensic analysis of our tier two, three and four suppliers, and made sure we understood, we understood exactly down to the resistor, transistor level, where everything was coming from. And so I kind of tell that arc of Vector of getting more and more vertically integrated to say, you know, there’s, there’s certain parts of the drone that we build ourselves, there’s certain parts of the drone that we just have great partners, and we’re really excited to actually announce two of our major partners. Both are domestic suppliers. One is a company, a battery company, actually, that was making batteries for a different purpose, and we brought them into the drone industry. We have actually done this with a variety of our different vendors, where we found vendors that were in adjacent industries, and we brought them into the drone industry, one, because they were decoupled from China, but two, to give us an advantage on supply chain, knowing that there wasn’t a lot of competition for that specific vendor. So we spent a lot of time analyzing the supply chain, a lot of time working with vendors, and a lot of time investing in there. And I think to more directly answer your question, David, is those items that require an increase, increase capital investment, ie, spinning motors that would take a little bit of a capital investment, a lot of time to stand that up. That’s a great that’s a great thing to buy and then assembly into your drone. A lot of the things we do on PCBAs. You know, we’re not printing our own boards here at Vector, but we do a lot of work to design our own boards as well, and that’s also a great thing to contract manufacture out. And so looking at especially the stage we’re at which we’re a post series A company, what makes sense from a capital investment side, what makes sense from an IP side. That’s really how we make our decisions thus far. But we also are taking a hard look at where do we need to have the most control over the components, either for the capability, for the consistency, for the quality and or for the compliance. That’s really what, what drives a lot of our decision making,

David 27:19

And I would imagine also like, what allows you to then scale?

Andy 27:25

Yeah, absolutely. And that’s also a strategic decision based off where the company is, either from a capital raising perspective or a revenue perspective. You know, you can do a lot when you’re on a large contract to further scale. And again, this is what the Drone Dominance program is doing for the industry. It is giving companies like Vector and some of our suppliers a chance to scale, because now they can see the demand coming, really, for the first time in a very long time. So again, we applaud the Defense Department or the Department of War for clearly showing that demand signal.

David 28:02

When you know, talking about this compliance stuff, I think something we hear a lot of from startups, or at least the idea of is who I’ll partner with a defense prime, right? People that have been here done that before you know, if there’s one thing that they’re good at, it is checking all of the boxes around compliance for working with the department. Can the same, is the same true for this particular program, or is there a little bit of a everyone’s at the same starting point, and it’s all about how you execute. So I guess short of the long on this question is, is is Vector partnering with any defense primes, and is that a part of your overall partnership roadmap?

Andy 28:46

It absolutely is. I don’t think you can be in the defense space and not look to the primes for partnership opportunities. And there’s a lot of folks out there that will throw shade on the primes. I’m not one of them. I think the primes are fantastic. They’ve done so much for this nation, and they’ve done so much for a lot of you know, innovative startups like Vector, as they become much more accepting of partnering with companies like like like Vector, because we provide a lot of value to them as well, a lot of the innovation and speed side. So yes, we have partnered with a number of primes. The primes are fantastic for a lot of the compliance, helping us navigate the regulatory environment for, you know, contracting pathways, and so we use them for things like that. And so an invaluable resource. And if there’s any startups out there, or budding entrepreneurs, I would always encourage them to reach out to the primes sometimes that’s a that’s the best way to get started is to is to be a sub for a number of years before you’re even a prime yourself.

Maggie 29:51

Andy, one question that I have is surrounding testing. One of the things that I’ve heard from a couple. Companies building in the national security hardware space is that it can be really hard to actually get access to test ranges where you can realistically test your systems the way that they need to be tested to be resilient in a place like Ukraine, a lot of times, electronic warfare in particular can be difficult to test because of the way that FCC and FAA regulate airspace and regulate the spectrum space. So could you talk a little bit about how you all have approached actually testing your systems to ensure that they’ll be resilient on the modern battlefield?

Andy 30:34

Yeah, it’s a great question. Maggie, I think we’ve been very fortunate in the testing domain. Early in Vector’s history, we jumped into testing as a service of electronic warfare as a service where we had access to very unique ranges here in the United States that did have their FAA and FCC certifications. And so we were able to kind of jumpstart a lot of testing there. One of the things I always asked when I was in the government to companies like a Vector, was, Are your products in Ukraine? Have you tested in Ukraine? And I feel like that’s almost table stakes at this point. Now, here in 2026 where, if you were going to approach the Department of War with a product they’re going to want to know, did you test this in some way in the Ukrainian ecosystem, there’s a lot of great Ukrainian test ranges off the front lines, and they’ve done a fantastic job of setting those up and providing pathways to being able to test your systems there in some very, very realistic scenarios. And so we’ve gone down that path. We’ve used a lot of domestic test ranges, and then, of course, we run a lot of simulation as well. I think the best way to test though, is with your end user. And this is where Vectors business model really comes into play, where a lot of times we get paid to test our products on a service contract with our end user. And that’s sort of part of the contract, and that’s part of what our end users expect is, is they want us to bring them the latest and greatest piece of technology that we think may, you know, give them some sort of exponential value, and they understand that it’s being done in a test environment, and they love that, they love being introduced to something new. And, you know, I think being very honest, and having that relationship with your end user, telling them, like, Hey, this is a prototype. This isn’t ready, but we really want your feedback. Tell us what you think, see if you can break it, see if it flies in this environment. Please give us that feedback. And so we do a lot of that as well.

Maggie 32:38

Something that I think is interesting about Vector. You guys are based in Utah rather than some of the other big defense startup hubs like LA or Seattle or Austin or even San Francisco. Can you just tell us about your decision to build the company there?

Andy 32:53

Yeah, sure. We actually started in North Austin. We still have a satellite facility in North Austin. We probably always will, for a variety of reasons, but we made the decision to move to Utah for a variety of reasons. Nothing against El Segundo or the Bay Area. I actually had a previous startup in the health tech space based out of Silicon Valley. Great experience, but there is this very different startup culture in the bay area or El Segundo than there is here in Utah. In Utah, it’s very collaborative, it’s very founder friendly. The Economics of running the business in Utah is very, very different than in California, and it’s much easier. The taxes are way better. What you pay employees in Utah is very, very different than in El Segundo. You know, it’s hard to make the unit economics work on the drone, on the labor, on the rent and all that overhead that goes into your facility if you’re in California, especially if you’re building attritable systems. And knowing that Vector would probably build hardware at some point, we wanted to be outside of California, just to make the financial aspect that much more scalable for us. The state Government has just been fantastic to us. They’ve been very welcoming Utah for testing. Back to your testing question, Maggie, is pretty fantastic. There’s a lot of BLM land here that we use for long range testing, and there’s a variety of different military bases here that we use as well, where we partner with the military to do a lot of live kinetic testing on our drones as well. And just having easy access to all those ranges has just made this a world class place to build and to test. You know, the summers get to sometimes 105 110 degrees, and the winters get to below zero. So we get to do a lot of environmental testing, high altitude testing around here as well to ensure that the products were put into the to the hands of the war fighter, have been tested in a variety of different conditions, so all of that kind of put together just just made a lot of sense for us, and we’re happy to call Utah Home, and it’s just been fantastic for the team.

David 34:55

Utah is a great place. Do you enjoy skiing there? I’m excited for the innovation. An ecosystem that’s burgeoning. I won’t tell the El Segundo people, you know, how you feel about them when I’m visiting out there later this week, but maybe moving to the international side. You know, you talked about Ukraine, sort of receiving a lot of lessons learned there and doing some testing as well. How do you think about the rest of the international landscape? Right? America still has very strong like foreign military sales, a strong technology culture selling, whether that’s to the Asian Pacific market, out to the Middle East, to other European partners, is it still too early, and right now, we’re just focused on getting this right here at home in the United States, or is Vector also thinking about international expansion.

Andy 35:49

We’re very much focused on the international market as well. Again, we’re excited for some interesting announcements we’ll make here in probably the next 60 to 90 days of some international markets that were opening up for the Vector team. What has been very interesting with the international market, though, that really closely ties into this administration is previously there would be a lot of U.S. aid to our partners and allies. And what this administration has done is sort of flip that script, incentivizing our partners and allies to do more direct contracts with innovative companies like Vector. The other thing that has been an interesting change in the international market is a lot of our foreign partners don’t want to buy all-up systems. They want to do in-country manufacturing, they have seen the same vulnerabilities to supply chain that we learned during covid. And what they’re more interested in is not an all-up system that Vector may build, but more so the components, the raw components, that Vector is designing, and then helping them stand up a world-class unmanned systems factory and drone Center of Excellence. And so everything from support in standing up in-country manufacturing, to teaching and training, their own version of DOTMLPF, their own version of tactics, techniques, and procedures for their military, that is what’s most interesting to our international partners, and that’s how we sort of attack the international market — focusing on those countries that are ready to move dollars toward those types of programs.

Maggie 37:27

Andy, you’ve had a long career, both in the military and national security space and now in the founder startup space. What advice do you have for founders who may not have your years of experience as they’re looking to build startups to support national security customers.

Andy 37:46

That’s a great question. Maggie, so I spent 18 years in the Army. The last five or six years were focused on this market — focused on how you build for defense — not knowing I was going to become an entrepreneur in the space, but I was just fascinated by the defense acquisition process, and so I thought I had a good handle on how to go to market. It’s way more challenging than I ever thought. You know, I look at all the advice I gave entrepreneurs when I was in the military, and I sort of shake my head at myself, because I really had no clue on how hard it really was for the entrepreneur. And so I say that to say, don’t start a company, period. Don’t start a company in the defense space unless you absolutely can’t not do it. And I use the double negative on purpose, like you have to lie awake in bed every night thinking about your idea, thinking about your startup, thinking about the market, thinking about how you want to do all of this, and if you can’t sleep because you’re so captivated by diving in and joining this coalition of entrepreneurs that are trying to build it for defense, then great. But if you have doubts, then it probably isn’t for you, because it’s hard. It’s a slog. Every day I relish in it. I enjoy it very much. I don’t think there’s anything else really worth doing, at least in my professional career, than building for defense. But you have to be ready for the challenge. You have to be ready for the highs and lows. And if you are, then it’s a very, very rewarding sort of industry to be in, but it’s not for the faint of heart.

David 39:19

Yeah, I think that’s well said, it’s definitely a labor of love, not so different than serving in certain ways, right? It’s a grind, and you’ve got to love it for all the right reasons. Beyond the things you’re listening to and reading about in the defense tech space, give the listeners a bold prediction, you know, an Andy special, if you will, on something you see playing out in the next year or five years, but obviously the more relevant to today, even better.

Andy 39:58

Yeah, so, um. I’m not an everyday reader, but I think a book that has changed my perspective and has influenced me a lot is Freedom’s Forge. And I think Freedom’s Forge 2.0 is coming. I think the involvement of the United States government, for better or worse, is going to change the defense ecosystem, especially in the unmanned space, in a way that we could never imagine. I’m seeing a lot of very interesting things come from the United States government, from direct investments into companies, MP Materials, Intel, L3, and a couple others. I think that’s a big signal of how involved the Defense Department wants to be to ensure that we have a Freedom’s Forge 2.0 to ensure that this re-industrialization actually happens, to ensure that we do have the industrial base, to ensure we’re ready for hopefully the next fight that never happens, to ensure that we’re ready for it. So I think what we have seen come out of this administration and the Department of Defense, or the Department of War, is just a signal of much more to come. And I think Freedom’s Forge 2.0 is coming in a big way, and we’re really excited to be a part of it.

David 41:15

Well, that’s awesome. Andy, I’m sure, and I hope that they write a chapter about Vector in Freedom’s Forge 2.0 but just for our listeners out there, that same author, Arthur Herman, he’s coming out with a new book called Founder’s Fire: From 1776 to the Age of Trump, set to release on the 21st of April this year. So I don’t think they’ll write about Vector in that one, but I’m sure, you know, Arthur will be looking you up pretty soon. So with that, Andy, thank you so much for taking the time to come on to Mission Matters. It’s awesome to hear about your story, to see veterans like yourself getting out there, you know, putting their time, their sweat, their energy, right, all their lessons learned, into building a company of consequence. We wish you the best of luck. I can’t wait to hear about how well you do in the Drone Dominance program, right, and that maybe in the very near future, airmen, soldiers, Marines, and sailors, etc, will all be flying your drone. So just awesome. Thank you so much.

So, to hold myself more accountable to experimenting more with AI tooling, I decided to document how I’m actually using AI today and how I’d like to use it more in the future. I want to “build / learn in public” and gather feedback on how to better use AI to improve my life (so if you have ideas on more I should be using AI for, please reach out and let me know).

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Today, I’m using AI in a few main functions:

1. Market research

2. Company diligence

3. Podcast editing and promotion

4. Writing support

5. Financial support

6. Other backoffice

7. Fun :)

The main AI tools I use today (more or less in order of how much I use them):

1. OpenAI’s ChatGPT

2. Anthropic Claude (normal Chat and Code)

3. Dia browser (although, honestly I’m considering switching back to Chrome + Claude Chrome extension)

4. Obviant

5. OpusClip (to generate podcast “shorts”)

6. Riverside FM (for podcast editing)

7. Otter AI (for podcast transcription)

8. Gemini (built into the Google Suite)

9. Perplexity

10. Tegus AI features

11. Canva AI features (I only recently discovered this, so TBD how much I will continue using this)

Market Research

Whenever I’m looking to learn about a new market or technology area (whether for company diligence, a blog post, or a podcast), I always generate a “Deep Research” report from ChatGPT. These reports are essentially customized Wikipedia articles and tend to surface high quality “explainer” articles on certain technology / market areas. I particularly like Deep Research because I can tailor my research request to my own niche interests (ex: looking at how a tech area specifically relates to startups or national security, which your average Wikipedia page or explainer article may not dig into). Overall, similar to Wikipedia, I view Deep Research as a good starting point to learn about a space at a high level, but definitely not the end destination.

I use ChatGPT and Perplexity for smaller research questions (ex: specific questions about how much a certain company has raised, to list relevant companies in a technology area, to find a specific contract won by a company, etc). Recently, I’ve found myself using Perplexity less and less as ChatGPT’s search functionality has improved.

While researching a subject, I use AI to help parse long documents and identify key sections of interest. To do this, I typically use Dia’s AI-native browser sidebar chat, which allows me to work directly within the browser without downloading large documents or re-uploading them to a separate chatbot. For example, I heavily used AI to identify key parts of the NDAA, Appropriations Bill, and Joint Explanatory Statement that were relevant to startups and innovative technology developers in order to prepare for our podcasts on the subject.

I use Obviant’s built-in AI features to quickly get up to speed on Department of War (DoW) market opportunities (ex: search the J-books, search for major programs / contracts, etc).

Whenever I need to analyze large data sets, I use ChatGPT or Claude to generate Python scripts to do that data analysis for me (ex: I used ChatGPT generated Python code to analyze the data I discuss in my blog post analyzing Navy contracts).

Company Diligence

A major part of my job is conducting “diligence” on potential investments – that is, deciding if a company is a good investment or not. Most of my diligence process remains pretty manual and human-driven (ex: doing reference calls on founders, speaking with customers, speaking with competitors, spending time with founders to understand how they operate, thinking deeply about a market and technology approach), however, AI is a good thought partner and research assistant during the diligence process.

I use ChatGPT and Perplexity to identify competitors and relevant valuation and exit comparables (ex: identify all companies in a similar market area that have been acquired, gone public, or raised money). I also use both ChatGPT and Perplexity to help with market sizing and broader market and technology research (as described in the section above) as it relates to company diligence.

I use Tegus’s internal AI chatbot to search their transcript library to identify relevant interviews relating to market size, customer spend, and competitors. For example, Tegus transcripts can show how much customers budget for a product, what they spend on competitors, what they actually pay for a particular company’s offering, where customers see major gaps in the market, and what they like and don’t like about their current tooling. Honestly, while I love Tegus, its AI product is only okay – I hope they improve it in the near future.

I still write most of our diligence memos manually, as writing helps clarify my thinking on a certain company / market. However, I will use AI to generate founder bios based on their LinkedIn pages (again, I typically use Dia’s built in chat agent in the sidebar to do this). Sometimes I will use ChatGPT to describe a company’s product based on their pitch deck.

Occasionally we need to share diligence memos outside of the firm. I use ChatGPT to “polish” prose in diligence memos for clarity (typically our internal diligence memos are pretty messy, with lots of off-the-cuff notes and thoughts, often in the form of bullet points).

I use Obviant’s AI search features to look up companies’ DoW contracts, as well as those of their competitors, and to search the budget and J-books to understand the scale of the DoW market opportunity for a particular company.

Podcast

I record all my podcasts in Riverside FM which has a number of AI editing features including the ability to:

• Automatically generate podcast transcripts

• Suggest parts of the podcast to cut

• Identify and cut filler words and long pauses

• Suggest ideal “shorts” to post to help promote the full podcast episode

• Automatically tune audio to improve sound quality

• Includes a chat interface that can be used edit the podcast using natural language

In general, I don’t take huge advantage of Riverside’s AI features beyond its transcript (we have an amazing human podcast editor who does most of the editing for us), but I have used the features occasionally when I needed to get an episode out quickly and didn’t have time for someone to manually edit an episode (ex: I did this for our emergency pod on the War Department’s new AI strategy).

I use OpusClips to automatically generate podcast shorts (I think OpusClips does a better job than Riverside in clip generation). OpusClips identifies the 30 most clippable sections and automatically generates live captions for those shorts. It will also automatically generate titles and social media post suggestions (although I don’t use those very frequently). Normally, I use ChatGPT to generate Twitter / X, YouTube, and LinkedIn captions that accompany the shorts, which I publish as a “drip campaign” to help promote my podcast episodes.

I’ve recently started experimenting with using Canva’s built in AI features to automatically generate other marketing collateral for the podcast, such as LinkedIn “carousels.” I’ve been pretty impressed with this functionality – I was able to upload my podcast transcript to Claude which then automatically generated 5 slides for a carousel which it then sent to Canva (via Canva’s Claude MCP connection) to generate. While the generated carousel isn’t amazing compared to what human designers can do, it’s pretty good (and certainly better than anything I can come up with myself).

I also use AI to help structure interview questions. Typically, I manually brainstorm questions, then I ask ChatGPT to make the questions sound more conversational and to order them into a good conversational “flow” – ChatGPT typically organizes the questions into thematic buckets and suggests an ideal order to ask those questions. Similarly, when I moderate in person panels, I’ll use ChatGPT to research the panelists and generate thematically relevant questions for each panelist based on their backgrounds. I also use ChatGPT to generate conversational sounding introduction scripts for the podcast based on notes or a first draft I provide it.

Writing Support

I do the vast majority of my writing manually, as the writing process helps me clarify and structure my own thoughts. However, I will use ChatGPT to 1) help me re-write clunky sentences that I just can’t figure out on my own, 2) write simple definitions for jargon (ex: most of time if you see a footnote providing a definition for a word, it is ChatGPT generated with light editing from me), and 3) review drafts to identify typos, grammatical areas, or ways to strengthen the piece (ex: identify areas where I use passive voice, suggest areas that are repetitive and could be consolidated, etc).

I will use ChatGPT to help me come up with good, “clickable” titles for both blog posts and podcasts.

Financial Support

Despite technically working in the finance industry, I do not actually do a whole lot of financial modeling on a day to day basis, and I have no formal finance training. Occasionally, I come across complex financial scenarios I need to model. ChatGPT (particularly in thinking mode) is amazingly helpful when it comes to financial modeling. In general, I don’t have it fully create spreadsheets for me, rather, I ask for help thinking through the math needed to model particular scenarios (ex: I had to model how a certain kind of warrant would affect a company’s cap table, which I had never done before, and ChatGPT helped me figure out the formula needed to do so). ChatGPT also helps me figure out how to run certain commands in Excel (ex: how to sort lists in a certain way, do particular calculations, etc).

Other Backoffice

• I make liberal use of Gmail’s AI autocomplete functionality.

• I use ChatGPT to generate small images for event links like Luma and Partiful.

• I recently hooked up Claude with an MCP server that connects to Affinity (via Zapier), which lets me update Affinity through Claude’s interface. The connector is pretty unreliable at the moment, and I’m working on building an internal app that just uses Affinity’s API rather than messing around with MCP

• I just started using Google Slides’ “Beautify this Slide” feature which I’ve been pretty impressed by. I am not a good slide designer, but the “Beautify” feature uses Google’s Nano Banana model to generate an interesting slide design based on text bullet points I put on a slide. It still has that “AI-generated” look, but it’s better than my basic bullet points.

• I recently vibe coded an app that automatically uploads a pitch deck to Google Drive and also adds the company to our CRM Affinity. Previously this was a pretty clunky workflow where I had to upload the deck to Drive, copy the link to the file, add the company to Affinity (which itself has a pretty clunky interface), and then paste the link to the file into the company’s Affinity profile. I can use this both as a web app or as a Claude “skill.” Next I want to add the ability to automatically upload Notion notes to Affinity profiles (again, today I need to manually copy and paste the notes in, but I’m sure there’s a better way…)

Fun Stuff

• I use ChatGPT to generate recipes (one highlight: over Thanksgiving it generated an extra moist pumpkin coffee cake recipe which was incredible) and ask for other cooking advice

• I’ve been using ChatGPT for workout planning and advice. For instance, I’ve been trying to do more lifting this year (without injuring myself) and I’ve been using workout plans provided by ChatGPT. I also ask questions mid-workout about how to improve my workouts. I’m planning to do another half marathon in the spring, and I will definitely use it to train for that

• I am horrible at keeping house plants alive. I recently moved and bought a bunch of new house plants, and I’ve been using ChatGPT to help me take care of them

Things AI Still Isn’t Amazing At (in my experience)

I’m very excited about the future potential for browser and computer use agents (that is, agents that can actually click around and use a browser and computer the same way humans do). The browser use agents I’ve experimented with (mainly Claude) are still extremely slow and clunky and seem to struggle to do basic tasks. They still rely on “screenshots” to understand what is happening on a website, and they lack basic functionality like uploading a file to a website (file pickers are at the OS layer, not the browser layer, so Claude’s browser agent can’t access files). This is frustrating, as most of the work I do is in web applications.

I’m also struggling to get agents to work through more complex mutli-step workflows. For example, one workflow I would like to automate: upload a full podcast recording, have an AI choose the 5 best shorts, have an AI generate those 5 shorts (with live captions), have an AI draft captions for each short tailored to LinkedIn, X, and YouTube, then have an AI schedule those shorts across those social media platforms to post one a day for a week. This is something that is easy for a human social media marketing manager to do. However, when I asked Claude to do this workflow, it got stuck in the middle. Impressively, it was able to identify the 5 best shorts and generate those 5 shorts, however, it was not able to generate live captions for those shorts or schedule them on social media. I know many AI expert users recommend breaking up complex tasks into multiple smaller steps.

I’ve also found MCPs to be pretty unreliable and have started just using Claude Code to build small internal apps that leverage 3rd party APIs rather than MCPs.

Looking to the future

I know that I’m only scratching the surface of what can be done with AI to make me better at my core job: finding and supporting amazing founders building critical technology for national security customers. In particular, going forward, I want to spend more time using coding agents to develop some custom apps – beyond a few toy projects, I haven’t spent enough time experimenting with the art of the possible here, particularly in light of advances in coding agents like Claude’s Opus 4.6 and OpenAI’s Codex. I’d like to build some apps that let me do things like: automatically parse a pitch deck and upload all information to our CRM with all necessary fields filled out, automatically analyze large numbers of Tegus transcripts to pull out key findings on relevant companies and technology areas, and so on.

I still believe that the core work of early stage venture is fundamentally human driven, and unlikely to be taken over by AI any time soon (although only time will tell). Ultimately, early stage investing is all about the people you’re investing in – meeting them, building relationships with them, understanding what drives them, and then supporting them. But I do believe AI can give me more time to focus on what matters (actually spending time with people) and make me better equipped to understand the companies and technologies these founders are building.

Please let me know what I’m missing out on! If you’ve found interesting ways to use AI to improve workflows, please tell me, as I’m actively trying to learn and improve my current use of AI. And as always, please reach out if you or anyone you know is building at the intersection of technology and national security.

Other people who have written about how they’re using agents that I found interesting

• Get Good at Agents by Nathan Lambert

• Use Agents or Be Left Behind? A Personal Guide to Automating Your Own Work by Tim Dettmers

• Could Claude Code Work for ChinaTalk? by Jordan Schneider

• Claude Code is the Inflection Point by Semianalysis

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Note: The opinions and views expressed in this article are solely my own and do not reflect the views, policies, or position of my employer or any other organization or individual with which I am affiliated.

Starfish is building “space tugs” that can dock with and move other satellites — extending mission life, disposing of debris, and enabling other national security use cases. Their recent Remora mission autonomously maneuvered one satellite within 1,250 meters of another, validating a core thesis: software can radically lower the cost of operating in orbit.

We discuss:

• Why affordability and scale matter as much as exquisite capability in a contested domain

• The role RPO plays in U.S. military operations

• The current state of our adversaries’ orbital warfare capabilities

• How SBIR → STRATFI can be a springboard to building a scalable business

• Navigating classified work without slowing commercial velocity

• Where LEO, GEO, and cislunar actually fit in over the next five years

• The power of software to conduct complex RPO missions with relatively cheap, simple hardware

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

You can listen to the podcast on Spotify, YouTube, Apple, the Shield Capital website, or right here on Substack.

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Transcript

Maggie 00:39
In this episode of the Mission Matters podcast, we sit down with Austin Link, the CEO and co-founder of Starfish Space. Starfish is building the future of rendezvous proximity operations, or RPO for short, for satellite servicing, beginning with space tugs for satellite life extension missions. Essentially, Starfish satellites are able to attach to other satellites and pull them into a higher orbit in order to extend their lifetime in space. RPO are the maneuvers and technologies that enable one spacecraft to safely approach, navigate around, inspect, dock with, or service another object in space while maintaining precise control and collision avoidance. I know Austin often describes this as two bullets coming together to very lightly kiss without actually touching each other. The same technology for life extension can also be used to clean up orbital debris, otherwise known as space junk, to ensure crowded orbits can be free of clutter from other satellite operators, as well as a whole host of maintenance and US government mission sets.

David 02:03
Historically, RPO missions, like life extension missions, have been prohibitively expensive for most use cases. Of course, before Starfish, the RPO missions would require large, expensive spacecraft outfitted with several complex sensors to conduct the operations. With Starfish, they’re revolutionizing the industry with their Software Defined Platform, which can conduct RPO missions with just one or two sensors and cameras at a tenth or even a hundredth of the price of your traditional RPO satellites.

Maggie 02:34
Since they were founded in 2019, Starfish has launched two technology demonstrator satellites, the Otter Pup One and Otter Pup Two, successfully deployed their software on an Impulse Space satellite, raised more than $50 million, and closed contracts with government organizations like NASA and Space Force, as well as with commercial companies including SES. The founders, Austin Link and Trevor Bennett, are both aerospace engineers who met while working together at Blue Origin.

David 03:03
In this conversation with Austin, we’ll cover everything from the role RPO plays in US military operations, the current state of our adversaries’ orbital warfare capabilities, and, of course, how to navigate the United States government contracting process as a space hardware startup. Okay, Austin, it’s great to have you with us. Thanks so much for joining us on the Mission Matters podcast.

Austin 03:27
Good to be here. Thank you guys for bringing me on.

David 03:31
Yeah, I’m sure you’re a first-time, long-time with this podcast medium, but Maggie and I are just super excited to have you here, so we want to jump into it. In December, you know, as a little pre-Christmas gift—I don’t know, maybe to your investors, maybe to the space economy—you and Impulse came out with a pretty large announcement about your mission, Remora. Can you tell us a little bit about it? I mean, how did it come together, the partnership with Impulse Space? It’s really cool. And then what are the implications for Starfish as a company? And then, I don’t know, maybe wax poetically about the broader space economy.

Austin 04:11
So we did—we announced in December our Remora mission. And on our Remora mission, at Starfish, we put a camera and some software on an Impulse Space satellite, and they allowed us to take control of their satellite and fly it towards another Impulse satellite. And we’re not just flying it from the ground—we flew it autonomously onboard and used our cameras to take pictures of the other satellite. And we got—we got 1,250 meters away, which is close proximity operations when you’re in space. We got some awesome pictures of them, and we got a chance to validate a bunch of our technology and gather a bunch of data to anchor simulations going forward. And this was a big mission for us for a few reasons. Number one, this mission touches on the core thesis of our company, which is we can use software to make it easier to do rendezvous and proximity operations among satellites. And making it easier to do rendezvous and proximity operations is what ultimately allows us to build our Otter satellite that does the life extension and satellite disposal at a price point that commercially works. And it’s what allows us to show up to Impulse Space less than a year before we’re going to launch and drop some software on them, and drop a little bit of hardware from TRL 9 on them, and get to space and have it work and do a proximity operations mission. And so, A, it’s just awesome to announce doing anything in space. That’s always super fun. B, it really validated a couple of our core theses on, “Hey look, we can do proximity operations easier than it’s ever been done in the past.” And then the last thing I would say—it was an awesome chance for our team to showcase their capabilities, and for the Impulse team to showcase their capabilities. They were really a pleasure to work with, and they’re a super impressive team.

Maggie 06:30
Yeah, so it sounds like with this mission, you guys have really demonstrated that you actually can, you know, get two satellites relatively close to each other and take a look at each other, you know, maybe do some servicing. I want to turn to what this demonstrated technology can actually be used for. And maybe the first topic on that is the US government use case. You know, I think previously, it was relatively taboo for the US government to talk much about their space operations. However, I know that’s changed in the past two years, where concepts like orbital warfare, Golden Dome, space control are now actually being discussed publicly by top military leadership. So how does a capability like what you demonstrated with this most recent mission relate to some of these military mission sets?

Austin 07:22
Yeah, sometimes, in trying to describe our company, I say we build satellites that grab and move other satellites. And that always raises the question, “Who the heck wants that? What’s that useful for?” Sure, it’s cool, but how, as a business, do you provide value and through that get money so that you can continue to exist as a business? And for us, with our Otter, there’s really two core commercial missions that we focus on. One of those is the life extension of geostationary satellites. You run out of propellant, we can grab on, hold the satellite in that slot still. And the other one is satellite disposal in constellation. So this satellite has died, it’s occupying a slot, it’s threatening other assets—just get it out of there so that a replacement can be put in and you can continue to operate your critical space infrastructure. Both of those apply to the government the same way that they apply to commercial satellite operators. There are many organizations inside the US and allied governments that operate satellites, and in many ways, they look just like our commercial customers do too. There is also, as you touched on, a variety of mission sets for the US government that are not ones that folks are as interested in commercially, although sometimes they are interested in them commercially. They range from protecting satellites on orbit from—really, usually Russian or Chinese satellites that are nearby. They range from potentially interfering with an enemy asset that is doing services for bad things. They can range to a little bit more complex servicing missions on orbit. So the US government is sometimes a little at the forefront of refueling, sometimes a little at the forefront of on-orbit repairs or assembly or upgrades in a way that commercial companies don’t necessarily have the risk appetite to go bite off at first pass. All of those are areas that the US government expresses interest to us as we develop rendezvous, proximity operations, and docking technologies—we can operate satellites close up to and touch other satellites. I think there’s two challenges for us as a business as we grow into those opportunities. And one of those is to figure out what is going to be fundamentally useful over the long term, because we’re not building a business to go try to grab whatever the shiny contract at the moment is. We’re trying to build a business that fundamentally provides real value to our customers, and that’s true for the government in the same way it is for the commercial side. And then the other factor that we have to decide as we bite off new opportunities is we have an efficient team, and we need to focus on the things that are going to give us the most bang for our buck right now. And so that means that the Otter is always our core focus at the moment, as we build Otters, as we fly Otters, as we grow that line of business. And the next wave of opportunities to take advantage of our technology, we have to tackle bit by bit as they come, as the right ones come for Starfish, and as we can jump and provide a lot of value to our customers for relatively little effort on our side.

Maggie 10:53
Yes, you mentioned some of our adversaries’ actions in space right now—China, Russia. So I wanted to ask, what is the current state of our adversaries’ capabilities as it relates to RPO, orbital warfare? You know, I know there was just an announcement late last year about China demonstrating an on-orbit refueling mission. So how are you seeing our adversaries’ capabilities, and what role does Starfish and other startups play in maintaining US dominance in the space domain?

Austin 11:25
Yeah, so I think there’s not a lot of broad awareness about what goes on with rendezvous, proximity operations, and docking in space, and what can make space a contested domain. And I understand why there’s not always that awareness, because, on the other hand, there’s a lot of incredible things that happen in space. And not to say that some of what’s going on isn’t incredible, but there’s a lot of excitement, and there’s a unique kind of positivity and optimism that often comes with space missions. And sometimes you don’t want to think about, “Oh, this could be a contested domain of warfare also.” But we go talk with government customers and actually commercial customers also, and they’ll talk about, “Yeah, there is 10 to 20 kilometers away from us some Russian satellite or some Chinese satellite, and it has no reason to be there except to be poking around at us and trying to figure out and potentially interfere with what we’re doing.” And these satellites from both commercial and government folks are providing valuable services, and if they went out at the wrong time, that would be a really critical challenge for humans here on Earth. And so they ask us things like, “Hey, could you guys use your proximity operations to help protect our satellite on orbit?” And, you know, that’s something that our technology can lead to, and it’s a real thing that you have to think about, because Russia and China both have proximity operations capabilities, and they have both demonstrated them on orbit. There are multiple Chinese satellites that have docked in geostationary orbit, and there’s some speculation that there is refueling being done as part of it. There are Russian assets that have docked and have gotten close to US assets, and I believe even fired little projectiles at US assets. And those capabilities mean that if you have a US satellite that is relaying communications back and forth to Taiwan at a critical moment, and somebody’s threatening to disable that, that has a huge impact on the safety and well-being of people here on Earth. And that’s something that our technology can help and support. And it’s not that we are the only ones who are capable of doing proximity operations and docking for the US. The US has those capabilities too, but the US has them in a way that’s really expensive. And if—I think we see this in a variety of frontiers of conflict right now—if the US is bringing really expensive capabilities to the theater and adversaries are bringing really affordable capabilities, then over time, the US is losing the economic battle that comes with conflict. And so I think that is where Starfish Space can make a positive impact, the same way that we can make a positive impact on our purely commercial missions by providing more value from the services that we provide than what it takes for us to provide those services.

David 14:43
Well, I gotta say, this whole conversation has made me exceptionally nervous, because it wasn’t that long ago that what we’re talking about is just totally not taboo—Maggie, like verboten, go to jail, like talking about these elements of orbital warfare. So I’m stretching out some of the highest clearances I ever enjoyed in the Department. But it’s good. I mean, we’re seeing this push for these exquisite missions that don’t need to also cost an arm and a leg, right? And I think taking a different, a fresh approach, maybe some might say a first principles approach to doing these various missions is like, right in the wheelhouse. So, I mean, Austin, maybe just talk a little bit to us about the construct of Starfish, right, how your RPO technology serves a lot of different mission applications. And then more so, how do you articulate that to the variety of stakeholders? Because it’s different organizations in the military and the intelligence community who would be interested in life extension versus those that are in orbital debris. But for you as a company building Otter, it’s like, it’s just Otter, like, you know, you don’t need a special widget, you just use it for different purposes. Yeah.

Austin 16:08
I mean, it’s funny. That’s always a tricky challenge, especially for technical founders, but I think for everybody in pitching everything that they work on, you get so involved in the details that you need to do to make it work that that’s what you end up talking about. And in reality, when we’re out there and we’re selling to customers—and for people’s reference, we have Otters that we’ve announced, that we’ve sold their services to the US Space Force, to NASA, to SES commercial company. We’re building all of those now. They’re all getting set to launch over the next year here. And when you go out to sell the services of an Otter, a lot of times, the people that you’re selling to are a bunch of aerospace engineering nerds like yourself. So they’re excited to go and talk about proximity operations, because they think it’s fun, but they’re also good at their jobs, and so they’re ultimately going to make the decision based off of, do they get value out of signing a contract for our services? And on the commercial side, that actually often turns out to be a really straightforward thing to go and talk to people about, especially if they’re a public company. Then the knowledge is kind of out there, and you can go and say, “Hey, you’ve got this satellite or this constellation, you make X amount of money per month on that satellite. We can add five years to that satellite. We’ll charge you Y amount of money per month. X is bigger than Y, and so it is valuable for you to use our services.” And on a commercial side, that’s a pretty straightforward thing. When you’re talking to a commercial company, and then you go and talk to the US Space Force, and we can say, “Hey, you can extend the life of this satellite. We’ll charge you Y money. We’re curious how much money is it worth to you a month to have this satellite?” And people will look at you like, “What the heck are you talking about? Why do you talk about this in terms of dollars?” And so it can be a little bit of a trickier proposition to understand the language of the US Space Force there, and what is the value that they see from life extension. But we try to talk about it in the same way. We try to talk about, you know, the satellite is gathering critical data. The satellite is a key piece of resolving emergencies. And sometimes you can talk about dollars, where you can say, “Hey, if you were to procure a new satellite for these services, it’s going to be like a $2 billion satellite, so you might as well get five more years for a whole lot less money than that.” NASA may be the trickiest of the entities that we’ve needed to talk to, because the ultimate value that the US Space Force wants to provide is pretty clear, even if it isn’t dollars. Ultimately, they want to protect the US as a nation and our allies and our interests. With NASA, there’s some folks there that are going, “We want to explore the edges of outer space.” There’s some folks that are saying, “We want to do as much science as possible.” There are some folks who are saying, “We want to build a technical base.” There are some folks who are saying, “We just want to create American jobs.” All of those are good and valid end goals, but to navigate your way through NASA, you kind of have to understand each group and what their particular interests are going to be. That’s an experience that you can navigate and you can learn, but you also have to be repeating it throughout. Like, “Hey, this is what we all agreed that our goals were going to be at the beginning, and those are the goals that we’re going to pursue.”

Maggie 19:43
So Austin, it sounds like you guys are working with a swath of customers across, you know, military agencies, civilian agencies, as well as completely commercial non-government agencies. I know a lot of the terrestrial tech companies we talk with discuss, you know, some of the specific standards and compliance certifications that they need to get through to work with US government customers, to work on classified mission sets. So I wanted to see if you could talk through, you know, what were maybe some of the bigger surprises or challenges or differences that you’ve had to work through in order to work with some of these government customers on classified mission sets.

Austin 20:26
Yeah, there are, both for classified reasons and unclassified reasons, a variety of licenses or approvals or certificates that you need to get to work with the US government in different stages. Starfish Space does have a facility clearance that we got recently, and it does allow us to work on classified missions or work with classified data. That does unlock a variety of additional mission sets and a variety of additional customer organizations for us. It’s kind of funny to all go through as an organization and have to figure out how to get that. On the back end, I’ve had clearances in previous lives, both at Blue Origin and Lockheed Martin. Both places, I kind of had no idea how it came together that the company could work with me to get those. You’re just sitting there. Then somebody said, “Hey, you should get a clearance.” You go, “Okay, sounds good. I’ll fill out the paperwork.” It is tricky to get a facility clearance, and you have to work with folks. I think that the US government is putting a lot of effort into figuring out how to work with companies like ours. I think they see the value that companies like Starfish Space or Impulse Space or Varda or K2 Space, or a lot of other great space startups that are out there can provide. I think the trick is actually not just getting the FCL, not just getting the clearances for the individuals, but also being careful about how and when you take on classified work. There is a lot of overhead to doing work in a classified manner. And there will be a lot of folks that are tempted to just say, “Hey, everything’s classified. Let’s just be careful and safe here and make sure that everything’s classified.” And you want to be careful, and you really want to protect the sensitive information that allows our nation to defend itself. But you also have to be careful about how much work you’re trying to do in a classified lab, because if you develop some awesome piece of your GNC algorithms that’s really going to make your satellites do proximity operations a lot better, and you develop it in a classified lab to get all of the code and the simulation results and everything back into the unclassified world and apply it to other missions, it’s a whole lot more complicated than it otherwise would be if you’d started off in the unclassified world. And so there’s both the you have to get the paperwork and the approvals, and there’s also the you have to figure out how to operate with it in a way that is efficient for your business and allows your business to continue to do the things that you want to do. Because at the end of the day, I don’t think classified world, I don’t think working with the government world is really that fundamentally different from any sort of business. You’re out there to try to provide value to your customers. You have to build a product that you can actually build, and then it has to deliver that product, or the services of the product, to your customers in a way that is worthwhile for them. And as painful as it can sometimes be to work with the government, oftentimes, when we’re talking about, at least for us, the kinds of sizes of the contracts that we’re working on, the pain of working with the government is a relatively small pain in comparison to the total effort that it takes us to fulfill the mission. Otherwise, probably the biggest challenge is not figuring out how to do it or not doing the paperwork. I think the biggest challenge is that it’s just going to take a really long time, because the government isn’t used to operating at the speed of startups. They’re trying, man, they’re working harder, they’re getting better at it. But there’s still sometimes where you’re like, “Really, that took us six months to pull that off.” There’s a whole lot that can happen in six months at a startup.

David 24:17
Yeah, so, I mean, from a timing and startups and trying to keep the pace of change, you know, ultimately you need to generate revenue, and it seems like a lot of the revenue programs for the military, at least for an early-stage startup, is around some of these non-dilutive R&D type opportunities. So talking about SBIR and STRATFI, can you maybe just like, walk us through a little bit like that approach that you took? How did you find the right stakeholders, and how did you turn that SBIR into a STRATFI?

Austin 24:56
Yeah, SBIR is Small Business Innovative Research contracts are, I think, a really neat thing that the US government does. And a variety of agencies do this—the Department of War, NASA, Department of Energy, the National Science Foundation, they all give out Small Business Innovative Research contracts, although all in a little bit different ways. And these contracts are often broken up into a Phase One and a Phase Two. And a Phase One is on the order of about $100,000, and a Phase Two is on the order of about a million dollars. And when you are two people working from a public library, the idea of getting $100,000 to work on your ideas is like an incredible and overwhelming amount of money. And so that was from the very earliest stages for Trevor and I—one of the early things we looked at was Small Business Innovative Research contracts. And as we were looking into it, we learned there’s kind of a couple of philosophies on how you can use these contracts. You can use these contracts to try to make money and sustain your business. And you can build a company where you’re winning several SBIRs a year, and you have a dozen folks working on these SBIRs, and you can operate for several years like that. Or you can really try to use SBIRs as a springboard, and you can try to use these as a way to become the business that ultimately you’re trying to achieve. And that is actually what the US government tends to want. That’s what the Air Force or the Space Force wants. That’s what NASA wants. They want to use these innovative research contracts to develop technology and teams and business relationships that eventually allows these companies to go fulfill needs for the US government and for the commercial world at a large scale. And so we went into these SBIRs going, “Okay, let’s go into Phase One, let’s go turn it into a Phase Two, and let’s ultimately use that as a way to sell our Otter satellites.” And that played out almost to a T in multiple avenues for us. So our very first SBIR was a $50,000 contract to study some of our proximity operations. Then we turned that, through Space Force Pitch Day, into a, I think it’s like a one and a half million dollar contract at the time. That was real and substantial money for us. And we turned that eventually into a TACFI, a Tactical Financing contract, which is a couple million dollars. And through another set of SBIRs, eventually won a STRATFI, which in our case is $37.5 million coming from the US government to do an Otter mission for the Space Force. And now we aren’t bidding on SBIRs for the Otter or for our key technologies. That’s not what our business is about now, but it really was the springboard to the future. And then it turned out people were really excited that we were trying to use SBIRs in that format. You would go and talk to whoever in the government you thought might buy proximity operations technology or might buy Otters. And they would say, “You know, this is pretty interesting. I’m not going to go give you a $40 million contract off the bat here, but I’d like to work with you a little bit and see what you’re capable of.” And you go, “Okay, well, you know, that’s awesome. We actually know about this SBIR framework where we could go do a Phase One, or we could go do a Phase Two, if you just write us, you know, a letter of support, and we’ll go through the proposal application process.” And it doesn’t always work. These are competitive proposals, but we kind of lead by talking to the customers, and you take it back, and the SBIR process is just a vehicle that allows you to start working with them more closely.

David 29:07
That’s great. And I think, yes, you are using the SBIR program the best way possible. And I wish other companies took that approach and lead, but we don’t need to get into that topic here, but maybe we can just drill in a little bit more. Did you feel like you were educating the customer about what you could do with the Otter and starting to unlock RPO, or did they already have some sort of a knowledge base around it, and they were like, “Oh my God, thank you. I found you. Like, let’s go.” Like, which way was it? Was it a push or a pull?

Austin 29:48
I actually think it was a little bit more us educating, and maybe and definitely not us educating the Space Force on what they would get value from. They’re the ones that can say, “Oh yeah, life extension would be valuable,” or “Oh yeah, proximity operations to do this mission would be valuable for us.” But what we could educate on was what was possible and what was possible in different ways. We’re not the first ones to go to the US Space Force and say, “Hey, how about we do a little bit of life extension?” Many folks have gone and done that before us, but we were the first ones to show up and say, “You know, we could do life extension for this price point.” And the first time we said that to a general, we got some funny looks like, “What are you talking about? That’s totally out of family with all the price points I’ve been told in the past.”

David 30:41
And so they call you a heretic at all? You know, do they say, “I don’t—” Voodoo. Maggie called—

Austin 30:47
Called a heretic, fortunately. But I think that people probably appropriately look at ambitious technology startups and go, “You guys are crazy, like you’re just out here saying stuff. You’re not going to be able to pull that off.” And so you have to fight your way through what is, I think, an appropriate level of skepticism. And to some degree, you can go do that and present to them like, “No, here’s the breakdown. Here’s why we as a business would actually like make money by providing the services to you at the price point we talked about.”

David 31:20
Last question on, like, sort of this general topic. I mean, I’d love to hear, like, how many conversations did it require from you and your team, and probably a very small team, in those early days, to get that Phase One into a Phase Two, that Phase Two, or series of Phase Twos, into a TACFI, and then eventually a STRATFI? And then did you arm yourself with like other third-party consultants, whether they be supporting you through proposal development or lobbying, even?

Austin 31:53
The one that is maybe the easiest to track is going from the Phase One to the Phase Two. In early stages, we had very clear and dedicated pipelines, because that was before we really knew many folks in the US government. Sometimes now we can short-circuit the process a little bit for something like that. We can go, “All right, here’s the three folks that we know that are most likely to support it. Let’s just go and talk right to them.” But when we’re trying to take our first Phase One to a Phase Two, I think we had 30 to 40 dedicated conversations with different folks that we thought might potentially be able to support the Phase Two in the US government. And we had those conversations through all sorts of forums. It would be in person at conferences. It would be through warm connections over Zoom calls. It would be through accelerator or startup mixers. It would be sometimes people that just randomly showed up to one of our SBIR deliverables that we were putting together because they’d heard about us. But I think it was ultimately like 30 to 40 conversations. And then, if you take a look at like, “Well, hey, what does it take to get from the very earliest stages to a STRATFI?” It’s hundreds and hundreds of conversations between Starfish Space and folks in the US Space Force. You want to be careful. You want to be efficient with those conversations. You’re not just talking with the same person over and over 100 times. Like they have things to do too, but you want to cast a wide net and that allows you to eventually find, like, “Here’s the people that are—they’re most interested and can most benefit from what we’re building.” We did and have and continue to, in various ways, work with some third-party organizations along the way. In the very earliest stages, we had no idea how SBIRs worked. I think we lost our first 11 SBIR proposals, and so we started working with some consultants who were really knowledgeable about the SBIR process, and they show up, and there’s some things that they tell you from day one that are like, “Oh, you’re not actually trying to put the most advanced technology descriptions in there, because it’s not scientists that are reviewing the SBIRs. You need to talk about how your business is viable and how what you’re doing would be useful, and that’s what the Air Force likes to go and evaluate SBIRs on.” And so we got some of the tips. We figured it out. We started learning how to win SBIRs. And eventually you get to a point as a business where you go, “Great. We figured it out, and we don’t even need SBIRs as much anymore.” And so these folks that did a great job for us in a certain stage, that particular skill set isn’t as useful for the next stage. So we go, “Thanks for all your help. We’re going to refer other companies to you, and you know, we’re going to move on to the next stage of our development as a company.” And so that’s all sort of what drives us to go, “Hey, we don’t hire and bring some SBIR expert in-house. We hire and bring in really, really capable people who are great problem solvers, generally, in-house, and we’ll bring in a little bit of third-party support along the way.” And we did that in the SBIR stage, and we did that in the STRATFI stage, and we do that now with some of the government affairs or some of the policy work that we’re doing. All of those are supplemental. At the end of the day, only you and your team can tell the story the way that you and your team can. So you still have to get in there and get your hands dirty. You don’t just hand it off, but as advisors, the third parties, I think, can be useful services at times. David, Maggie, what do you guys see other companies do? What do you recommend when you’re talking to some super early founder that is just getting going and saying, “I think I might want some of these?”

David 35:49
I mean, I think what we’ve seen be successful is the founders, especially in those early days, need to be at the vanguard of those conversations and finding their champion. And what I see from the military folks is they really do like talking to founders, right? The people that are going to like build the thing that’s actually kind of novel to them. But as far as, you know, you talked about, “I don’t understand all the elements of an SBIR”—to me, I would advise the startup founder not to go figure it out for themselves. Like that is a lot of effort, and likely wasted effort, and you can pay for those types of services. The key is, can you find a good, trusted source to help you? And that’s where leaning on your investors, who are deeply experienced in this domain, becomes quite clear. And why, you know, as a startup, wanting to engage in the defense ecosystem, you should, you know, pick your investors and your advisors wisely. So, I mean, the way you guys went about it, I think was absolutely perfect, and I think the rewards speak for themselves.

Maggie 37:01
I mean, Austin, another question I had—unlike a lot of the companies that raise venture money, where they’re able to build an MVP in a month, or maybe even a hackathon over a weekend, you guys are building a really complex piece of technology that has taken years to build and prototype and launch and test. So I’m curious, you know, how do you build a go-to-market sales engine while you are still proving out a piece of technology?

Austin 37:34
I think probably fundamentally, the biggest challenge for our business is that we have ambitious goals, and it’s really challenging to build a bunch of satellites that extend and protect and upgrade and improve infrastructure in space. We can’t just go out and be like, “Look at our revenue. It’s going up 30% month over month, and we sell, you know, $10 at a time subscriptions, and it’s a nice hockey stick graph.” You have to get folks of all sorts to buy in on the risk along the way. And that’s customers need to buy in and take some of the risk with you. It’s investors need to buy in and take some of that risk. It’s employees, it’s suppliers. Everybody that you work with is betting on you a little bit in one way or another. And one of the things that you have to do is construct your development plan as a business in a way that allows people to see the risk reducing, allows people to see progress all along the way, and that allows everybody else to buy in a little bit more. And so you might sit there at the beginning and say, “Okay, this is going to cost us $100 million to design and get to flying the first satellite.” But you can’t go out and just get $100 million from your customers, from your investors, when you’re two guys that are sitting in a library. And even if you did, you’re not going to know what are the right things for you to do. You can’t just be like, “Well, I mean, I got $100 million and turn it into a satellite.” You always have to have the steps and the milestones along the way. And some of that is your key technology development, and some of that is pieces of your system architecture, and some of that is demonstration missions. And those are all on the technology side. And some of those are early contracts and conversations with customers. Phase One SBIRs can fit the bill. Letters of interest, or we did something that we call development partnerships with commercial customers. Those can really fit the bill. Early rounds of investment, pre-seed rounds, seed rounds, Series A rounds, those all help do the risk reduction. Hiring great early employees. Sometimes in the proposal process, you go, like, “Okay, well, we just have to make these, we have to send these couple of people’s resumes in, because that’s going to be a key part of why people want to work with us, as they go, ‘Oh, look at this awesome team that you’re building.’” You have to have the little milestones, and you have to buy, get people to buy in on a little bit of risk, and that’s true in basically everything that we do. And so go-to-market is a part of that. The customers that we work with today are generally customers that we’ve been on the journey with for years at this point, and they were the first ones on the commercial side to sign LOIs for us. They were first ones to just pick up the phone when we said, “Hey, we’re a couple of crazy folks in the library, and we just want to pick your brain and see if this would be valuable at all.” And then they were the first ones to dive in on the development partnerships and the first ones to sign up on contracts. And the same way on the government side, you start off with, like, “Who’s willing to talk with you when you’re going through the Hyperspace Challenge accelerator?” And then who’s maybe willing to sign a letter, and who do you talk with on your very first Phase One SBIRs? And there’s a lot of people that start working with you there. And if you buy the risk off along the way, they’re the ones that eventually—maybe they aren’t signing the big contract or the big contracts, but they’re in the meeting in the hallways with those people saying, “You know, you should really take a look at this company. They’ve been doing impressive work.”

Maggie 41:27
Yeah, Austin, since you guys started the company in 2019, you now have launched what, two satellites. You just completed this Remora mission successfully. Can you tell us about some of the lessons learned from each of those experiments testing your technology actually in space?

Austin 41:46
It’s funny, you set out to test the key pieces of your technology, and you do learn things about the key pieces of your technology. You go do some—you go fly some missions. You’re like, “You know what? We actually have some star tracker outages every once in a while, and so we have to update our filters so they’re not expecting measurements on a regular basis. And this is what our GPS error profile actually looks like, and this is the number of dead pixels we’re seeing, or the spurious bright flashes that we see in the background that we need to filter out in our images.” And so there are some technical things that you really learn about your key technology, but there are a lot of other things that you learn about along the way too. You learn about how to operate a satellite, how to get the data down in ways that people can look at it, how to send your commands up in ways that are efficient, and you can move through your testing operations quickly. You learn how to manage a satellite program, even when you’re working with vendors. And we work heavily with vendors to build the components. Just getting the vendors to deliver on time and to talk to each other in a way that everything interfaces correctly, turns out to be a huge amount of effort, and something that we have to pay a ton of attention to as we build the Otters. You learn a little bit about your team and what it takes to be ready for the moments of stress and challenge you have to resolve and what it takes to be ready to do that awesome.

David 43:17
Well, Austin, you’ve been, I don’t know, super generous with your time, and I know you’d probably rather be in the lab building or closing customers, but before we let you go, I think we just kind of love to hear a little bit of you and how you think about the future of space in the next, I don’t know, five to 10 years. Maybe 10 years is too far along, if we really think about what’s happened in the preceding 10 years, but over the next five years. And I know you’re a visionary, you wouldn’t have, like, come up with the name, you know, Starfish in the first place, and all the fun names that you have for all of the componentry, but maybe one area that I would be really curious on your take within this five-year journey is how the various orbits play into each other.

Austin 44:04
It’s easy in the space industry to dream really big and then to not fulfill and follow through on it. And more often than not, when you ask, “What does the space industry look like in five years?” it kind of looks a lot like today. And so I think the areas where it’s changing are the ones that are most interesting to call out. And areas where it’s changing is not necessarily announcements of, “Oh man, we’re going to land humans on the moon in four years.” We announced the same thing, what, six years ago, and didn’t really make that much progress along. And I don’t think we’re gonna have a bunch of people wandering around on the moon in four years, but the areas where you can already start to see the change—the increasingly rapid launch and the landing of rockets, and obviously SpaceX is absolutely at the forefront there. But Blue Origin also recently landed a rocket that took things to orbit, and Stoke Space is working hard on it, and Rocket Lab is working hard on it, and Starship with SpaceX is working on it. And you can already see that progress happening. I think that as more folks enter the launch market, that’s just better and better for people that want to send things into space and get value out of it. You saw a trend for a long time of satellites getting smaller, and now you see a trend of satellites getting bigger again, because people go, “Oh crap, I want to get a bunch of capability into the satellite. I want to have all the data throughput. I want to have the exquisite camera capabilities or compute capabilities.” And all your satellites went down to 3U CubeSats, and now they’re all going back to 1,000-kilogram satellites, and then perhaps even bigger. Some folks are really on the leading edge of that, taking advantage of it. I think K2 Space is an awesome example. And you can see other folks like us, Astroscale is a great company that are going, “Hey, it’s not just a world of CubeSats and really low Earth orbit. There’s a lot of opportunities in geostationary orbit in particular.” And so maybe to touch on your particular question, David, I feel like there are four real orbits that people talk about, at least from a commercial perspective, as potentially having value. There’s low Earth orbit. There is MEO, mid-Earth orbit. There is GEO, geostationary Earth orbit. And then there’s cislunar orbit, which is around the moon basically. And in low Earth orbit, I mean, the biggest thing that’s going on in the space industry right now is Starlink and internet service providers from low-Earth orbit satellite constellations. And Starlink is absolutely very much at the forefront. And what they’re doing is really incredible. And then you see folks like OneWeb and Amazon Kuiper that are following along. There is just tremendous and huge growth going on in LEO, and that’s going to accelerate, accelerate, accelerate. In mid-Earth orbit, the biggest thing going on there is the GPS constellation, and GPS is really critical for what people do in a variety of different ways. From a commercial side, being in mid-Earth orbit, frankly, comes with a lot of radiation challenges that sometimes force you into traditional production lines in the aerospace industry that are long and expensive and very difficult to work with. And so I don’t know that MEO is going to be a very popular place for folks doing new things. Maybe there’ll be some use cases, but boy, the radiation of Van Allen belts can kind of make it difficult. Then you have geostationary orbit, and as you’re building big, exquisite assets that cost millions or billions of dollars, sometimes putting them in a place where they’re over the same spot on Earth and you can trust for them to be there the entire time, turns out to be really valuable. And that was really valuable 50, 60 years ago when people first started launching GEO satellites. And I think it’s still going to continue to be really valuable going forward. And so there’s a lot of folks that are looking at geostationary orbit with a lot of interest, and it’s a key part of what I think we’re building our business around. And then there’s cislunar orbit, and people like to talk about cislunar orbit, but I don’t think we’re going to see a lot of exciting activity in cislunar orbit over the next five years. I really hope that we do someday, because, oh my gosh, how cool to see people on the moon or operating around the moon. I think that, you know, beyond Earth’s realm of orbit, let’s send things to Mars. Let’s send things to Venus. Let’s send things to the moon, to Saturn and Jupiter. That’s so cool. And that’s ultimately some of the absolute most interesting things going on in the space industry. Maybe unfortunately, if you’re trying to build a business around it, you have to take it with a little dose of realism over the five-year time horizon too. And you got to say, “All right, well, we’re not building our business to focus on servicing cislunar satellites right now. Let’s see some satellites there first.”

Maggie 48:59
Great. Well, Austin, thank you so much for taking the time and for coming on the Mission Matters podcast. We’re super excited to be investors in your business and excited to see where you all take it from here.

Austin 49:12
Hey, thank you guys always for having me. Always good to chat with you, and I’m sure I’ll see you somewhere soon.

David 49:18
Have a good one. Thanks, Austin.

We cover:

• How the Appropriations Bill, NDAA, President’s Budget Request, and the reconciliation (the “one big, beautiful bill”) fit together – and where the real funding signal lives

• How startups should engage Congress to advocate for their technology without burning credibility

• What next-generation technologies (AI, autonomy, space, maritime, digital infrastructure) are actually funded in the bill

• The importance of the Joint Explanatory Statement (JES) to understand appropriators’ intent behind the bill

• How to tell whether a budget line is real, available, and competitive, or already spoken for

• How appropriators think about risk, flexibility, and accountability with taxpayer dollars.

You can listen to the podcast on Spotify, YouTube, Apple, the Shield Capital website, or right here on Substack.

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

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Transcript

Maggie 00:39
On this episode of the Techquisition Edition of the Mission Matters Podcast, we’re joined by Johnnie Kaberle to break down the fiscal year 26 appropriations bill and what it means for startups.

David 01:09
This podcast was originally recorded on January 26, prior to the brief government shutdown and the subsequent congressional compromise that removed the Department of Homeland Security funding bill from the broader appropriations package.

Maggie 01:22
Johnnie is an expert in the world of defense appropriations. She’s currently a senior vice president at West Exec, a well-established government relations firm. Prior to joining West Exec, she served for a number of years as the staff director for the House Appropriations Committee for Defense, also known as HAC-D.

David 01:41
All right, Maggie, before we bring Johnnie on, I think we should level set for our founders listening. Because anytime we say “appropriations bill,” eyes naturally glaze over immediately.

Maggie 01:54
Yeah, this is definitely one of those bills that everyone hears about in one form or another. Everybody knows it’s important. Everybody knows it can lead to things like government shutdowns. But almost no one is totally sure what it actually does, how it comes into being, and how it relates to all these other important documents like the President’s budget request, the National Defense Authorization Act, the reconciliation bill, et cetera. To be fair, it is a 1,000-plus-page document, so it really does quite a lot.

David 02:26
So at a basic level, the appropriations bill is how Congress actually gives the executive branch permission to spend money. Each department, of which there are 12, will receive its own funding bill. Examples include, in addition to the Department of Defense, the Department of Agriculture, Department of Transportation, Department of Labor, Veterans Affairs, as well as the legislative branch, which also depends on funding bills to operate. All the strategies, modernization priorities, and budget requests in the world don’t matter if the money isn’t appropriated.

Maggie 02:57
That’s right. As you might have learned from Schoolhouse Rock, or back in civics class, this is really Congress exercising its power of the purse. And for founders, this is more than just a policy document. It is one of the strongest demand signals the government puts out about what they are actually planning to buy. It tells you where Congress is comfortable putting real dollars behind a mission.

David 03:21
And context matters a lot this year, because last year we were operating under a full-year continuing resolution. Congress was not able to pass a new budget, which basically meant everything was frozen at the previous fiscal year’s funding levels.

Maggie 03:37
So that means that for the past two years, we’ve been operating with a budget tied to government priorities convened all the way back in 2023, which feels like a really long time ago. It seems like a lot has happened since then, right?

David 03:50
You are, Maggie. I think you might have still been in graduate school. But beyond the funding levels, which were tied to decisions made a long time ago, operating under a continuing resolution, or CR, means no new programs that were previously unanticipated in 2023 can begin without explicit approval. I would say this has wreaked havoc on the innovation ecosystem. So when we look at the fiscal year 26 appropriations bill, we’re not just asking what’s in it, but how it’s evolving and what that evolution tells founders about where the system is actually headed.

Maggie 04:23
We’re going to dig into things founders don’t usually hear explained clearly, like how lobbying actually shows up in bill language and why committees like HAC-D and SAC-D, the House and Senate Appropriations Committees for Defense, matter way more than most startups realize.

David 04:39
And we’ll talk about those big, headline-grabbing legislative packages, like the big, beautiful bill, how they fit into this whole process, and how much of that is real acquisition signal versus political noise.

Maggie 04:52
All right, let’s bring Johnnie in. Johnnie, thank you so much for agreeing to be on the Techquisition Edition of the Mission Matters Podcast. You are officially our first external subject matter expert. There’s probably no one better to help us demystify the appropriations bill and help us and our founders understand its value, as well as how they should be thinking about their own government relations strategy to influence and take advantage of the opportunities presented in these kinds of bills.

David 05:24
But first, please tell us a bit about yourself. We know you’re currently at West Exec, a well-established government relations firm, and we know that you were the staff director, as Maggie highlighted. What else should our listeners understand about your experience dealing with the appropriations bill?

Johnnie 05:40
First, David and Maggie, thank you so much for having me on. I have been really looking forward to this. In the year since I left Capitol Hill, my favorite thing has been explaining how appropriations works to people on the outside, because appropriations is really fun when you understand it. I retired after 30 years and 10 months last January, and I actually had a pretty unique background, even by Capitol Hill standards. I worked in personal offices for a variety of members of Congress. I also worked in the whip office in Republican leadership, and then served as the deputy staff director of the entire Appropriations Committee, covering all 12 bills. But my passion, and where I ended up at the end, was as staff director of the Defense Appropriations Subcommittee.

David 06:28
Well, I must say, you know, Johnnie, as we talked earlier before the recording, that this is kind of your first formal podcast out into the ether, and I’m just putting it out there for other podcast hosts: you should definitely bring Johnnie on to your episode. We’re going to focus on founders and the appropriations bill as it lies today, but man, your stories that we were talking about, just a little bit of them, they were incredible. Yeah.

Maggie 06:55
So, Johnnie, top level, what are some of the major highlights that you noticed in this year’s Defense Appropriations Bill? What are some maybe notable new initiatives and funding lines that weren’t present in past bills that people should be paying attention to? Well, I’ll—

Johnnie 07:11
Talk bigger picture. And I think that, again, my passion, and it comes from my previous boss, Chairman Calvert, is the innovation and the pushing of that. Many people get authorization and appropriations confused. And for the founders, what’s important to understand is authorizing without appropriating is just a policy statement. You could get authorized exactly everything you want, but if you don’t get any money for it, is that a win?

Maggie 07:39
And John, maybe could you talk to what even is authorizing?

Johnnie 07:43
So authorizing is giving the permission, giving permission for end strength, giving permission for, let’s say, F-35s or those type of things. However, and I always ask people I do a lot of speaking to, like graduate classes, if the authorizers authorize 90 F-35s and the appropriators fund 100, how many F-35s do you get? One hundred. If they fund two, how many do you get? Two. And so that’s why it’s really important. A lot of founders will relax when they see the authorization bill come out, where, again, if you’re only looking for permission, fantastic, but if money matters, you’ve got to wait for the appropriation.

David 08:26
Real quick, why then do the authorizers even put in a funding table, and how does that interact with the appropriators? Does it influence it in any form or fashion, or are they sort of operating in separate universes?

Johnnie 08:43
I would say, I’m trying to be politically correct, but I still gotta be me. They put a table in so that people can understand what the authorizers’ priorities are, but that doesn’t correspond with funding. Especially if you look at the timing of the bills, we don’t see their tables before other people see their tables. And by “we,” I’m sorry, I still go back into my defense role. The appropriators don’t see that. Staff will talk about priorities and bosses’ priorities and look at the funding levels, but no, the appropriators are not just taking the authorizers’ funding tables and funding them.

Maggie 09:25
Maybe it’d be helpful to actually talk through how the defense appropriations bill comes into being. How does Congress know what the military wants and needs, and how does the appropriations bill and that process relate to the President’s budget request and the J-books, which are supposed to come out earlier in the year to help the appropriators? And just to clarify for listeners, the President’s budget request is the administration’s annual proposal to Congress outlining the President’s funding priorities and plans for the upcoming fiscal year, but of course it’s just a request. Ultimately, Congress is in charge of actually funding those priorities. The President’s budget request is accompanied by the justification books, or J-books, which provide detailed, program-by-program explanations of how requested funds would be spent. They typically include budget rationale, performance metrics, prior year execution, and future plans, and they’re meant to be the primary documents that Congress and congressional staff use to evaluate, question, and modify DoD funding requests. So given all these documents and all these different stakeholders, what does it take to actually get the appropriations bill written and passed?

Johnnie 10:39
So one thing I want to put into context before I start this is the amount of staff. David had mentioned there are 12 subcommittees of the Appropriations Committee. When I was staff director of defense, I had the largest staff of any subcommittee, and that was only 14. And so the defense appropriations bill covers the Department of War, all the military services, and the entire intelligence community. If you were to compare that to our authorizing brothers and sisters, HASC has about 60 staff and the Intelligence Committee has about 60 staff. So we have 14 to 120, just to put that into context. When the President’s budget comes out, there are a lot of budget briefings. There are J-books, though this year, I don’t know how they did it, but the House appropriators had to write their bill without having any of those justifications, which is just amazing that they were even able to pull that off. They go through line by line. They go through the budget request. They have briefings. I know David was one who used to get to give those briefings to the Hill. They ask for specific data, and numbers matter. Numbers really matter to appropriators, because they don’t want to spend money on things that we’re not going to get. They don’t want to fund “hope so.” If they’re looking at how programs perform, and you got X amount of money last year for something and you underperformed, it’s unlikely you’re going to get that much money, or you might even get some money rescinded from the previous year.

David 12:12
Yeah, so those are all good points. And Johnnie, I’m getting a little bit of PTSD thinking about my time at the Pentagon briefing out my program, which I think you’ll appreciate, was $5 billion over the fiscal year. Defense planning, right, the five-year fight, with zero validated requirements. So you can imagine how well that went. Well, you had a lot of fun. You made a lot of friends. I made a lot of friends. Took a lot of cuts. But yeah, specific to fiscal year 26, what were some things that stood out to you? Was there anything in there of true note, and maybe somewhat related to some of the executive branch directives and memos that have been coming out, and whether or not the appropriators are picking up what the executive branch is putting down?

Johnnie 13:04
Well, I think that probably one of the most important areas to look at in the defense appropriations bill that most people skip over and just do a word search on is what we were talking with Maggie about earlier, which is the joint explanatory statement.

Maggie 13:18
And just to clarify for listeners, the joint explanatory statement, often referred to as the JESS, is a document issued by the House and Senate Appropriations Committees that essentially accompanies the final appropriations bill. You can basically think of it as a user manual for how Congress expects the executive branch, in this case the Department of Defense, to execute the appropriations bill, really explaining in plain English Congress’s intent behind the funding decisions written into the bill.

Johnnie 13:49
As we talked about, appropriators like numbers. We don’t use words unless we have to, and so if it’s written there, it really matters. And in one area, it talks about all of the items that were not funded out of the one big, beautiful bill that the department then came to the appropriators to get funded out of base funding. There are also always things that come up throughout the process, new emergent requirements that have to be funded. And I thought that was a really important section of the joint explanatory statement for people to read if they don’t understand, like, well, why didn’t they put more funding here, or why didn’t they put funding there, to understand the pressures that are there. I also think, you know, I hear, and I had a lot of questions, when the administration and the department came out with acquisition reform, which I was thrilled to see. And it’s not easy. It’s not easy when people have been doing something the same way for so many years. It’s uncomfortable, and you need leadership to say, no, it’s okay, we’re doing things differently. And everyone assumed that the appropriators would hate flexibility. Appropriators don’t hate flexibility. It means you have to have accountability. We want to know what you’re doing with it. You’re not getting walking-around money. And appropriators every morning wake up knowing one thing: this is taxpayer dollars. This is not our money. How do you justify spending this money? We want to be able to justify it in the same way that, you know, we push so hard for budgets, for audits. The department should be auditable. These are tax dollars, period.

David 15:25
Well, you’re, I think you’re asking for a few miracles there on the auditing, but maybe.

Johnnie 15:30
Again, this is, maybe it can be done, but it’s not easy, Johnnie.

David 15:35
One thing I wanted to follow up on was the one big, beautiful bill that was passed in July. To me, that was a bit odd, right? The reconciliation bill and its big emphasis and the amount of money that it provided to the department, and of course it was during a continuing resolution. So how should people understand the one big, beautiful bill and its relation to the FY 26 appropriation, and how might it also show up in the bill so that people can kind of see how those priorities are aligned?

Johnnie 16:19
So with the one big, beautiful bill, it was a one-time infusion, and that’s what’s so important. Appropriators will talk about base funding, and that’s the number every year that you look at as base funding. When I was there, it was $833 billion. This year it’s $839, so it’s up $6 billion. Now, when you throw in the one big, beautiful bill, that doesn’t get added to the base. So people that get the money now, in five years there’s not going to be base money to continue something, so it’s not something you can count on for the long term. And I think that is really important for people to understand, that you’re going to need to have other funding mechanisms, or other people within the department or the services that want to pick up the funding, because that money is a one-time shot. And, you know, again, appropriators, we don’t love that. We like to take things into account, to review, to be able to say this is working, this is not working, more money here, less money there. And also, as an appropriator, we don’t love it when authorizers get to write appropriations bills, which effectively happened with reconciliation. But, I mean, it was a great infusion and a needed infusion. It’s just important that people understand exactly what it is and what it isn’t, that it is not adding to the base, it is not long-term additional funds. And even in this situation, there were things that the authorizers did not include in reconciliation that the administration wanted and, as a result, came to the appropriators to fund out of the FY 26 base funding. And what that means to founders is that you have several billion that would have been available to other programs that now had to go into programs that the administration wanted to be funded out of the reconciliation bill, if that makes sense.

Maggie 18:19
So turning gears a little bit to understanding how founders and startups should be interacting with the Hill, with appropriators, and really understanding this bill, the word lobbying comes to mind. I know lobbying can be seen as a dirty word by many, or at best it is a misunderstood word, but a lot of the startups that we work with, and a lot of large companies, leverage lobbying firms to great effect. So how does lobbying show up in the appropriations bill, if at all, and how should startups be communicating with appropriators?

Johnnie 18:57
So I am not a lobbyist. I am a strategic advisor, so I do not go anywhere on behalf of companies. My job is to advise companies exactly on this. How do you communicate? And I think the number one thing is do not assume. Do not assume members of Congress are who you see them as on television shows or movies. They are not all the same. There are show horses, but there are also statesmen. Know who you are working with, and a lot of times that is where hiring somebody from the outside who has actually been in and knows these people can tell you, yes, this person says yes to everybody and does not do anything, or does not have the ability to get things done, or this is something that this member or senator is passionate about. Congress does not fund things because it is a nice thing to do. Again, it is not their money, it is taxpayer dollars. What problems are you solving for? Be very concise. Once you identify what the problem is, and especially with appropriators, does it make something more lethal? Does it mean you are going to produce faster? What does it do to jobs? Does it mean it is going to save money? Highlight that. I cannot tell you, 90 percent of the one pagers I got were just full of buzzwords. After reading it, I understood less than I did before, and it just frustrated me. Make sure you are able to convey exactly what you are doing and be honest. Most of the staff have done this a long time, and Dave and I were talking about how one of the challenges is that committee staff stay there for many, many years. In the department, people are there for two to three years. So you will have somebody from the department come and talk about a program that the committee staff has been working on for ten, fifteen years longer than that person. They really know their stuff.

David 20:54
So Johnnie, if what you are saying is that a startup should go talk to the staff of the Appropriations Committee, go talk to the members who make up the Appropriations Committee specific to your subcommittee, in this case defense. But if you are going to communicate, tell them what your capability is, why it could be good for a certain constituency. But maybe what I am also pulling out is how is it better than what is currently available? So you as a founder need to understand the state of play today and what the military services are employing from other vendors, and why this is a step function better. Because coming in with just your shiny technology, I guess what you are saying is the first thing they are going to ask is, is that being satisfied by something that is already in the base budget? And why should I actually care about this innovative solution, exactly?

Johnnie 21:58
And also, be honest. I cannot stress that enough. These people are used to people trying to work them, and it takes a while to build up credibility. It takes seconds to lose it. I have had members that I worked for see a technology they were just blown away by. It was not always even in their district. They were thinking big picture, national security. And then every meeting, it did not matter who we were talking to, the head of INDOPACOM, PACOM, CNO, whomever, they brought this up. So if you can get them passionate about what it is you do, that is why it is important to know who you are going to talk to and why you are going to talk to them. I see this with some of my clients who have lobbyists. They will send me a list of who they are going to meet with, and I look at the list thinking this is a waste of time. It is not going to help them. Know why you are going in. Are you asking for something? Are you just creating the relationship? What is the purpose? Make sure you understand that. And above all, be yourself. It always made me laugh when people would say they were nervous to come in and see me, because I thought I was the easiest one to talk to. I think you can even tell on this podcast, I will say whatever I think. Just be yourself. If you do not understand it, do not pretend you understand it. What you understand is the tech, so stick with what you know and let the committee and the other people do what they do.

David 23:32
So Johnnie, I mean this is incredible, and thank you. Very helpful, very validating to some of the things I have always thought but never maybe knew concretely. But I want to take a step back. People will always say, hey, I need to get a funding line inserted into the appropriations bill, I have got to get my mark. Maggie is maybe not old enough, but I remember the days of pork, right? And I am sure pork went into the appropriations bill. But we do not do that today, or do we? It is just a little bit different. So how should founders think about the terminology of getting a line item into the appropriations bill?

Johnnie 24:20
So neither the House nor the Senate Defense Appropriations Subcommittee includes earmarks. For this purpose, the definition of an earmark is directed funding for a specific entity. Actually, in the House rules, the definition that the House uses for earmarks is spelled out there. Everything we put in is supposed to be competitively bid if the department did not request it. So if it comes from the department, it is not an earmark. But if Congress adds something, it will be funding a line for a capability. Now, in many cases, you want to make sure you do not come to Congress and say, we have this great capability, make the department take it. You want to be doing your due diligence with the potential customer. You want them to say, we absolutely need this.

David 25:13
Well, what I am hearing you say is that you can talk to Congress and tell us how great your thing is. But if you do not have a customer representative inside the department who is going to advocate for the need for this type of capability that we are ultimately going to compete, whether by the Federal Acquisition Regulation statutes or other transaction agreements or some other contracting mechanism, it is almost like a wasted effort. If you do not have a demand signal coming from the department for this thing, talking to Congress is not really going to help you get a contract faster.

Johnnie 25:55
No, I absolutely agree with what you are saying. As a staff director, I was not going to say, oh, here is this great technology, Navy, you have to buy it. That is just not going to happen. Now, there are times when you talk to the right staff and they see a capability and think, oh my gosh, this would be fantastic for whatever service I am working with, or whomever, and they want to introduce you so that you can let them know what you have. That is something that can happen. But you really need a potential customer who, if they had the money, would want to spend it on that type of capability.

Maggie 26:37
So I noticed that in the bill that was released a few days ago, the word innovation is stated 34 times in the conference report. Following that word were capabilities, everything from solid rocket motors, which had $500 million attached, to DIU receiving $40 million for Pillar Two AUKUS-related fielding initiatives. What clues should startups be looking for in this bill to really understand the signal inside this appropriations bill with respect to emerging and commercial technology?

Johnnie 27:13
I will go back to what I said earlier, which is that appropriators do not like words. If they include a word, it is because it means something. To get into the joint explanatory statement, all four corners have to agree, meaning the House chair, the House ranking member, the Senate chair, and the Senate ranking member. That is a bipartisan, bicameral message on importance. So the fact that this makes it in is a signal to founders about where the priorities are. I was especially happy to see funding for solid rocket motors and those types of things, areas where many of us know there have been issues. That funding is being prioritized to fix those problems, and not just at the prime level. They specifically call out new entrants.

Maggie 28:02
And once a founder sees a budget line for something relevant to them, let us say I build a small UUV, an unmanned underwater vehicle, and I see there is $50 million for small UUVs, what is the next step a founder should be taking to actually tap into that budget line?

Johnnie 28:19
I think that is the point where a founder needs to talk to somebody who understands the process and has worked the process. In some cases, that money might already be spoken for. A line might have been moved. This is where the process does become more opaque. You need to make sure that the money is truly available, who is going to be managing it, and how they are going to get it. There is language in multiple places that says things need to be competitively awarded, except for certain exceptions. You want to make sure this is not one of the places where an exception is going to be provided, and that it really is available. This is very bespoke, and for each case you need someone who knows who to talk to or has the relationships to ask those questions.

David 29:13
So, Johnnie famously, I think the President put out a Truth Social post or a tweet or on X or one of those social media platforms stating that he would like to nearly double the defense budget to one and a half trillion dollars. You know, this is a little over half of the FY26 appropriation. So should we expect that the President’s budget request, when it gets submitted to Congress, will have a top line of one and a half trillion? And if you wouldn’t mind indulging us, what do you think sort of happens from there?

Johnnie 29:50
So I have been trying to track that down too. I don’t know the answer. I have many guesses. I think that it would be difficult to get a base budget at that level. I think there’s a possibility that that would include, but I do not know, another attempt at reconciliation, which I think would be very difficult in an election year, especially for the House. But one of the reasons that it makes me think of having that as the overall base budget is that several years ago, maybe six or eight years ago, we’d gone back to talking about how there are 12 appropriations bills. Historically, the Labor, Health and Human Services bill is, in general, a Democratic priority, and the defense bill has been the Republican priority. And so, as we’ve gone through and gotten close to shutdowns, they’ve started to travel together now. That’s why, for at least six years, you’ve seen them in packages together, and people will talk about parity. So if defense gets a certain amount of increase, then the Labor, Health and Human Services bill needs that increase. There is no scenario where Congress passes a bill with Labor HHS getting that much of an increase. So I often think in terms of three-dimensional chess, and I’m not sure how that would play out. And honestly, I’m not sure how, or if, it’s been decided exactly how that’s going to show up, because we’ve seen this administration get very creative.

David 31:35
Totally. Well, I mean, gosh, thank you so much for sharing your insights and obviously your well-deserved wisdom on the process. I know I definitely learned a lot, and we hope that our founders did as well. Thank you, Johnnie, for coming on. And for those of you that still want to stick with us, Maggie and I are going to highlight some of the winners and losers as we saw from the appropriations bill, based on whether or not Johnnie’s former colleagues decided to mark up or mark down a respective program. So stick with us. But Johnnie, thank you so much for coming on the Techquisition edition.

Johnnie 32:11
Thank you so much. Any time you have questions, let me know.

Maggie 32:14
Thank you so much, Johnnie. All right. Wow. Well, that was a great conversation with Johnnie, clearly a world-class subject matter expert on the world of appropriations. I don’t think I ever fully understood just how all of these different pieces work together, and I definitely learned a lot from that conversation. But I wanted to dive in a little bit here and get into some of the more specific details that came out in this bill that are going to be relevant for startups. Let’s talk through who some of the winners are and who some of the losers are in this appropriations bill that are going to matter for this ecosystem. So, David, maybe starting with some of the obvious ones, how did groups like the Defense Innovation Unit fare, or some of these other innovation organizations, in this bill?

David 33:06
Well, Maggie, yeah, I can never help myself but to do some control F when these types of documents come out and see how the Defense Innovation Unit does, and it looks like they did all right once again, right? They got a significant amount of money in the big, beautiful bill for fielding technology. They got an even larger plus-up from Congress relative to what the President’s budget request was, which was surprising to me. Once again, I think Congress is stating, especially on the appropriations side, that they like the way the Defense Innovation Unit does business. And I think for founders out there, DIU has been kind of a halcyon of an organization that awards contracts to venture-backed startups. So I would be on the lookout for more solicitations, or specifically, if you want a prototype project and you’re moving into production, it seems like there are a lot of line items that are explicitly focused on fielding these capabilities. They got some pretty large buckets of funding around some specific areas.

But I would now be a little bit remiss not to highlight that two sister organizations that are nested under the Defense Innovation Unit did not fare so well. I’m talking about the National Security Innovation Capital and the National Security Innovation Network, NSIC and NSIN, respectively. It looks like they both did get some money in the big, beautiful bill, but both were zeroed out in the President’s budget, and neither were plussed up by Congress. So in my mind, those organizations, as we know them today, are going away. Though I would be remiss not to state that NSIN appears to be morphing into a new entity known as these on-ramp hubs. I know that recently they just did a ribbon-cutting ceremony in Montana for what’s supposed to be an innovation hub out there, and there was a decent amount of money in the appropriations bill for that activity. But enough about the Defense Innovation Unit. Maggie, you write a blog that’s pretty dialed in on all things artificial intelligence as it relates to the department. What did you notice out of the appropriations bill?

Maggie 35:38
So one piece that caught my eye was the Chief Digital and AI Office. Specifically, their Alpha One programs seem to have been a big winner from this bill. This is essentially an AI infrastructure program that they manage to help spread artificial intelligence throughout the department. Last year, Alpha One had a $53 million budget. This year, that was bumped up to $401 million, plus an additional $140 million from reconciliation. So that’s almost, or maybe more than, a 10x increase there. We’ll definitely be seeing a lot more coming out of CDAO.

I’ll also just mention a few callouts. I saw that generative AI was mentioned three times in the joint explanatory statement. I don’t know if it’s ever been mentioned in past explanatory statements. I looked back a year or two and hadn’t seen it before. They’re looking at using generative AI for counter-UAS, looking at using it for mixed reality and immersive simulations, and then one other for real-time operational awareness. A couple of other smaller line items mentioned AI as well, including AI for night vision, multi-domain kill chain automation, cognitive decision aids, and autonomous battle management. Then there was a little bit of talk about using AI for warfighter health, specifically using it to optimize performance under acute stress. So definitely, we’ll be seeing more about artificial intelligence. This all seems to be feeding into the department’s AI strategy, which came out a month or so ago, so it’ll be interesting to see where we go from there.

David 37:27
I was going to say, it’s so good, because I think we talked a little bit in an earlier podcast about GenAI and its ability to help with a lot of different administrative tasks. But now, trying to apply this technology more broadly, I would imagine they’re taking a lot of lessons learned from both Ukraine and Israel on how this stuff could be implemented into the field. So it’ll be exciting to see how different companies implement these technologies, and then how we see it happening in exercises.

Maggie 38:02
Yeah, anything relevant in the world of space, or any of the services that we should be paying attention to?

David 38:08
Well, I’ll touch on space. You know, they were kind of flatlined, all things considered. And I know there are a lot of large initiatives. I guess I will say, Golden Dome aside, the Golden Dome seems like they need to hit the “I believe” button a little bit harder with Congress, because there were a lot of requests for information and understanding around how this is architecturally going to work. So, yeah, I mean, I was a little bit disappointed that space was not as big of a winner. It seems like other areas, like collaborative combat aircraft on the Air Force side, are doing pretty well. I saw on the Navy side a pretty big increase for their warfighting experiments and demonstrations, going from 82 million to 152 million. So you might think a lot about autonomous surface vehicles and underwater vehicles, right, and how they’re performing, and making sure that we’re building that into our concept of operations. Those were a couple other areas that stood out to me.

But I would recommend that founders, within different tech areas or services, look at some of the good materials out there written by outlets that are more professional than us, specifying exactly how things are playing out. Of course, this wouldn’t be a Techquisition Edition without me quickly highlighting the cyber stuff. As of right now, there was nothing in this appropriations bill for it, and in fact there was a section highlighting that if the cyber program isn’t authorized, then there’s money you don’t need to administer it. So the saga continues, yeah.

Maggie 40:00
Will remain to be seen what comes next. And David, just to close out the way that we’ve been closing out these other ones, what do you think our next Techquisition Edition podcast is going to be on, if you had to guess?

David 40:13
Well, I hope that it’s one of two things. It’s either the Small Business Innovation Research reauthorization, and we can talk about that in gory detail, or the President’s budget request, which traditionally is due to Congress in the February timeframe.

We discuss:

• What it means for DIU and SCO to be designated as “field activities”

• What new major AI projects the DoW is starting

• How DoW is investing in data and compute infrastructure to enable rapid AI adoption

• New initiatives in the services and PAEs designed to bring innovation into the hands of warfighters

• And more!

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

As always, please let us know your thoughts, and please reach out if you or anyone you know is building at the intersection of commercial technology and national security.

And, we encourage anyone interested to read the AI strategy and innovation ecosystem memos for yourself to get all the details on these policy changes:

• DoW AI Strategy

• Transforming the Defense Innovation Ecosystem to Accelerate Warfighter Advantage Memo

• Transforming Advana to Accelerate Artificial Intelligence and Enhance Auditability Memo

Subscribe now

Transcript

Maggie 00:39
Welcome to the second ever episode of the Techquisition Edition of the Mission Matters podcast. In this episode, we’re going to be discussing some pretty big news that came out just yesterday about the Department of War’s new AI strategy and their new plans for the DoW innovation organizations. Just yesterday, Secretary of War Pete Hegseth announced a series of reforms for the DoW innovation ecosystem during a speech he gave at SpaceX headquarters in Starbase, Texas. He also announced the DoW’s new AI strategy. In conjunction with the speech, the department also released three new memos codifying these initiatives. So David, just to kick it off with the first question, can you cover what were some of the major themes highlighted in this speech and in these memos?

David 02:07
Well, Maggie, it’s a pleasure to be back on with you for this Techquisition Edition emergency podcast. Yes, we’re recording the day after Secretary Hegseth’s speech at SpaceX, which is a pretty cool venue to announce things at. But what did he talk about? He was re-emphasizing the desire for the Pentagon to go fast, find a way to be able to say yes, not be overly reliant on process, grow the industrial base by being creative and leveraging private capital markets. There was also a significant emphasis on leveraging artificial intelligence and on behavioral changes around data sharing, experimentation, and making the department AI-first. Secretary Hegseth also announced new leadership at the Chief Digital and Artificial Intelligence Office, as well as at my alma mater, the Defense Innovation Unit. He created lanes of understanding for how organizations like the aforementioned CDAO and DIU, as well as DARPA, the Mission Engineering and Integration Activity, and the Office of Strategic Capital, among others, are to work in tandem together to support the mission, which, quite candidly, can be confusing at times if you are unwitting to the variety of department organizations.

Maggie 03:32
I know I’ve had to have you explain to me multiple times how all these organizations actually differ from each other.

David 03:38
Yeah, well, you know, it certainly doesn’t help that the acronym soup is always expanding. But to that end, he emphasized some consolidation. We had these innovation organizations that were not tied directly to executing missions or acquiring capability. To that, he called out specifically the Defense Innovation Working Group and the Defense Innovation Steering Group. Gosh, I didn’t know that those were actually different, unique entities, and I’m an interested outsider. I couldn’t tell you what they did. He abolished those in favor of consolidating and then sort of putting the onus back on the services to consolidate as well and figure out how they’re going to engage with this series of memos. Overall, I’d say it’s a similar pattern to what we’ve seen. He is highlighting things that seemingly are working and trying to inculcate them into the system, versus allowing these things to continually operate on the periphery.

Maggie 04:42
So David, speaking of DIU and SCO, or SCO, Strategic Capabilities Office, can you tell us a little bit about what you think of those organizations being named field activities? I mean, what is a field activity? I know that was really one of the major reforms that people have kind of attached onto. Is this new? Is this substantial? Why does it matter?

David 05:04
Yeah, well, and I’m glad you mentioned the Strategic Capabilities Office, because I forgot to mention them as one of the organizations he referenced earlier. Okay, so field activity. Does it matter? Is it new? Field activities, there are lots of them. They are sort of an echelon lower than an agency. You have the departments, the Department of War, the Department of the Air Force, which is where the Space Force and Air Force as branches reside. Under the Department of the Navy, you have the Navy and the Marine Corps as branches, and then the Department of the Army. These are secretary-level organizations, and then you have these things called agencies. DARPA is an agency, DITRA is an agency, and then you’ve got the National Security Agency, which is also an agency and an intelligence community organization, so they are dual-hatted to the Office of the Director of National Intelligence and the Department of War. But what you might call less substantial, though still chartered to do a specific service on behalf of the entire department, are these things called field activities. I’ll actually give a commendation to my good friend Kevin McGinnis, who I worked with at Defense Innovation Unit back in the day. He wrote a paper stating that Defense Innovation Unit should be a field activity all the way back in 2017, and he was quick to remind me of that this morning over a message. We talked about it and asked, what does that mean, and why is it important? I would say for the most part things will stay the same. It does put the onus on Defense Innovation Unit and Strategic Capabilities Office to fulfill the mandate as articulated by Secretary Hegseth, and he’s going to submit that through the appropriate Title authority to Congress to ratify it. But now they are, lock, stock, and barrel, supposed to do exactly what these memos highlighted, and the department, or other organizations within the department, cannot or should not do that work. A good example of a field activity is Washington Headquarters Services. Most people don’t really know who they are or what they do. They support from a back-office perspective, contracting personnel among other things, and they provide that service for all of the Office of the Secretary of War’s needs. Whether you’re in Research and Engineering or Acquisition and Sustainment, and you’re one of those principals tied to doing something, if you need a contracting entity or contracting activity, you must use Washington Headquarters Services. That’s what they’re mandated to do, and that’s what a field activity is getting at. I would also say it will provide those of us interested in the financial machinations much better transparency into what Defense Innovation Unit and SCO are submitting through the President’s Budget. They’ll also now have to defend it. It won’t be locked in with all of the other Office of the Secretary of War activities where you have to figure out after the fact what DIU spent money on. That’s interesting. They’ll have to fight for it through the OSD Comptroller and the Office of Management and Budget, but it will help us understand what they’re spending to execute their mission. Hegseth mentioned that DIU will still have the ability to report to the Secretary, as codified in the Fiscal Year 24 National Defense Authorization Act, which was really important at the time. But their direction is going to come from the Under Secretary for Research and Engineering, Emil Michael, who now also appears to be dual-hatted as the department’s single Chief Technology Officer. For what it’s worth, a lot seems to be getting put on the plate of the freshly minted CTO, and I think we’ll get into that a bit more with the artificial intelligence transformation memo.

Maggie 09:19
Yeah. Yeah. That seems like a major point that Secretary Hegseth made, which was that all of these innovation organizations are now going to be reporting into this single CTO, Emil Michaels, who is really bringing all these organizations and their missions together. So according to Secretary Hegseth’s speech, one of the themes that I really took away is that innovation really can’t just be for innovation organizations like DIU. It needs to be part of warfighters and operators. It needs to become a core part of the way that the services departments and acquisition organizations, like the new program acquisition executives, do business. And there were maybe two major initiatives that he announced as part of that. The first one was this change to PAEs, this innovation insertion increment, or triple I requirement, that he mentioned. So could you tell us a little bit about what that actually means?

David 10:19
Yeah, well, I mean, I’ll say maybe to the first part about where is innovation supposed to happen. You certainly have these organizations where it’s expected to sort of be a front door for commercial entities. But I thought it was really cool that Secretary Hegseth sort of called out that innovation can happen at any echelon. He regaled an anecdote with a captain in the Army who was working on some AI transformation and saying, like, we need to be celebrating these activities and encouraging people who see problem sets in different ways and solutions to go out and do it and be encouraged, and then the command structure ought to support it. But specific to this innovation insertion and increment move, I’ll say off the bat, I think this is going to be really tricky to do, and a lot of that comes down to the budgeting process, known under the whole planning, programming, budgeting, and execution, PPBE. Maybe for the purposes of this conversation we’ll truncate it to how it’s colloquially known in the department, and that’s the POM process, Program Objective Memorandum. The POM process forces program managers to outline with extreme specificity exactly how the funding requested from Congress will be spent two years in advance, to include who the performers are going to be and what contract vehicles they’re going to exercise and leverage well in advance. And so how can the PAEs, across their portfolio, which we assume to be a grouping of related programs, be provided enough flexibility to incorporate innovation? This is going to be a challenge. Today, program offices can use programs like the Small Business Innovation Research, SBIR, or the AFWERX program. They also sometimes leverage the Defense Innovation Unit and some of their funding lines that are a bit more flexible, and then SCO, to do some of these innovative, non-programmed activities. So I think the department will need to negotiate with the appropriators off the bat what sort of a percentage, maybe five or ten percent of a program that is being POMed for, could be available for non-specified experimentation. And so I think it’ll be interesting to see how this plays out and how the services respond. But I do think that there’s an element of funding flexibility that is required in order to get after this mandate.

Maggie 12:55
So just to make sure I’m understanding this right, the way we should think about this triple I initiative is that it’s really trying to force the PAEs to spend a specific percentage of their budget on trying to integrate some innovative new technology into an existing program. So I need to spend some money to put AI on the F-35. But what you’re really getting at is that the way money is spent on a major program today has to be very detailed and submitted to Congress far in advance, and so we’re going to have to see how they’re actually able to get this kind of flexibility. Am I understanding what this initiative is the right way?

David 13:37
I mean, it’s almost as though you could ask me, you know, “David, here’s the NFL schedule. Predict every single team that’s going to win based on paper,” and not be able to take into account injuries or crazy random acts. And if you’re not right, there’s nothing you can do during the season in order to change the plan for how you thought it was going to play out. And I think what Secretary Hegseth is getting after is that the velocity and the pace of technological change are so fast that if we’re not taking advantage of it while the program is still in development, by the time it’s fielded, it’s already going to be outdated. And so if we don’t have these opportunities for innovation to occur, to then insert it and integrate and scale, because we’re not all-knowing, you know, we’re setting ourselves up for failure.

Maggie 14:40
So next, I want to turn to another one of his initiatives that he outlined, both in his speech and in these memos relating to the services. That is, he has mandated that the services need to brief plans for innovation within the next 30 days. So what should we take away from this mandate?

David 14:58
So, just like the Office of the Secretary of War started to consolidate a lot of these organizations or councils or steering groups, he is sort of asking the same of the services. And so I would say that, in some respects, it feels like the services are out in front of this. We’ve seen announcements around the Army FUSE program, and they’ve consolidated a lot of these seemingly related but not connected organizations that are doing innovation, experimentation, and scaling, and that’s now all under one house. The Navy is doing a road show with their new Navy Rapid Capabilities Office, and that seems to be a strong insertion point for innovation to get out to the fleet. They’re doing it in concert with the Office of Naval Research, which has historically been responsible for a lot of early-stage technology readiness level experimentation and working across a variety of national and government labs. And then Space Force, for a couple years now, has had this organization called the Commercial Space Office, COMSO, and they’ve been doing a really good job working with commercial organizations and figuring out how they can apply that to their mission mandates.

And so I guess the one service I didn’t really mention is the Air Force. They have a pretty famous innovation organization called AFWERX, but of late it’s been a little bit unclear exactly how that’s being tied into larger programs like Collaborative Combat Aircraft, which is pretty forward-leaning and leverages innovative companies. How is the Air Force going to be adopting this mandate to be more innovative? I think it’ll be really interesting to see how the services submit their plans. I really hope that, at least in some respect, we can see that at the unclassified level and provide some sort of comment, because one of the things that Secretary Hegseth reiterated is just how confusing and challenging it is for industry to understand all of this. So really what we ought to do is accomplish this transparently and make sure that we’re getting feedback from industry, so that we’re not just recreating the same thing as it was before.

So Maggie, maybe switching gears here, in addition to all these changes across innovation organizations and the need to go faster, Secretary Hegseth announced the Department of War’s new AI strategy. I think you’ve had some time to absorb it, but what were some of the major initiatives and themes from that strategy that stuck out to you and that our founders really need to know about?

Maggie 17:58
Yeah, definitely. I was excited to see a new AI strategy from the department. The last strategy the Department released was back in 2023, and if you can believe it, it did not mention generative AI a single time. Times have definitely changed since then. And I think, as you know, I’ve written about and we’ve talked about in the past that there are a lot of changes the department needed to make to really stay competitive in the AI space, as the pace of innovation has moved so quickly in the commercial sector. Overall, the strategy is focused on how the department can quickly adopt AI at speed to become an AI-first warfighting force. They’re trying to ensure that the entire department has access to leading-edge models on all of its networks, both classified and unclassified. The strategy starts out by detailing what they’re calling seven pace-setting projects, which are essentially, as far as I can tell, pilot initiatives to get the ball rolling on AI adoption within the department. Each of these is going to have a single, accountable leader who has to regularly report progress on aggressive timelines.

David 19:14
What would be a pacing project? Because that does sound pretty exciting.

Maggie 19:19
Yeah, yeah. So they’ve already announced one of these, GenAI.mil. I know, David, you’ve actually had the chance to play around with it, so I don’t know if you want to share anything about what that project is and how it is.

David 19:31
Well, sure. So GenAI.mil, a couple weeks ago when I was doing my reserve duty, all of a sudden one day we had an application on our desktop and we had access to Gemini. When you opened up the application, you could launch Gemini, but it also highlighted that coming soon would be a couple other of the more prominent large language models. And at the event yesterday, AHEG Seth announced that Grok is now available. The other two that I believe I recall seeing were going to be OpenAI ChatGPT and Anthropic. So it seems like the department is getting access to some of these cutting-edge large language models, and it’s really great to see. I will say, during my two weeks of reserve duty, I was using it quite a bit. Because I’m used to using it in my day job, I use OpenAI among others, and I was explaining to my coworkers how they might engage with it and leverage it. So it’s really great to see things that are in the commercial world coming to the department. I mean, I guess three years late, but who’s counting?

Maggie 20:43
I mean, I thought that this was a great initial project for the department to roll out, and they got basically just these basic AI tools in the hands of 3 million folks within the department. They did not overthink it, right? They are just giving people access to the exact same commercial tools that you and I have access to in our day jobs, really allowing people to see for themselves the power of these tools and find for themselves the major applications that are actually going to make a difference in their day-to-day workflows. So that was the first pace-setting project. They have a few more that they have not really released any details on, but they are looking at things like using AI for battle management, decision support, and improving simulation. The next major initiative that they announced is that they are actually going to be investing in more AI compute resources for the department.

David 21:33
I will just interrupt. I mean, that is huge to me, and as somebody who has watched the budgets be developed, it always feels like information technology and infrastructure are always a bill payer. So maybe just a little bit more on how exactly we are going to get to this AI utopia with the resources necessary to make it happen?

Maggie 21:59
Yeah, so I think that really investing in these AI compute resources is going to be one of the major enablers of actually getting this technology into the hands of warfighters, as well as folks in the back office. I have written about this before. One of the major roadblocks to getting AI where it is needed is literally just access to compute, access to GPUs, access to hardware that can run on classified systems or that can run at the edge. You know, some people I have talked to actually talk about bringing GPUs, like an NVIDIA Jetson, just in a suitcase to make sure that they always have it when they need it, because they know that they are not guaranteed to have it. Yep, I have talked to people at our portfolio companies that do this, and I have talked to people in the government that do this. So, you know, what the Secretary has said is that the U.S. military is going to put real capital behind acquiring compute resources. He even went so far as to say that they are going to build data centers on military bases or on federally owned land. We will definitely see what has to come of that. These are going to be secure data centers where maybe we could actually do some AI model training on classified data.

David 23:15
Sounds awesome and definitely needed. I hope that the government is able to strike a deal, because what we are seeing is certain communities resisting data centers, you know, not in my backyard. Well, you know, federal land on military bases, and there are certainly plenty of old, ugly buildings that ought to be knocked down, and we could put some server farms in there. Maybe if the warfighter can get access to it first, that would be wonderful, yeah.

Maggie 23:45
Well, you know, we know there’s a lot of real estate professionals in this administration, so I’m sure they’ll be thinking carefully about where the best spots are to put these centers. The next major piece that I saw in this AI strategy actually harkens back to the 2023 strategy, which was, once again, really focused on data availability for use with AI models. This was the major focus of the 2023 strategy, and the new strategy takes it another step further. One of the major challenges to actually deploying and training AI models in the department is that a lot of data is stored in silos. It’s hard for the Air Force to access Navy data, or even within the Navy it can be difficult for different groups to access data, particularly classified data. And as we all know, our AI systems are only as good as the data they actually have access to. So what the Secretary’s memo does is direct all departments and components within the DoD to release a federated data catalog to the CDAO, the Chief Digital and AI Office, that exposes all their system interfaces, data assets, and other access mechanisms across all classification levels, and it says they need to do that within 30 days. I think it will be interesting to see if this can actually technically be done, just literally whether the technology is there to do this in 30 days. But this is certainly an aggressive mandate to force organizations to get their data into a ready state so it could potentially be used by AI. We also see that the memo directs CDAO to release this data to any user who needs it and who has all the security requirements necessary to access that data. It says that if CDAO wants to deny a request, they have to report it within seven days, and that denial can actually be escalated to the Deputy Secretary of Defense for Research and Engineering, Emil Michael. So it will be difficult for CDAO to deny data requests. This is really about trying to open up these data silos. Related to these data decrees, it also directs the services to accelerate rapid ATO reciprocity, authority to operate reciprocity. I don’t want to get too deep into the details of ATO reciprocity. David, I don’t know if you want to chime in here, but basically this is the idea that if I’ve gone through the full cybersecurity process to deploy my software with the Navy, then I should be able to deploy it with the Army or the Air Force without having to go through that same very rigorous cybersecurity process as a commercial vendor to deploy my software on service networks.

David 26:35
You know, it’s a long time coming. We’ll see if they’re able to exercise this. It seems to have been a thorn in the side, and Secretary Hegseth did mention that there will be no sacred cows, and this would certainly be one I’d be willing to sacrifice. Maggie, maybe just, like, what should this mean for our startups? How should they interpret these announcements around data reciprocity, data access, network reciprocity, network access? I think they maybe mentioned stuff around one of the buzzword bingos of modular open systems architecture, trust and responsible AI. They even, I think the memos talked about Advana. The Secretary didn’t mention Advana in his speech. What does this mean for our startups, or emerging companies that want to do business with the department?

Maggie 27:31
Yeah, well, I think it means that this is the time to really start accelerating your engagements with the department. This is a time when they are actively kicking off new projects to explore how these technologies can be used. I also think this is a time when you can actually help shape the infrastructure that the department is going to need to deploy the applications that startups are building. If you have opinions on what compute resources the department needs, and what data catalogs and data infrastructure they need, or even better yet, if you have a solution to support building out that data infrastructure and that compute infrastructure, this is the time to make your thoughts known. Start engaging with people at CDAO and within R&E. Start engaging with people at each of the services. The service chiefs and combatant commanders are going to start designating AI integration leads; they’ve been directed to do so within 30 days. Find a way to get in front of those people when they’re announced, and then really spend a lot of time with warfighters, with operators, deeply understanding their needs, understanding how your solution can solve a real problem for them, and work your way up from there. Yeah. I mean, David, what do you think? What did I miss?

David 28:47
I think that’s right. I think now is a compelling time. I’d like to maybe go back to talking about the Army FUSE program. They’re doing a series of experimentations with the intent that the things that are working will have on-ramps into programs like Next Generation Command and Control. So I think if you’re a startup, you need to start participating in these activities. I’m not saying that there is a well-worn path to scaling, to becoming like the next Anduril per se, but one thing that I thought was interesting that the Secretary mentioned is that he highlighted two companies that are now a pretty vaunted part of the fabric, Palantir and SpaceX, and said that for them to get a hearing and an opportunity, they had to sue the government, and we need to change that mindset. He also mentioned that the Gen AI application is now available to three million people. While our loyal listeners will definitely be listening to the things that the Secretary said, do not assume that the three million people in the department who now have access to Gen AI will have necessarily heard the Secretary. So I think it is important to take the time to read the memos, and we’re probably going to link them in the show notes, and then make sure you have that with you as you’re engaging with your customers, because they’ll need education about how much this transformation is trying to change the narrative. Again, I would say get active and engage. If you feel like you’re being told no a lot, I would say that people within the Office of the Secretary of War will definitely be hearing their boss loud and clear. If you become the squeaky wheel, it might get that higher headquarters organization to reach down and smack somebody to do the right thing, because these are directives. If there’s one thing that the military is supposed to be good at, it’s taking orders in a very direct, top-down fashion. So I think it’s important to get engaged and to give these new emerging organizations the opportunity to prove you right, that working with the department is the right use of your time and resources, and that you can start solving some of these very vexing national security needs.

Maggie 31:18
So David, what were some of the topics that were not discussed in this memo, in this speech, that you might have expected to be in there?

Top of Form

Bottom of Form

David 31:26
So you certainly covered a lot in a short amount of time. In fact, I was joking with one of my friends that I feel as though Secretary Hegseth sort of recreated all of the greatest hits that a lot of us have been saying for a long time about leveraging private capital, growing the industry base, and being innovative. He talked a little bit about contracting. He talked about authority to operate, okay? But what didn’t he get to? I guess I sort of highlighted a lack of what we’re going to do with funding flexibility, right? That’ll continue to be a thorn in the side of all of these initiatives. So I think we’re going to need to get more creative in the coming year with whoever will listen over at Congress. I was also surprised to hear nothing about personnel clearance, right? How do we get people access so that they can know about things that are happening, so that they can build products that will meet the needs of the warfighter.

Maggie 32:26
It was especially interesting that they didn’t include anything about personnel clearance, because they did make talent such a central part of this strategy. In his speech, the department just announced their new initiative, the Tech Force Initiative, which is really working to get early career technical and AI talent into the federal government in general, but the Department of War in particular, to come help build technology to solve some of their crucial challenges. And the AI strategy also directed organizations to be flexible when it comes to pay and hiring to get talented people in there. And, you know, I think, as many people know, getting through the clearance process is actually one of the biggest barriers to getting technical talent in the door. Totally.

David 33:13
I mean, I’m definitely bullish on Tech Force. I remember when the Defense Digital Service first stood up, and some of the initiatives and the education, honestly, that they provided others in the department around how technology was transforming, or should be transforming, mission sets. I’m very bullish on that. But yes, the personnel clearance and getting people through the pipeline, attracting that talent, is going to be a challenge. Also, the International Traffic in Arms Regulations, ITAR. I know that part of it is with the State Department, but, you know, the Secretary has talked a bit about foreign military sales, and I kind of put those two in a similar bucket of how do we allow our industry base to sell to our partners and allies and make sure that we’re not cutting our nose to spite our face from a market standpoint for the proliferation of some of this technology. So I would have liked to have seen a little bit more there, and then maybe just access to classified spaces. Again, if we’re trying to build trust and communicate, and this touches a little bit on personnel clearance, how are we lowering the barrier to entry to even having these types of conversations in the first place? Again, we need to be growing, and growing the amount of people that are in the tent so that we can solve these vexing problems with people’s imaginative and creative ideas. So that’s what wasn’t stated. But gosh, if there’s one thing we can count on, it’s maybe another emergency pod within the next few months as this administration continues to check through a lot of the things that will help modernize the department.

Maggie 34:51
Yeah, absolutely. There are definitely more changes to come, I have no doubt, over the next few months. I’m curious, David, what do you think our next Tech Position podcast episode is going to be about?

David 35:03
Man, this is kind of like a bit of a sign-off for us, right? Like presuming what’s next. Okay, so gosh, I really hope that we can either talk about an appropriations bill getting funded, and I am going to go out on a limb and say that with that appropriations bill will be a reauthorization for the CIBER program. So we might get two emergency pods within one activity. I’m really hopeful for that. So maybe early February we’ll be back with Tech Position episode three, and maybe four, depending on how we decide to split that baby.

Maggie 35:45
I definitely hope we get both CIBER authorization and a budget passed this year. Well, on that note, David, thank you so much for coming on to record this emergency pod. I know it’s 10:00 p.m. now as we’re finishing this recording, and I really appreciate, as always, learning all of your wisdom on all subjects innovation and acquisition in the Department of War.

David 36:09
I really appreciate it, Maggie. It’s good to do this one in person, so that’s also fun. All right, until next time, until next time.

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• The operational complexity of modern joint warfare and the role of commercial technology

• Why Venezuela has become a key piece of U.S strategy in the Western Hemisphere

• What the operation signals to China, Russia, and other adversaries about U.S. resolve and deterrence.

• And more

You can listen to the podcast on Spotify, Apple, YouTube, the Shield Capital website, or right here on Substack.

As always, please let us know your thoughts, and please let us know if you or anyone you know is building at the intersection of national security and commercial technology. Tune in next month for our next episode!

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Lisa 00:36
Thank you for making the time to join this timely discussion of the recent U.S. military action in Venezuela. We’re honored to have with us today SHIELD’s senior advisor and the former National Security Advisor to the President of the United States, U.S. Army General H.R. McMaster. General McMaster has a distinguished four-decade career as a U.S. Army officer, national security expert, and presidential advisor. He served as the 25th U.S. National Security Advisor from 2017 to 2018, where he led the National Security Council and advised President Trump on U.S. national security strategy. During his 34-year Army career, following his commissioning from West Point, he held multiple senior command and leadership roles. General McMaster commanded combat operations, including Combined Joint Interagency Task Force operations in Afghanistan, the Third Armored Cavalry Regiment in Iraq, and the Second Armored Cavalry Regiment during Operation Desert Storm. He is the recipient of numerous service awards. I could go on and on, but they do include the Silver Star, two Bronze Stars, and a Purple Heart. Those are stories that we will get out of him at the next limited partner annual meeting. He holds a PhD in military history from the University of North Carolina at Chapel Hill and a Bachelor of Science from West Point. General McMaster is a prolific author and historian and currently a senior fellow at the Hoover Institution at Stanford. We’re grateful to have his esteemed counsel and support at SHIELD, where the mission matters. And now it’s my pleasure to introduce to you Phillip Bilden, SHIELD founder and managing partner, who will help moderate the discussion today.

Philip 02:14
Thank you very much, Lisa. I also echo your thanks to the SHIELD investors and friends of the firm, our advisors and partners who have helped us build the firm that we have, and certainly our esteemed senior advisor and friend, General H.R. McMaster. H.R., very good to see you. I know that you’re on the Pacific Coast and had to wake up early today. You’ve been very busy since this news broke on Saturday. Amidst your other duties, thank you so much for being here for the SHIELD webinar.

LTG McMaster 02:43
Hey, Phillip and Lisa, what a privilege it is to be part of the SHIELD team and to be with you today as well. It’s a fantastic firm with a mission that I’m so excited about, and the vision you all had years ago to put this together. I think it’s already having a huge impact on our national security. Any time for you guys.

Philip 03:01
Thank you. And you have been there from the very inception of the firm as one of our advisors, helping us think through issues like we are dealing with today, which we are going to be discussing: the relevance of the technologies that SHIELD has been supporting and the companies that bring these capabilities to the warfighters, to our intelligence community, etc. Maybe that is where we should start. H.R., I am actually two miles north of Mar-a-Lago, where a lot of this activity took place over the weekend. You are no stranger to Mar-a-Lago in your duties with the President when you started out in 2017 as his National Security Advisor. But operationally, what was executed in the zero-dark hours Saturday morning? How would you assess this, just on a simple scale, one to ten, in terms of the complexity and ultimately the execution, all the planning that went into that in terms of its operational performance? How would you assess that?

LTG. McMaster 04:07
Hey, Philip, I will tell you, this is a ten in terms of degree of difficulty, if we are going to liken it to Olympic diving or something. And it was a ten score, I think, from all the judges. I mean, you have to look at the broad scale of preparation and then implementation and execution on the objective, on the X, and then the exfiltration. It was done so well, so professionally, and in a very difficult environment. It is Venezuela, which is the beneficiary, the recipient, of all kinds of assistance from the Cuban military and Cuba, Cuban secret police essentially, and intelligence. Russia and China have tried to help them perfect their technologically enabled surveillance and police state, and then you also have Iran active there. So getting into that denied environment, collecting the intelligence necessary to drive the planning, and then conducting that planning with so many different agencies and the joint force, this makes me think of the history of other interventions in the hemisphere, going back to Grenada, which was a successful operation but one that revealed a lot of disjointedness in our joint operations. We are so many orders of magnitude better now than we were then.

Then you look at the professionalism of the forces, from the suppression of enemy air defenses to the cyber activities and electromagnetic activities to blind the enemy as you get into the objective area. Just the number of aircraft conducting these electronic warfare missions and the suppression of air defense assets, and then responding immediately to any enemy fire and immediately suppressing that fire, is extraordinary. To have just one aircraft hit and that aircraft still be able to continue the mission is unbelievable. Just deconflicting the airspace was probably pretty amazing. And then the 1/60th coming in, you know their motto, the Special Operations Aviation Regiment, time on target plus or minus 30 seconds. Well, they did that. The timing was impeccable.

I think what you are seeing also, Phil, from the perspective of SHIELD and SHIELD investors, is that we are going to find out more and more that this operation was enabled by a combination of very highly classified government capabilities and a whole range of newly available commercial capabilities, from satellite imagery to RF collection. I am thinking of Hawkeye 360, for example, and then the big data analytical capabilities, the ability to fuse multiple sources of intelligence, and the cyber tools that allowed us to shut down cameras and shut down communications. So a fantastic operation. Degree of difficulty, ten, and I think the score is a ten.

Philip 07:16
Absolutely. Thank you for that. So this was a multi-jurisdictional, multi-agency combined effort that required an enormous amount of integration. Can you walk us through a little bit of the operational phases? The President did not just wake up after two years and decide that he was going after Maduro. This was in the works for several months. There were CIA human assets on the ground, monitoring through traditional espionage, augmented with technical means, drones, ISR capabilities, in order to get to the point where the President could give the order, which I think was before Christmas, that gave an operational window to our friend General Dan “Razin” Caine to pull the trigger and say, this is the go time. Can you walk us through that sequence a bit, H.R., and maybe focus on some of the elements of these technologies and capabilities that are so important to our emerging national security that we are supporting, how they played into the intelligence collection and then ultimately the extraction?

LTG. McMaster 08:26
Well, I think what you saw our intelligence community and the military give the President were multiple options. Of course, President Trump knew Venezuela was a problem in 2017. He actually said at the time that we were developing military options for Venezuela, when we really were not doing that, but he said it, I think, to try to coerce Maduro during that period. Maduro has become more and more of a threat since then, and I can imagine conversations that occurred very early in the Trump administration, especially with Secretary Rubio coming in, who has tracked hemispheric issues in such detail with his Senate staff. He is the most knowledgeable person on activities and the security and economic situation in the hemisphere. I relied heavily on his staff, actually we did. And Trump won for the Venezuela policy we put into place in 2017, as well as the 180-degree shift in Cuba policy away from the Obama administration and back toward maximum pressure on the Cuban army. So very early in the Trump administration, I am sure the order went out, “Hey, give the President options.” You have to put an infrastructure in place to do that. As you mentioned, you have to get intelligence collection capabilities, human intelligence capabilities, and Title 50 intelligence agency operational capabilities in place. I am sure a lot of that was going on that we will probably never hear about, activities aimed at setting conditions for the raid to extricate Maduro, his wife, and others. Then a range of military capabilities were put together. They did not just come together; they had to organize and put a task force together. I think they probably built a mock-up of the palace somewhere and rehearsed this multiple times across operational distances. That preparation phase probably began soon after President Trump’s inauguration. Then you had the organization and rehearsal phase when Maduro was intransigent. There were some initial efforts, and this is a pattern with President Trump. He wants a deal, he always wants a deal, so he tries the deal first, and when he gets stiff-armed, he considers other options. The rehearsals and organization, I think, began around November and December. These great servicemen and women involved probably did not really have a Christmas. You saw the staging that was happening, some of it in Florida, some in Puerto Rico, and other places. The maritime task force played such an important role in this operation. The preparation phase went through December, and then you are teeing up the option for the President. “Mr. President, here is what we have planned.” President Trump likes to get into the details. Just like he will walk around a construction site for one of his hotels, he wants to talk to people with different perspectives and learn more about it. One thing about President Trump is that he is willing to take a risky decision. I cannot share details, but there were multiple times I brought him an operation involving saving U.S. citizens from a dangerous situation. I would lay out the risks, the potential for failure, and the costs associated with that, and he would ask, “Is it the right thing to do?” I would say yes, and he would say, “Okay, do it, General, do it.” Oftentimes I would call back to the agency and say the President approved it, and they would respond, “Really? That can’t be true. Nobody makes a decision that fast.” I think he probably made this decision based on the advice he was getting, including from his principal military advisor, Dan Caine, a former SHIELD guy for a brief period of time and an amazing officer. Then you had the execution, and now we are in the aftermath.

Philip 12:38
Yeah, absolutely. How did this extraordinary military operation maintain operational security, or OpSec? I mean, you’ve got a flotilla of maritime assets, the Gerald Ford, the Iwo Jima, several DDGs, and other support vessels. It was no surprise that there was a buildup. And then, of course, there was the campaign against the drug boats that have been taken out by aerial means and with kinetic force. So maintaining that operational surprise element is very, very challenging, particularly when you have numerous interagency participants. It’s extraordinary. There’s no leak, no nothing. And as we know, the extraction took place in the wee hours on a Saturday, right after the New Year’s holidays, with Delta Force entering and breaching a highly secure Venezuelan military base where Maduro and his wife happened to be at that time. How do you do that? And across—

LTG. McMaster 13:39
—considerable distances, where I’m sure there was significant aerial refueling going on. Aerial refueling of rotor-wing aircraft, which is not an easy task, and operating off the Iwo Jima, which is the amphib that was committed. I think, Phil, this is a really important question because of the ubiquity of surveillance capabilities, low Earth orbit capabilities, RF collection capabilities. Really, it’s almost as if everything you do is visible everywhere. So what you have to do very early in an operation is desensitize your adversary. Sadly, this would be concerning for us. This is what China is doing right now around Taiwan. How will you know when it’s a real Taiwan invasion, or is it just another one of these live-fire exercises?

So having the maritime task force and the aerial activity that we had in the Caribbean prior, that was part of the desensitization. Then deception plays a big role. Deception can be public statements that you make that might indicate that you’re not really looking at this, that you’re looking at other potential options, and so forth. And you remember the President actually announced the clandestine strike on a port facility before that. But all this, I think, was actually beneficial because it indicated that our approach to what we were going to do militarily was pretty narrowly circumscribed and would really only be in the coastal area or involving these narcotics trafficking boats.

So noise was high, deception, and then you have to go into the blind phase. This is where, I think, we have to really think in terms of future war. We have to be able to blind and deceive our enemies. The reason why the situation in Ukraine is so stagnant is because, with the capabilities that both sides have there, you can’t conduct a sustained offensive operation due to the transparency of the battlefield combined with what each side has in terms of long-range precision strike capabilities, FPV drones, and so forth.

Then you’re into the blind phase, and this is something we’ll probably learn about maybe 30 or 40 years from now in terms of exactly what happened. But I think the implication is that we have pretty considerable offensive cyber capabilities, similar to those that the IDF displayed in the attack against Iran, and we probably assisted with that as well. So the importance of warfare across all domains, the space assets, the electromagnetic assets, the aerospace, the maritime, and of course all the set conditions for what happened on land during that successful raid.

Philip 16:35
Thank you. We’ve talked a lot about unmanned systems and drones. We’ve seen this on display in Europe with Russia and Ukraine and these first-person viewing capabilities, which are pretty extraordinary. It’s like playing a video game, but the consequences are unfortunately very deadly. There was a fair bit of aerial surveillance with drones before the operation and after the operation. But interestingly, what had the impact was 150 fixed-wing and rotary-wing assets, some of which were from our service, the Army, that were in the fight. But they were assisted by the anti-aircraft assets that were supplied, I believe, by the Russians and the Chinese. Those were blinded and those were taken out. How do you think they did that? Because that was similar to what happened in Iran with Operation Midnight Hammer just months ago.

LTG. McMaster 17:38
We had command of the airspace. Yeah, absolutely. There were a range of capabilities that were employed. A lot has been mentioned about electromagnetic effects, and I am sure cyber was employed there as well against UAS capabilities. By the way, it is worth mentioning that there is an Iranian Shahed drone factory in Venezuela. That is part of the problem. Part of the problem with Venezuela that brought us there was how Venezuela had become a platform for our adversaries in the region. Also, with the advanced radar capabilities that we have on our manned aircraft, everything from Army Apache Longbows to F-35s and F-16s, oftentimes it is manned aircraft that are the best counter to these unmanned systems. Your ability to command and control with our aerial command and control platforms, based on the common visibility or picture of the airspace, is critical. I do not think really anybody else can do that but us right now, Philip, in terms of the visibility and the ability to bring multiple platforms to bear. The other time you saw this from a defensive perspective was in the highly successful defense of Israel against the massive ballistic missile and drone assault that Iran launched. It was almost completely defeated. That was tiered and layered air defense, involving, as you are mentioning, manned and unmanned systems, aerial and ground systems. I think that is the answer in the future. In warfare, there is always a countermeasure. So what you need is a range of capabilities. You can play the game of rock paper scissors, but you have to have all three to be able to seize and retain the initiative and to create conditions, like we created across multiple domains, to affect a highly complicated raid like that or any other military operation.

Philip 19:38
Well, this is exactly why SHIELD exists, to stay ahead of those technologies that our adversaries are able to develop on their own, reverse engineer, or steal through cyber means, through espionage, or what have you. This rock paper scissors dynamic, staying ahead of adversary capabilities, really drives so much of what we do from a mission standpoint, quite apart from the fact that it is also going to be a very important economic activity. This is where the future is going. Thank you for that operational breakdown. That is extremely helpful for setting the table for some of the geopolitical issues which you have spent most of your career working on, in and out of uniform, in the Oval Office advising the president, thinking about and trying to create a more stable environment for the United States, trying to avoid unnecessary escalation where that is prudent and feasible, but also creating strategic deterrence. That means trying to get the Chinese, the Russians, the Iranians, and the North Koreans not to do things that we do not want them to do. Let us start in the region, and maybe even go back to when you were national security advisor. What has really changed in Venezuela specifically, and then more broadly in Latin America, from 2017 and 2018 at the beginning of the first Trump administration to now? Where did it get to the point where the president felt compelled to actually go do an extraction of a sitting, if not illegitimate, head of state.

LTG. McMaster 21:16
Well, there’s a lot of continuity. I remember a conversation with President Trump, with a number of other people in the Oval Office, and he said, “General, General, why don’t we just bomb them?” And I was like, “Well, who do you have in mind?” He said, “The labs. The labs in Mexico.” People were shocked. I was with the President multiple times a day, every day, so this is the way he thinks. He thinks out loud, and he’s contrarian and disruptive. That can all be positive at times, but people were kind of freaked out about that. So I huddled with them outside the Oval Office and said, “Hey, you know what he’s saying? What he’s saying is that 100,000 Americans are dying of fentanyl poisoning every year, and what we’re doing now isn’t working. He wants options. He wants options.” The narcotics part of this was always on his mind. What has happened is that with the Cartel de la Solace, Venezuela has gotten deeply involved with the Mexican cartels and deeply involved with the Colombian cartels. He’s a source of strength and support for them in a couple of ways. First of all, it’s good to have a nation-state on your side because you can issue false documents, you can do all sorts of things to provide them with cover, and you can provide your aircraft for them, for example. In Colombia’s case, you can provide the trafficking route to evade our interdiction. He was doing all this, and guess what, he was getting a huge cut for it. That helped him because now he had more cash flow. That circumvents our sanctions and allows him to sustain the criminalized patronage network that keeps him in power, this organized crime network. The other thing that’s changed since 2017 is that he’s provided more and more support for what I would call far-left progressive dictatorships in the region, as well as far-left political parties, with his money. I don’t have the data for this, but I hear this from people in the region. I believe it was a huge source of funding for Petro, for de Silva in Brazil, and for AMLO, and for the far-left party in Mexico as well. He was a big part of this pink wave that also affected Peru and Chile, and it was anti-American. He was providing money to build an anti-American coalition such that the balance of power in the hemisphere had shifted dramatically against us since 2017, 2018, and 2020, because the Biden administration, I mean some of them were actually kind of sympathetic to these guys. I’m not a partisan person, but if you think about the shift in policy between the Obama administration and the Trump administration, President Biden went back to the Obama administration approach. Remember President Obama did the wave with Raul Castro at a baseball game. There was this idea that opening up to them and being more tolerant would work, when in fact these regimes remained very hostile to the United States and were providing platforms for China, Russia, and Iran. There’s also an economic dimension to this. Remember the announcement of the Peruvian port and mineral development, for example, and the deepening ties in Argentina. That could shift back now, because if you’re a country in the Western Hemisphere and you’re thinking, “Oh yeah, I’ll take that Chinese money, I’ll take that Chinese infrastructure,” you might be aware they’re going to use it for coercive purposes and trap you in debt, but now you also have to ask whether you’re going to lose all those investments when the U.S. decides enough is enough. I think the dynamic has shifted favorably in that regard. But to answer your question, there have been big increases in the Cartel de la Solace and their connections to other cartels, the use of Venezuela as a platform for Iran, China, and Russia in the region, and the degree to which Maduro took upstream support from China, Russia, and Iran and distributed downstream support to keep the Cuban army in power in Cuba and to get Daniel Ortega back into power in Nicaragua. Nobody knows this better than Rubio, and I think he saw Venezuela as the linchpin for anti-American influence and activities in the hemisphere. He’s right about that.

Philip 25:58
And he is dual hatted. He had your former hat, or he has your former hat, as NSA advisor, but also Secretary of State, and I think a few other titles have been thrown at him, because he is going to be running Venezuela soon as well. So you have answered a very important question. Why Venezuela? Why Maduro now, as opposed to, say, going after cartels in Mexico, closer to our border, if eliminating narco-terrorism and transnational cartels was the key objective? So let’s talk a little bit about what the key objectives were, and then what the strategic impact is going to be, both in the region but also in Asia and back in Europe.

So the original justification, and this is only a few days old, was that the elimination effort is a judicial effort for an indicted felon under U.S. law to be repatriated to the United States forcibly to face U.S. justice for criminal activity involving transportation and all types of things that narco-terrorists do. Then, as we go into the news cycle of the week, we start hearing the President mention the oil factor and the implications of that. There have been references to the Cuban security presence. There have been references to terrorist ties to Hezbollah. There have been references to the Iranians having activities. There are Russian advisors currently in Venezuela. So there are numerous points that really do not have a direct link to the narco-judicial effort, but certainly are within U.S. strategic interest. You would not want this festering in your hemisphere, on your back door. So can you help us really understand what those objectives were?

LTG. McMaster 27:59
Yeah, well, you know, this is where I think the administration gets, it gets like a grade of improve. How about communicating clearly what the objective is? And I think really what it is, based on all these statements, is kind of all of the above. I would put it under the heading of ensuring that Venezuela is no longer a host or a threat to the United States and our security interests in the hemisphere. That is the overall objective. There are certain components to that, and this is where now you have heard the administration talking about the behavior of the regime. We do not really care what regime is in power, as long as the behavior changes. And the behavior you hear about is everything you already mentioned, which is narcotics trafficking, being a platform for enemies and adversaries in the hemisphere, and the grievance associated with the seizure of infrastructure that was built with U.S. investment and denying profits to U.S. oil companies and so forth. And, of course, the subsidization of other hostile regimes with oil money and the cash flow from oil and narcotics. So those are all sub-objectives.

But I think the fundamentally flawed assumption that President Trump might be operating on is that he can get those outcomes without a change in the regime, and he is not going to get it. The reason is that there are limits to what you can achieve with coercive diplomacy. This is where President Trump has this dissonance between peace through strength, which you just saw with this operation, and an impulse toward retrenchment and really not getting involved in long-term efforts abroad, even in the near abroad here in the hemisphere. He tends to view these options through the lens of the searing experience of the Iraq War. In this way, he has inclinations that are quite similar to those of the Obama-Biden administrations.

The flaw in that thinking is that it is not Iraq. I think there is a misdiagnosis of the complications, the cost, and the length of the wars in Iraq and Afghanistan in terms of what caused them. I think what caused them, in large measure, was our short-term approach to long-term problems. There was a Vietnam-style wrong lesson of saying we just do not want to do that, just get the hell out. What we did not focus on was how to consolidate military gains and get to a sustainable political outcome consistent with what brought us to those wars to begin with.

I think what we are seeing in Venezuela may be a replication, actually on a larger scale, because Venezuela is a much larger country in terms of population, of the Obama mistake in Libya. What the Obama administration did in Libya, in its effort to avoid what it perceived as the mistakes of the George W. Bush administration in Iraq, actually exceeded those mistakes by affecting a change in the regime and then doing nothing to consolidate those gains into a sustainable political outcome. What did you have? You had a continued war in Libya. You had a continued threat of jihadist terrorism. You had a huge migration crisis that funneled through Libya into Europe.

So I think what we are going to see here is a failure of coercive diplomacy, and the President will face a difficult choice of what more do you do. If you look at the leaders in Venezuela and what they are doing right now, they are using essentially brown shirts, I think they are called the colectivos, these brigades of thugs, to go after anybody who might be sympathetic to getting Maduro the hell out of there. They are going through people’s phones. They are increasing the number of political prisoners. They have about 900 political prisoners in Venezuela now.

So we have to be clear about what we are demanding. We have to be clear about how we are creating a sense of urgency among officials in this government, many of whom I know are criminals, indicted criminals. We also have to be clear about what kind of punishment we are willing to mete out to achieve our objectives. For these inducements to work, you have to convince the leadership in Venezuela that you are more committed to that change in behavior than they are to continuing it. They have profited a hell of a lot from it, and Venezuelans are not going to be kind to them if they leave their positions, because they have victimized them. Since Chavez took over in 1999, Venezuelans have been living this hell. Since around 2006, the economy has contracted by about 80 percent. They have driven eight million Venezuelans out of the country, about one-third of the population.

So I think there is overconfidence in the ability to affect meaningful change in the nature of the government and its behavior through just coercive means, or what we might call forceful persuasion.

Philip 33:29
So thank you for that, and for our listeners, I should point out that, H.R., you’re an esteemed historian. While in the Army, you wrote a seminal book on the lessons of Vietnam, which wasn’t career enhancing for a while until it became so. You really do have a wonderful historical perspective. And if it’s not regime change that we’re after, that the President is after, and instead it’s trying to get to better outcomes with the existing political leadership and the existing military leadership, what tools are in the toolbox to do that? I presume economics, oil, political isolation, cutting off ties to some of the adversaries that we want booted out of the region, out of Venezuela.

LTG. McMaster 34:19
Yeah, absolutely. So my colleague, Stephen Coughlin, who’s a hoot, talks like Joe Pesci. I said Joe like he has, he’s from the Bronx. But he says, hey, authoritarian regimes really need five things to stay in power. The first thing you need is cash flow. So what you see is the administration going after that, right, from the narcotics cash flow and the oil cash flow. The second thing you need is security forces. I think this is what our agents on the ground are working on overtime to try to splinter those security forces and to get enough of them, who maybe don’t have the most blood on their hands and aren’t the most corrupt, to break away and then to be part of creating the security space you need for a political transition. Because really, these regimes don’t have to be that strong, they just have to be stronger than any organized opposition. The third thing you need is stories to tell your people. Hey, it’s the Yankees, it’s the gringos, they’re creating all these problems. It’s not us. You need me. You need us to save you, the Chavistas to save you. So you’ve got to counter that. This is where I think we should be a lot more active, in the informational domain and in the battleground of perception. The fourth thing you need is control over life choices. That’s what they’ve done with these criminalized patronage networks. If you have a job in Venezuela, it’s because the state kind of controls it. The cash is flowing down through these pyramid-type structures, and your livelihood is at risk. So you’re incentivized to stick with the regime, because that’s all you really know, even though you’re impoverished. And then the final thing is you need an international system that will sustain that authoritarian regime to some extent. As you alluded to, Philip, that’s exactly what they’re working on from the outside in, isolating Maduro from external sources of strength and support. So how will this play out? We don’t know, but I think it’s going to take a long time. We’re not going to see a quick change here. Sadly, the opposition is fragmented. I wish the President had not made the comment about María Corina Machado, like, hey, she’s not that popular. What we should be doing is helping to bring that opposition together and say, hey, play together like they did in the last election. They did that extremely well. What happened is the opposition got 70 to 80 percent of the vote, and they were able to expose that. So I think what’s missing, and this is why Marco Rubio, I mean, he can’t do everything. You need a National Security Council staff process to coordinate and integrate across the departments and agencies and develop a more coherent strategy and policy at this point. That’s really what’s needed. You see elements of it, everything I’m talking about is out there, but what I don’t see is how these are integrated and how they’ll be evaluated based on measures of effectiveness that would then alert you, hey, maybe this isn’t working, we have to bring other options to the President. I think that lack of clarity is hurting us at this moment.

Philip 37:36
So it sounds like a bleeding-out strategy. It sounds like you’re not anticipating a sustained military operation, the proverbial boots on the ground, or a buildup that’s going to make it very clear that the United States is coming with all of its military might, not just for a decapitation of a leader, but, you know, taking out.

LTG. McMaster 37:56
Expecting the change like in Grenada, you know, where we had about 10,000 troops in Grenada but were going against, you know, 1,500 Cubans. You had, in a very small country, Panama. Panama is a country about one-tenth the size of Venezuela in population, and it’s about one-twelfth the size of Venezuela in landmass, and that was an operation of 30,000 troops to displace Noriega. But importantly, those troops gave you the ability to conduct all those activities necessary to consolidate those gains, right, to reform the police forces, to create a new police force under new leadership, which, by the way, was attacked by the old Noriega crew and had to fight them off at the main police station, with one of my friends, Colonel Jim Steele, in there issuing weapons from the arms room and fighting them off, because he was advising the new police force. We had to revise the judiciary there with them, help them revise it themselves, put an election process in place. There was an election about a year later in Panama.

So what does that political path look like? What does that security path of transition look like? There’s a lot of talk about the economic path to transition, bringing oil companies in, but it all has to come together, because without the security reform, without the political change, you’re not going to get the right conditions for revitalization of the economy, and the oil economy in particular. Going back even further, the Dominican Republic, 1965, Operation Power Pack, another very effective intervention, partnering with significant Dominican forces on the ground. How many troops did we put into the Dominican Republic? Forty-two thousand, you know, in ’65.

So I think the President might choke on the price of that, in terms of a massive U.S. intervention that’s sufficient not only to depose the Maduro regime, but then to begin to set security conditions for security sector reform efforts and getting a path toward reform of the judiciary and reform of the political process, to really restore sovereignty to the Venezuelan people. Now the good news is Venezuela has a tradition of constitutional democracy, so really you’re just restoring the old constitution, but it would take a significant effort to do it. And I think they’ve got to tee up this option for the President, because I think he’s going to try everything short of that before he considers that more direct option.

Philip 40:35
So we just this morning woke up to the news that an oil tanker off the northern coast of the UK, between the UK and Iceland, was seized and taken control of by the United States military. That’s just one of the elements. We’re going to chase down their cash flow. You mentioned the cash flow. So speaking from a business perspective, I can’t imagine too many oil executives, with the possible exception of Chevron, who are still there and operating, wanting to take a 30-year view on the multibillion-dollar investment required to bring that oil infrastructure capability back up so that sometime 10 years from now you’re generating reliable profits and have a stable operating political environment to do that. So that’s going to be one very interesting element.

But now let’s move to China and Russia in particular. The Chinese have had oil-for-cash agreements with the Venezuelans. They had a delegation two days before the operation. Some of them were here in Mar-a-Lago right after, because of sensitivities around that. So what is going to be the calculus for senior leadership of the People’s Republic of China, Xi Jinping specifically, with this action that shows U.S. resolve, U.S. technical ability, and U.S. massive capabilities to execute on a very specific military operation, particularly on the heels of what we just saw with Midnight Hammer in Iran?

LTG. McMaster 42:24
I think what you’re going to see is China, Russia, and Cuba, as the local support there, working together to ensure that the U.S. fails in Venezuela and is unable to get a government in place that is friendly to the United States and welcoming to the vast Venezuelan diaspora to return and rebuild the country. So I think what you’re going to see is a sustained Russian effort to foil U.S. efforts in Venezuela, because this is tied to their broader competition with us. I wouldn’t be over the top on this, but Russia and China are at war with us now already. They really are at war with us right now, and they’re acting against us with hostile intent and trying to get away with as much as they can below the threshold that might elicit a concerted response from us. There’s a reason why the largest Russian embassy in the world is in Mexico City. It’s there because Russia wants to turn Mexico against us and use Mexico as a platform to subvert the United States. The reason China is trying to gain control of critical infrastructure and indebt countries in Latin America is really twofold. One is to displace U.S. influence not only in the Indo-Pacific but globally by creating new spheres of influence internationally. The other is to strengthen its exclusive grip on critical supply chains that it can use for coercive purposes, especially involving minerals, and also to address its major vulnerability from an energy perspective. This is a major geostrategic competition that’s playing out. The worst-case scenario is something we have to be concerned about, which is fragmentation in Venezuela and a sustained civil war in which the Russians, the Chinese, and the Cubans do everything they can to ensure that the U.S. fails to get a change in behavior, as we’re framing it now, meaning a change in the nature of the Venezuelan government such that it ceases its hostility to the United States and nations friendly to us in the hemisphere.

Philip 44:40
We’re going to open up the Q&A to our investors and friends who are participating, and H.R., I’ll share some of those questions with you, but let me get one rolling here. We’ve talked a little bit about Russia. We have an active war and conflict in Ukraine. Vladimir Putin is someone you spent a lot of time thinking about and trying to understand, what drives his motivations, and the advice you were able to give to the president kept the United States out of having to adjudicate a territorial invasion that ultimately happened later under a different administration and after the withdrawal from Afghanistan. So the same question I asked regarding Xi Jinping, how is Vladimir Putin viewing this now?

LTG. McMaster 45:37
You know, I think, I hope it’s given him pause. But really, what has emboldened Russia, I think, with the massive reinvasion of Ukraine in 2022, as you already alluded to, was the perception of weakness associated with the disastrous, what I would describe as a self-defeating, humiliating, and deadly withdrawal from Afghanistan in August of 2021. I think the overall lesson is that it is the perception of weakness that is provocative to this axis of aggressors. And what I think President Trump is facing now, again, which is much different from 2020 when he left office in 2021, is the degree to which this axis of aggressors has coalesced, largely based on their view that the West is weak, divided, and decadent. So I think what this raid shows is that we’re not weak, that we have the resolve to do things. Also, I think this raid, in combination with last year’s operation against the deep, buried nuclear sites in Iran on the back end of the IDF’s successful campaign, confirms that, hey, we’re not weak. But we are divided in their view. And, you know, the President’s comments about Denmark, you know, I mean, guys, I mean, Bill, stop scoring these own goals. The way you frame things, it all matters, because what we want to convey to China and Russia on the back end of this operation is, hey, we’re not weak, divided, and decadent. We’re unified. We’re unified on Ukraine as well. We’re unified on Taiwan and the Indo-Pacific. So anyway, I think there are some tremendous opportunities at this moment, Philip, because of the success of this operation. Again, the long-term prospects are not good. They’re going to be tough in Venezuela, but we could see it through if we want to, if we have the will to do it. But also, to show that we’re not divided, I think, is really important, because this axis of aggressors is actually quite weak at this moment, I believe. Russia’s economy is a disaster. Look at what’s going on in Iran. Their currency has utterly collapsed, the protests that are going on there. I was glad to see the President’s statement, hey, don’t go after the protesters, because they did set a record last year for the number of executions in Iran after the effective campaign against the regime and the nuclear and missile programs. And then, you know, they’re about to run out of water in Tehran. China has created huge vulnerabilities in their economy, in my view, in their race to surpass us. They have some coercive power over our economy, which was really stupid for us to give them. But I think the administration is working now to make those supply chains more resilient. I was really happy to see Secretary Bessent say, hey, we’re going to do this in two years. That’s kind of an American attitude on supply chain resilience. So, hey, we’re in this competition, and we need all hands on deck. So stop kicking Denmark in the ass. Let’s work together.

Philip 48:47
Friends, including some of our friends from that part of the world, on Denmark, in Denmark, Greenland, the Arctic. So what’s behind all of the rhetoric? Is it simply, is it? Why can’t we just have a friendly NATO transaction where we, the United States, supply a certain amount of personnel and capabilities in a treaty partnership with those in Greenland and Denmark? Why do you need to acquire it? Why buy the cow if you get the milk for free, so to speak.

LTG. McMaster 49:22
Yeah, it’s like 50,000 people, right? And so I think what is driving this in part, and this is, I think, a positive observation, is that as President Trump recognizes, even though his National Security Strategy was not as explicit as we were in 2017 about great power competition, he knows he’s facing China and Russia, these revanchist powers on the Eurasian landmass. The part of the globe that is immensely strategically important is that connection through the Arctic. He’s looking at the map. He’s a real estate guy. It’s like, hey, that real estate is pretty important to our defense. And also, he has this agenda for hemispheric security, for homeland security, missile defense. You can’t have effective missile defense unless you defend against missiles coming over from Russia, over the Arctic, for example. He’s seen the first transnavigation of a Chinese commercial ship over the Arctic in the last couple of months, and the so-called exploration they’re doing up there. So I think he understands the importance of it.

But with so many things with President Trump, what he wants is great. Reciprocity in trade, deregulation, economic growth, energy dominance, burden sharing in defense, securing the border, let’s do it. That’s all great. But how he goes about it can be counterproductive. If I had his ear for a minute, I would say, hey, you’re big on sovereignty, which he is. If you go back to the UN speech we drafted for him in 2017, that was the theme. We respect national sovereignty, especially nations that respect the sovereignty of their people. So if you’re concerned about Greenland, you’re concerned about the subversion of Greenland’s sovereignty and Denmark’s sovereignty. Let’s be on the side of that. As you said, set the security conditions by going back to a Cold War–era footprint in Greenland and Iceland, for example, or in Alaska, for Arctic security.

And if you’re concerned about the Panama Canal, be on the side of Panamanian sovereignty. You’ve got a friendly government in Panama. Say, hey, we’re concerned that Chinese companies that are not going to respect your sovereignty are in control of this strategic location. We’re on the side of Panama, instead of saying we’re just going to take it over. So a lot of this is really about the messaging, which I think can be counterproductive. A lot of it is fueled, in part, by a nativist and neo-isolationist impulse. You might say, how does that work? How can you be isolationist, anti-interventionist, and yet say we might have a military option for Greenland? The reason is that it’s tied to hemispheric and homeland defense.

There are a number of people around the President, and everybody kind of knows who they are, who are actually more isolationist than him but also more interventionist than him, because they frame everything through hemispheric defense. They have this nostalgia, a misinterpretation of the John Quincy Adams speech. Think Quincy Institute, think Defense Priorities, think how the Heritage Foundation has been taken over in large measure by people with this worldview. I think it’s a warped and old-fashioned worldview, because the great moats of the Pacific and the Atlantic don’t do for us what they used to do in the age of hypersonic missiles, cyber warfare, and everything else. So that’s where a lot of this comes from, that hemispheric priority. You can see the theme in the National Security Strategy, but essentially this interventionism grows out of a strain of nativism and retrenchment.

Philip 53:39
H.R., we have literally three minutes, and then I have to hand this over to Lisa, who’s going to wrap up in three minutes. Are you fundamentally more optimistic, less optimistic, or no change in your baseline about the state of American interests and the state of strategic deterrence vis-à-vis our competitors and adversaries today, versus when you were in office several years ago?

LTG. McMaster 54:09
You know, I’m more optimistic that we’re now on a better path than we were on several years ago. I’m also more pessimistic because I do think the axis of aggressors is still emboldened based on the perception of our weakness. They base that perception, really, on their belief that we are, again, weak, decadent, and divided within the alliance, which I mentioned, but also divided within our own society. So it’s the vitriolic nature of our political discourse, the tendency of political parties to oppose anything, even good ideas. You know, get rid of Maduro, how could that be bad, right, given what this guy’s done? They think those divisions are indicative of our imminent demise, when in fact I’m optimistic because I believe our democracies are more resilient. I believe these authoritarian regimes are actually quite brittle. And so I think we’re going to win this competition. I begin seeing our society mobilized because we recognize the problems associated with defense. This is a big shift. I think after the massive reinvasion of Ukraine, before that we tended to see a soft-headed cosmopolitanism take over people’s view of the world. They thought we were all just going to get along as an international community. And so when I see companies like SHIELD mobilizing capital to strengthen our nation from a defense perspective, but also an economic perspective, and to maintain our competitive advantages, I think there is no substitute for the advantages of our free-market economy and our unbridled entrepreneurship. So I’m optimistic, but I think we have to get serious and stay serious about investing in defense, making our supply chains more resilient, invigorating our defense industrial base in particular, and regaining some of the strategic depth that is necessary to convince your enemy. As you alluded to at the beginning, Phil, this is a lot about deterrence. It’s a lot cheaper to prevent a war than to have to fight one, but we have to convince our adversaries that we’re capable of defending ourselves, that we’re capable of conducting operations at sufficient scale and for ample duration to deny them the ability to accomplish their objectives through the use of force. And this entails military capabilities, hard power, but it also entails competing below the threshold of a major conflict in the cognitive domain and in the economic domain. But I think we’re up to it. We’re up to it.

Philip 56:43
That’s very encouraging. It’s been a fascinating discussion. Thank you so much. This is the beginning of a dialogue for all of our friends at SHIELD and our investors. We have these types of discussions. There were some questions I was not able to get to. We will answer them and send you written responses in coordination with General McMaster. H.R., thank you so much. You’re a star, so we appreciate it.

In November, Anthropic announced an event we’ve all been dreading: the detection and disruption of the first-ever reported AI-orchestrated cyber espionage campaign. A Chinese state-sponsored hacking group used AI agents to target roughly thirty organizations globally, successfully penetrating several of them. These AI agents, equipped via MCP1 with browser use abilities and open-source penetration testing tools like network scanners, binary analysis suites, and password crackers, autonomously conducted network reconnaissance and attack surface mapping. After discovering a web security flaw (SSRF2), the agents wrote a custom payload and exploit chain, harvested and tested credentials, then extracted sensitive data. Anthropic researchers estimate that human operators performed only 10-20% of the exploitation work; the rest was autonomously conducted by Claude agents. This event represents a massive shift in how malicious actors will conduct the offensive cyber operations of the future – at a speed and scale that hasn’t been seen before.

I asked Katie Gray, a Senior Partner leading cybersecurity investing at IQT, the not-for-profit strategic investor for the U.S. national security community and America’s allies, to co-author this piece. We examine the growing importance of offensive cyber operations in modern conflict and how AI-native startups will shape the future of OCO (and yes, Katie is my mom 😁).

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Changing Government Perspectives

The technological leap of adversarial AI coincides with a significant change in the U.S. government’s public stance on the use of OCO to achieve strategic national goals. At RSA in 2025, Alexei Bulazel, the National Security Council’s top cybersecurity official, called to “destigmatize” OCO, framing it as a vital tool in the government’s toolbox to compete with foreign adversaries. This sentiment was reinforced in November when National Cyber Director Sean Caincross suggested that the forthcoming National Cybersecurity Strategy (expected in early 2026) will focus on imposing real costs on cyber adversaries through proactive takedowns. In December, the White House further signaled its intention to enlist private companies to carry out these attacks.

This rhetoric marks the transition of offensive cyber from an unacknowledged necessity to a core pillar of national defense. Two recent major U.S. military operations leveraged cyber operators to support kinetic strikes: chairman of the Joint Chiefs of Staff, General Dan Caine thanked cyber operators at U.S. Cyber Command (CYBERCOM) for their support in the strikes against Iranian nuclear facilities in June, and noted that they were responsible for blacking out city lights and disabling Venezuela’s air defense systems in the early hours of the January 3, 2026 operation to capture Maduro.

Until recently, except for a handful of services firms, defense primes, and a few international spyware companies, few private commercial companies operated in the offensive cyber domain. Traditionally, U.S. government agencies charged with offensive cyber built most capabilities internally, turning to specialized firms and vulnerability brokers only on occasion.

However, this status quo is no longer sustainable: rapid private-sector breakthroughs in AI are fundamentally reshaping offensive cyber operations, and the expertise to harness these capabilities increasingly resides outside government, in AI-native companies. If the U.S. and its allies want to remain competitive in offensive cyber operations, they will need to explore how to use commercial technologies as force multipliers. Over the past few years several startups have emerged to bring commercial AI technology to U.S. and allied governments to accelerate their offensive cyber operations, and we are just at the beginning of this shift in the market.

The Role of OCO in National Security

While public acknowledgment is new, OCO has played an important part of national security for decades. The U.S. Department of War (DoW) has been involved in cyber operations since the 1990s, with offensive capabilities gaining major prominence in global conflicts beginning in the mid-2000s through landmark nation-state incidents including Russia-linked DDoS attacks on Estonia in 2007, cyber operations surrounding the 2008 Russo-Georgian war, and the 2009 Stuxnet attack that caused the first known cyber-induced physical damage to Iranian nuclear facilities.

It was the discovery of two major Chinese cyber campaigns, Volt Typhoon and Salt Typhoon, in 2023 and 2024 that really sounded the alarm. By exposing Chinese cyber campaigns designed to compromise American critical infrastructure and infiltrate U.S. telecommunications systems, these operations proved that the homeland is now directly at risk from cyber attacks. As our country comes to rely increasingly on digital systems to control everything from nuclear power plants to autonomous taxis and satellites, offensive cyber operations will only become more significant in future conflicts.

The U.S. has responded to this shifting landscape by moving OCO to the forefront beginning with the 2010 creation of CYBERCOM and its subsequent elevation to a full Unified Combatant Command in 2018. In addition to the campaigns in Iran and Venezuela, CYBERCOM has also publicly acknowledged several other successful operations. In 2016, CYBERCOM conducted Operation GLOWING SYMPHONY, which dismantled ISIS’s global propaganda and recruitment infrastructure by infiltrating their servers, deleting massive amounts of data, and locking operatives out of their own media networks. In 2018, they conducted a campaign against the Internet Research Agency (IRA), the Russian troll farm that ran an influence operation targeting Americans before the 2016 presidential elections, shutting down the IRA’s internet access to protect the 2018 midterm elections.

To further support these missions, the government is putting significant capital behind the effort, most notably through the “One Big Beautiful Bill” (OBBB), which allocates $1B for offensive cyber operations in INDOPACOM through FY29 and another $250M for the expansion of CYBERCOM’s “artificial intelligence lines of effort.” Further, CYBERCOM has requested another $473.4M in its FY26 budget for Cyber Operations Technology Support which includes line items for AI, data and sensors, data analytics, cyber weapons, and more (the FY26 appropriations bill has not yet passed).

China’s Cyber Power

China is one of the United States’ most capable and active adversaries in the use of offensive cyber operations. However, this wasn’t always the case – only five years ago, in 2021, experts estimated that China was a decade behind the U.S. in cyber capability. Since then, China has significantly improved their internal cyber forces and passed laws to provide offensive advantages to the CCP.

China has focused on developing the next generation of cyber talent through university programs and state-sponsored events like CTF3, live hacking, and bug bounty programs that offer a pipeline into government work. Today, China is thought to have a cadre of cyber operators 50x the size of the U.S. They have also enforced policies enacted in the 2017 Cybersecurity Law that require the private sector to collaborate with the government to augment their offensive cyber capabilities by sharing newly discovered vulnerabilities with them before they are shared externally. The private sector helps in other ways too, both by offering hacking services on behalf of the government and by providing tools and training, such as cyber ranges that allow operators to practice attack techniques and learn how to bypass defensive measures, serving as rich training environments to learn on.

For example, major Chinese technology firms such as Huawei, Qihoo360, QiAnXin, and NSFocus provide services directly to the Chinese military – Qihoo360, China’s leading antivirus company, even directly assisted with a Chinese hack of Anthem, an American health insurance provider. The PLA has embedded units within commercial Chinese cybersecurity firms. Unlike the U.S., both China and Russia allow non-government entities, including commercial companies, to conduct their own cyber attacks, as long as they do not infringe on government priorities. The U.S. is considering proposals to do the same. At the very least, the U.S. government should leverage capabilities developed in the commercial sector as force multipliers.

Looking ahead, any future conflict with China is unlikely to resemble the counterinsurgency or counterterrorism campaigns of the Global War on Terror, where U.S. forces faced technologically unsophisticated adversaries and enjoyed overwhelming dominance on the ground. A future conflict with China is far more likely to be maritime, air, space, and cyber-centric rather than a large-scale land war, with cyber operations playing a central role in shaping escalation, degrading command and control, and constraining U.S. freedom of maneuver before kinetic forces are employed. Critically, cyber operations often occur below the traditional threshold of armed conflict, allowing states to operate at scale with lower perceived risk of escalation – which China has repeatedly demonstrated its willingness to do through sustained campaigns (like pre-positioning cyber attacks in U.S. critical infrastructure such as water treatment plants and power grids) that would be far more escalatory if conducted through conventional military means.4

Authorities and the Private Sector Role

Understanding where these operations live within the government requires a look at legal authorities. Most operations fall under either Title 10 (Armed Forces / military disruption) or Title 50 (Intelligence Community / espionage) of the U.S. Code. While these authorities remain strictly within the government, the private sector has always played a role as a supporting partner.

Until recently, there were essentially no VC-backed private companies operating in the offensive cyber space. Private companies operating in the offensive cyber market generally fall into three core business models: (1) services providers, including defense primes and specialized boutique firms; (2) vulnerability research firms and zero-day marketplaces, which discover and sell previously unknown vulnerabilities and exploits; and (3) turnkey offensive platforms, offered by international vendors that provide “access-as-a-service” capabilities. Groups (2) and (3) frequently operate in legal gray zones.

The Services Model: Defense Primes

Historically, large defense primes like RTX (Raytheon) and its spinoff Nightwing, L3Harris, ManTech, Lockheed, and Peraton have leveraged a services approach to provide “Full-Spectrum Cyberspace Operations” to the U.S. government. This includes vulnerability research, exploit development, electronic warfare (EW), and managed infrastructure like “firing platforms,” as well as general support for computer network operations. Smaller boutique contractors, often founded and staffed by former government employees, frequently subcontract with these large primes for supporting work.

These large defense primes and smaller contractors typically have “butts in seats” engineering services business models, in which contractors work directly for the U.S. government, selling human labor hours rather than products. Organizations like NSA, CIA, FBI, and CYBERCOM hire these contractors to help craft cyber kill chains by finding vulnerabilities and building exploits based on those vulnerabilities. However, today, only U.S. government employees are allowed to actually “pull the trigger” to use those exploits.

Selling Exploits

Beyond service-based contracting, specialized vulnerability research firms and marketplaces find, collect, and sell exploits to intelligence agencies and other hacker groups as discrete products rather than labor hours. Vulnerability research firms are generally small, boutique teams of full-time experts (often former government intelligence officials) focused on discovering vulnerabilities, building exploits, and selling them directly to intelligence agencies or other hacking groups. Notably, a significant number of zero-day vulnerabilities used in cyber attacks come from these commercial vulnerability vendors – a Google study found that in 2023 and 2024, around 45% of vulnerabilities that were exploited “in-the-wild” were attributed to commercial vendors that sell capabilities to government customers.

Often, rather than selling exploits directly to intelligence agencies or hacking groups, vulnerability researchers will sell their vulnerabilities and exploits to “zero day” marketplaces such as Crowdfense, Operation Zero, and Zerodium (which has since gone out of business). These firms act as middlemen, buying vulnerabilities and exploits from vulnerability researchers and then selling them to governments or other hacker groups. Zero day marketplaces set prices for different vulnerability classes – vulnerabilities in mobile devices, particularly iPhones, tend to be the most valuable given iPhone’s tight security and valuable information, whereas a vulnerability for something like an IoT camera may be less valuable, as cheap IoT devices tend to be relatively easy to penetrate and provide lower value information.5

Many of these firms operate in legal and moral gray zones, selling vulnerabilities to the highest bidder which may be an American or allied intelligence agency, a cyber crime organization, or another foreign government.

Turnkey Solutions: Access-as-a-Service

Finally, perhaps the most controversial players in the offensive security market are the “access-as-a-service” firms like NSO Group, Memento Labs (fka HackingTeam), Candiru, Paragon (an Israeli firm recently purchased by a U.S. private equity firm for $500M), and Intellexa. These firms are almost all based internationally, as it is illegal for American companies to sell “access-as-a-service” products outside of the U.S. Unlike vulnerability research firms, which sell operators information about software flaws that can be developed into exploits, “access-as-a-service” providers bundle exploits with proprietary tooling and sell ready-made access to target systems without ever disclosing the underlying vulnerabilities. For example, rather than selling a vulnerability for an IoT camera, an access-as-a-service provider would just provide a video feed from a vulnerable camera that they’ve already compromised.

Historically, U.S. intelligence agencies have not purchased tools from access-as-a-service providers. The U.S. IC reportedly prefers to find or purchase vulnerabilities and build and execute their own exploits based on those vulnerabilities. However, many foreign governments that lack the capital and talent to develop their own offensive cyber organizations will work with access-as-a-service providers in order to gain access to high end offensive cyber capabilities without investing significant human or financial resources to gain those capabilities. Note that many access-as-a-service vendors, including Israeli firms such as Candiru and NSO Group, have struggled operationally and commercially since being placed on the U.S. government’s Entity List.

The AI Force Multiplier

The emergence of AI is fundamentally changing the OCO game by providing unprecedented speed and scale to operations. AI models’ cyber capabilities are currently doubling every six to eight months, allowing for the rapid identification of vulnerabilities and the creation of exploits that used to take months of manual labor. AI is now capable of finding net-new vulnerabilities, scanning networks for vulnerable entry points, and using code-generation agents to build executable exploits on the fly. It also dramatically scales the use of “n-day” vulnerabilities, allowing attackers to check millions of systems for known flaws in the time it would take a human to check one. While human operators are limited by biological reaction times, AI can orchestrate hundreds of tactical operations per second, pushing us into an era of “machine-speed cyber warfare.”

Furthermore, AI allows less-skilled operators to perform high-level tasks, for example orchestrating everything from simple social engineering and deepfake phishing to complicated, multi-stage data exfiltration operations. This acts as a massive force multiplier for a workforce that has long suffered from a talent shortage, but it also means our adversaries, who are becoming increasingly aggressive in the cyber domain, can scale their hostility with fewer resources.

Crucially, while government agencies like NSA and CIA have started experimenting with using AI for relevant workflows, ultimately most of this innovation in AI is being developed in the private sector rather than within government. While there are safety guardrails for private, frontier models like Anthropic’s Claude, open-source models, such as DeepSeek, Llama 3, or Mistral, can be run on local machines with no central oversight or kill switch. If our government fails to rapidly adopt AI-driven capabilities, it risks being outpaced and left strategically vulnerable in the accelerating global arms race of cyber warfare. This creates a massive opening for VC-backed, product-based companies to build software that is faster to deploy and easier to scale than bespoke internal tools or human operators.

The Emerging Market for Offensive Cyber Startups

In this emerging market, new startups are looking to leverage AI for a whole host of tasks necessary for OCO including vulnerability research and binary reverse engineering, initial access and attack surface mapping, generating and executing exploit code, and cyber threat intelligence collection. Where previous generations of tools flagged potential weaknesses and left the exploitation to human experts, today’s startups deploy autonomous agents capable of “thinking” like an adversary – dynamically navigating complex codebases, reversing binaries in seconds, and orchestrating multi-step exploits without human intervention. By fusing high-fidelity threat intelligence with agentic autonomous operations, this market has turned sophisticated offensive capabilities into a scalable enterprise product.

Vulnerability Research

Generative AI has fundamentally changed vulnerability research and exploitation. One of the primary commercial use cases for LLMs is code generation – this same technology can also be used to find vulnerabilities in code. Agents can also find vulnerabilities in web and desktop applications without source code access by using computer use agents6 to interact with those applications in order to find vulnerabilities (ex: SQL injections, cross-site scripting attacks, etc).

For example, companies like Autonomous Cyber7 deploy computer use agents to navigate applications and code-understanding agents to analyze codebases, enabling automated discovery of security vulnerabilities. Autonomous Cyber has already used AI to autonomously discover several net new CVEs. Similarly, according to Anthropic, Chinese state sponsored hackers successfully used browser use agents to discover a SSRF vulnerability in target web applications. Several startups including RevEng.AI and Delphos Labs have also emerged using LLMs for binary reverse engineering (the process of analyzing compiled binary code), enabling offensive cyber analysts to quickly understand third party code in order to begin the exploitation process.

Initial Access and Attack Surface Mapping

Companies like Twenty replace traditional, labor-intensive manual probing with autonomous, agent-led orchestration. Their platforms deploys AI agents that operate across the reconnaissance and exploitation phases, autonomously gathering and fusing disparate data streams into a unified, interconnected digital twin of a target's infrastructure. This gives operators an interconnected map of resources, configurations, and exposures which serve as the basis for operators to conduct autonomous attacks with extreme precision and trust. In the context of government OCO, this type of tooling acts as a force multiplier, allowing operators to conduct more cyber operations faster and with fewer resources, providing a scale and speed advantage. Method Security takes a similar approach.

Generating and Executing Exploit Code

Not only can these new startups find net new zero-day vulnerabilities and map out initial network access points, they can also use AI agents to generate and execute exploits that take advantage of those vulnerabilities. Companies like Autonomous Cyber use code generation agents to autonomously generate exploit code based on known vulnerability chains. Similarly, Dreadnode provides an AI-driven offensive security platform that combines advanced red-teaming tools, autonomous offensive agents, and comprehensive evaluation frameworks to help security teams build, deploy, test, and measure AI-powered attack capabilities and assess vulnerabilities in systems and models at scale. Agents can also help organizations scale the exploitation of n-day vulnerabilities by autonomously scanning targets to find and exploit known vulnerabilities. Tool calling agents can use existing offensive security tools and post-exploitation toolkits, the same way a human operator would, to take advantage of known vulnerabilities.

Cyber Threat Intelligence

In addition to finding and exploiting vulnerabilities in target systems, a number of commercial companies have emerged to push forward the state of the art of cyber threat intelligence (CTI). In order to actually exploit a target, analysts need to understand their targets. One source of information about target systems is CTI, which can help analysts understand how target networks are architected, where vulnerabilities may lie, known tactics, techniques, and procedures, which detection and protection tools targets have in place, and may even provide analysts with target credentials that may have leaked on the dark web.

Today, CTI incumbents are excellent at collecting relevant information on emerging cyber and fraud threats from the dark web, deep web, and other sources. However, analysts still need to wade through troves of data to extract meaningful insights. Startups like Overwatch Data, BeeSafe AI, and Specters AI have emerged to build AI-native CTI tools that leverage advances in AI agent technology. AI agents can improve both the collection and analysis of CTI. For example, AI agents could be used to automate the operation of “sockpuppet” social media accounts, that ingest a site’s context, learn from other users’ behavior, and interact with the platform the way a real human user would in order to extract information that could help offensive cyber operators.

Once data is collected, AI agents can help extract and summarize insights by querying multiple data streams to enrich information to present analysts a more complete picture of targets. AI agents can automatically generate CTI reports and can even suggest actions analysts could take or vulnerabilities to exploit based on the information collected. In the future, agents could even automatically generate exploits based on data collected from CTI.

Commercial Penetration Testing Platforms

In addition to advancing the state of offensive cyber, advances in AI also unlock a stronger cyber defense. With AI, organizations can move beyond periodic security audits and unpatched vulnerabilities toward continuous, AI-led red teaming, providing a defensive posture that finally keeps pace with the increasingly sophisticated, AI-augmented threat actors appearing in the wild.

There are a number of companies like RunSybil, XBOW, Tenzai, and Staris AI taking these same OCO technologies and applying them to the commercial penetration testing space in order to help organizations identify and patch vulnerabilities on their own networks. While these companies are not focused on offensive use cases today, in the future they could look at deploying their software for offensive government uses.

Advice for Startups

Founders entering the offensive cyber market must approach company-building with a fundamentally different playbook, shaped by government procurement dynamics, operational trust requirements, and extended timelines to scale. Successful companies in this space will:

• Understand Government Needs: Follow defense blogs, track public statements from government officials, attend relevant conferences, and spend time speaking with end users to deeply understand their operational needs. Agencies and groups with current authorities and budget for OCO include CYBERCOM (including CNMF, ARCYBER (Army), FLTCYBER (Navy/10th Fleet), AFCYBER, MARFORCYBER, NSA (CNO), CIA (CCI), and FBI Cyber Division.

• Include Former Operators: Your team should include people who have operated under Title 10 or Title 50 authorities who deeply understand operator needs.

• Plan for the Long Haul: Many USG sales cycles can take multiple years to identify stakeholders, satisfy requirements, and complete cybersecurity compliance processes. Plan for multiple years of development before achieving consistent revenue.

• Build a Specialized Sales Team: You need a federal sales team that is deeply connected within the intelligence and defense communities. Don’t hire a single, generic “Federal BD Lead.” Instead, hire customer-specific sales leadership, with dedicated leaders for each USG customer who have deep, firsthand experience operating in that organization (for example, one sales lead focused on NSA, another on CIA, another on FBI, another on CYBERCOM, and so on).

• Partner with the Primes: Established defense primes (RTX, ManTech) are often the best path to large contracts via subcontracting in the early days of a company.

• Prioritize Security and Clearances: Build strong cybersecurity into your own company from day one and start the FCL8 and ATO9 processes early.

• Define Your Ethical Lines: Be clear and transparent about where your company stands on the ethical usage of its tools, particularly when engaging with international agencies.

• Explore Selling to Less Mature Agencies: Federal agencies with sophisticated cyber programs like NSA can be difficult customers to sell into, as they have already purchased or built in-house OCO tooling. However, as cyber becomes an increasingly important domain, other military and law enforcement agencies are working to stand up their own cyber capabilities, and may move more quickly to acquire new tooling that lowers the barrier to entry to conduct OCO without expert operators. Organizations like DEA as well as allied international intelligence and law enforcement agencies that have less mature cyber operations may be good target customers to pursue in parallel with more mature agencies in order to gain early revenue and user feedback.

Conclusion: The Billion-Dollar Pivot to Autonomous Offense

The convergence of aggressive government policy, billion-dollar budget allocations like the OBBB on top of the billions already spent annually, and the arrival of machine-speed AI has created a “perfect storm” for the next generation of cybersecurity founders. For decades, the offensive market was a walled garden dominated by labor-intensive service contracts and legacy defense primes. Today, that wall is coming down. The government’s call to “destigmatize” and privatize offensive capabilities has opened a massive vacuum that only product-led startups can fill.

This shift is not optional. China has demonstrated both the intent and the capacity to integrate commercial technology, AI, and state power into a unified cyber force operating at scale and often below the threshold of armed conflict. In contrast, a U.S. model that relies primarily on bespoke, internally developed tools risks falling behind an adversary that iterates faster, fields larger forces, and weaponizes commercial innovation as a matter of national strategy. Maintaining U.S. competitiveness in cyber will require embracing commercial vendors not as auxiliary support, but as core force multipliers.

The opportunity for founders is no longer just about building better scanners; it is about building the autonomous infrastructure of modern defense. By shifting from a human-centric services model to an AI-native agentic model, startups can offer the speed and scale that the public sector desperately needs but cannot build internally. In this new era of automated red-teaming and machine-speed exploitation, the advantage belongs to the agile. For those who can navigate the complexities of federal sales and ethical guardrails, the prize is a foundational role in the new national security stack. The global cyber arms race has begun, and for the first time, the most powerful weapons are being built by startups.

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As always, please reach out if you or anyone you know is building at the intersection of national security and commercial technologies. And please reach out if you want to further discuss the ideas expressed in this piece or the world of NatSec + tech + startups. Please let us know your thoughts! We know this is a quickly changing space as conflicts, policies, and technologies evolve.

This week, I’m outlining my 2026 predictions for national security technology. 2026 will truly be the year of implementing all the reforms put in place in 2025. In 2025, DoW leaders made strides towards defense acquisition reform and buying commercial: SECWAR Pete Hegseth released major reforms to the acquisition system which will encourage the Department to increase the speed at which they buy commercial technology. The 2026 NDAA codified many of these reforms into law, and the reconciliation bill (and hopefully final Appropriations bill) appropriated real money for initiatives relevant to national security technology (like the Defense Innovation Unit, which received almost $1B in additional funding in the reconciliation bill). Further, the Department announced new initiatives to purchase crucial commercial technology, like the new Drone Dominance Program which will devote $1B to purchasing small, commercially made drones. Perhaps this year my failed predictions from last year will come true (that is, that the Department will spend much more on technology from startups and on AI).

2026 will also be a crucial year for national security focused startups to truly prove that their business models and technologies can work. Over the past decade, investors have poured billions into national security startups, but few have scaled to become sustainable, profitable companies. Now is the time for startups to start delivering on the promises made to investors and customers alike: if the Department follows through with acquisition reform and mandates to buy commercial technology, then there will be tremendous opportunities for startups that remain laser focused on delivering high quality products that solve real operational needs. I expect VC enthusiasm for the national security sector to only increase as the rate of commercial tech adoption within the DoW increases and startups seek to raise additional capital to capitalize on these new opportunities.

Now, onto the predictions.

1. At least three VC backed national security tech startups will go public in 2026

While the IPO market has been slow since 2022, several notable aerospace and defense companies, including Firefly Space, Karman Holdings, and Voyager Space, went public in 2025, showing signs that the IPO market may be bouncing back (although, Firefly and Voyager are both trading well below their IPO prices).

In general, companies go public when they need to 1) provide liquidity to early investors and employees and / or 2) access more money than private markets are able to offer. With close to $40B invested in national security companies in the private markets in 2025, and more national security unicorns than ever (11+ minted in this year alone), eventually, many of these companies, particularly those building capital intensive hardware, will need to turn to public markets to receive the large sums of capital they will need to truly scale. I predict that at least 3 VC backed companies relevant to national security will go public in 2026.

In mid-December, Bloomberg reported that SpaceX is preparing for a potential IPO in 2026, which could allow the company to raise more than $25B at a $1.5T valuation (SpaceX’s most recent insider share sale earlier this month valued the company at $800B, making it the world’s most valuable private company).

Other potential IPO candidates include dual use AI companies like:

• OpenAI (which is rumored to be working on an IPO)

• Anthropic (which is reportedly in early talks to IPO next year)

• Databricks (Databricks has been on IPO watchlists for years, but just keeps raising more money in private markets, however the company says they have not ruled out a 2026 IPO if conditions are good)

• Dataiku (which has reportedly already picked their banks for a potential IPO)

• Cerebras (Cerebras filed for an IPO in late 2024, but in October 2025, it announced that it was withdrawing its IPO plans – however, if macroconditions change in 2026, they could once again reverse course)

Most analysts seem to believe that it is unlikely Anduril will go public this year until they lock in another large contract or two like CCA.

2. VCs will invest more than $50B in national security focused companies

According to Pitchbook, as of September 30, 2025, venture capitalists (VCs) have invested almost $40B into national security focused companies in 2025, compared to $37.9B invested in all of 2024. Investor excitement for the sector shows no signs of slowing – 11 national security unicorns were minted in 2025 alone.

I predict that VC investment in the national security startup space will only grow in 2026, surpassing $50B, as later stage, capital intensive businesses will require more and more capital to achieve scale.

3. DoW will release a new AI strategy which will spur more adoption of commercial AI solutions within the Department

The DoW last released an AI strategy in November 2023, just one year after OpenAI released ChatGPT. Notably, the strategy does not mention generative AI or large language models (LLMs) a single time. Quite a lot has changed since 2023, with the release of reasoning models, robotics foundation models, the explosion of AI coding, the rise of reinforcement learning, and of course the widespread commercial adoption of AI chatbots like ChatGPT. Further, the DoW seems to release new AI strategies every ~2-3 years – before the 2023 strategy, the Department published earlier strategies in 2018 and 2020. As such, it seems the Department is due for a new strategy, and with it, new energy for adopting commercial AI solutions within the DoW.

Today, the Department of War’s primary entity responsible for AI policy is the Chief Digital and AI Office (CDAO). The office was recently moved under Emil Michael, the Under Secretary of Defense for Research and Engineering, after previously reporting directly to the Deputy Secretary of Defense. Earlier this month, Michael signaled that over the coming weeks and months the Department intends to aggressively scale AI initiatives across the enterprise. Reflecting this priority, CDAO’s budget for the next fiscal year increased by nearly $500 million, driven in part by the recent reconciliation bill.

These initiatives are already beginning. Just last week, the White House launched the “U.S. Tech Force,” which aims to bring early career AI talent into the government, including the DoW, to help modernize systems within the federal government. The week before, the DoW announced the launch of Google Cloud’s Gemini for Government as the first of several frontier AI capabilities to be housed on GenAI.mil, the Department’s new AI platform (so far GenAI.mil is only available on NIPR, the DoW’s unclassified network, but there are plans to expand to SIPR, the DoW’s primary classified network for “Secret” communications).

I predict that as part of this new push towards more aggressive AI adoption, the DoW will officially release a new AI strategy with a strong focus on adopting commercial generative AI products. I predict that the strategy will emphasize adopting application layer generative AI products that drive real tangible value for operators (in contrast, past strategies focused largely on data infrastructure needs rather than specific applications already offered by the private sector).

4. An American defense company will license technology from Ukraine to deliver to American warfighters

Since Russia’s 2022 invasion, Ukrainian defense firms have produced a wave of combat-proven capabilities, like small aerial drones, maritime drones, drone autonomy software, counter-drone technology, air defense systems, battle management software, electronic warfare technology, and more, hardened under live conditions and purpose-built for the realities of the modern battlefield. While the conflict in Ukraine does not align perfectly with American forces and priorities, the technology developed in Ukraine will undoubtedly be valuable to other nations (including the U.S.) that seek to remain competitive on the modern battlefield.

When the conflict began, Ukraine halted all exports of Ukrainian defense technology to other countries in order to ensure the country had the materiel it needed to defend itself against Russia. However, over the last six months, Ukraine has slowly begun easing its export restrictions for partner nations through programs like “Build with Ukraine,” which allows Ukrainian defense manufacturers to establish production lines in partner European countries and allows those countries’ militaries to access Ukrainian products. Several European countries have already announced plans to start joint production of Ukrainian defense technology – Greece has announced that it will jointly produce Ukrainian naval drones, some of which will go to the Greek Armed Forces (the rest of which will go to the Ukrainian military); the Czech company Air Team signed an agreement with a Ukrainian weapons manufacturer for the joint development and production of air target interceptors; and Norwegian defense manufacturer Kongsberg announced plans to launch production of Ukraine’s Seawolf unmanned surface drones in Poland.

I certainly expect to see more European countries seek ways to procure battle-hardened Ukrainian defense technology in the coming year, and I expect that the U.S. will also get in the action. It will be difficult for Ukrainian firms to sell directly to the U.S. government due to issues around clearance, integrating technology into existing systems, training, and shaping CONOPS and DOTMLPF to fit new technologies. Thus, I predict that at least one American firm will license battle-tested technology (likely some kind of drone or air defense technology) from Ukraine and sell it to the U.S. military, perhaps adapting the technology slightly to fit U.S. warfighter needs.

5. Golden Dome architecture will be released

Golden Dome is the Trump administration’s vision for a next-generation air and missile defense system capable of defending against strategic threats. Today, the U.S. missile defense system is primarily designed to defend against 1) rogue actors like DPRK, Iran, or terrorist organizations and 2) an accidental nuclear launch from strategic threats like PRC or Russia. For many reasons (political, economic, and technical), it is not designed to defend against strategic threats like a full scale nuclear attack from a sophisticated adversary – instead, the U.S. relies on nuclear deterrence to defend against strategic threats.

However, in January 2025, President Donald Trump signed an executive order titled The Iron Dome for America which directs the DoW to develop and deploy an architecture for a missile defense system capable of defending against strategic threats. The 2025 Reconciliation Bill provided further funding for Golden Dome (~$25B), and the 2026 National Defense Authorization Act (NDAA) officially aligned U.S. missile defense policy to align with Golden Dome and directed the DoW to release an architecture for Golden Dome. President Trump expects that Golden Dome will cost $175B and be completed by the end of his presidential term, although experts disagree on the exact cost and timeline that will be needed to field a truly capable strategic missile defense system. A number of startups and defense primes alike are gearing up to build capabilities to support this new missile defense system.

Despite Congressional and executive orders to release an architecture for the system, the DoW has not yet disclosed much publicly about a potential Golden Dome architecture. I predict that in 2026 the DoW will officially release a fleshed out architecture for Golden Dome and that commercial space startups will play a key role in developing this new system.

6. A state-sponsored hacker group will use AI agents to conduct a cyber attack that causes tangible economic damage

In November, Anthropic announced that they had detected and disrupted the first ever reported AI-orchestrated cyber espionage campaign. A Chinese state-sponsored cyber group used AI agents to target roughly thirty organizations globally, successfully penetrating several of those organizations. AI agents, equipped with open source penetration testing tools like network scanners, password crackers, and binary analysis suites connected to the agents via MCP, as well as browser use abilities, autonomously conducted network reconnaissance and attack surface mapping, discovered a SSRF vulnerability, wrote a custom payload and exploit chain, harvested and tested credentials, and then extracted sensitive data. Anthropic researchers estimate that human operators only did ~10-20% of the exploitation work – the rest was autonomously conducted by Claude agents.

As agents, and particularly coding models, continue to improve, I predict that we will see more and more cyber attacks conducted using AI agents in 2026. In particular, I expect that we will see at least one AI-enabled state-sponsored cyber attack that causes tangible economic damage in 2026 (Anthropic did not report whether there was any economic damage done during the November attack).

In order to prepare for the coming wave of AI-enabled cyber attacks, the U.S. government and enterprises must adopt similar levels of automation in our own offensive and defensive systems to remain competitive and resilient to threats posed by our adversaries.

Finally, here are a few additional “rapid fire” predictions that I crowd sourced over the past month:

• The U.S. government will take a stake in at least one VC-backed company relevant to national security (could be a chip company, an AI lab, SpaceX….who knows!)

• A prominent defense-only startup will launch a major commercial initiative (the defense market is only so large…)

• A traditional defense prime will acquire a prominent VC-backed startup

• VC backed space and defense startups will become more active in M&A markets

• Augmented reality glasses or helmet will be used on the battlefield (Meta and Anduril have both made quite a lot of progress!)

• New PAEs will meaningfully accelerate DoW acquisitions of commercial technology

• CDAO will get a new name / re-brand

• Congress will pass a compromise bill on SBIR re-authorization which will implement some (but not all) proposed reforms to the SBIR program

• An American AI lab will release an open source AI model that surpasses Chinese model performance

As always, please let me know your thoughts! Do you agree with my predictions? Anything important I missed?

And of course, please reach out if you or anyone you know is building at the intersection of national security and commercial technology.

Thank you again to everyone I met this year who is working on the same mission as I am or who supported me in some way in my mission: to ensure that the U.S. and its democratic allies have the technology they need to remain competitive on the modern battlefield in order to maintain deterrence and defend freedom and democracy around the world.

Happy holidays and happy new year!

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As always, please reach out if you or anyone you know is building at the intersection of national security and commercial markets. And please make sure to subscribe to the Mission Matters podcast to hear more stories of what it takes to build at the intersection of national security and commercial markets.

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Transcript

Maggie 00:19
In this episode of the Mission Matters podcast, we’re joined by John Serafini, the CEO and founder of Hawkeye 360 and a partner at Shield Capital. Hawkeye 360 operates a constellation of more than 30 satellites that detect and analyze radio frequency signals from space, providing insights into activities that can’t be seen with traditional imagery alone.

David 01:13
Radio frequency, or RF for shorthand, is what we use to communicate with technologies like Wi-Fi, AM and FM radio, Bluetooth, LTE, and more. Anytime someone communicates using one of these technologies, a Hawkeye 360 satellite can detect their location, which provides signal intelligence for a wide range of mission sets useful to the intelligence community, the military, law enforcement, and non-government organizations, among others.

Maggie 01:45
For instance, it can help a customer monitor maritime activity like illegal fishing, or help a law enforcement agency gain visibility into trafficking routes or cross-border movements used by illicit networks like terrorists and narcotics smugglers. These actors may rely on tools like push-to-talk radios and satellite phones but can be difficult to detect using satellite imagery alone. Hawkeye 360—

David 02:11
—is the first truly scaled startup we’ve had on the Mission Matters podcast since it was founded in 2015. Hawkeye 360 has launched more than 30 satellites, achieved nine figures of annual recurring revenue from government customers around the world, and reached profitability. They’ve raised more than $400 million and grown to over 200 employees.

Maggie 02:35
John has a long history in the national security industry. After graduating from West Point, he served as an Airborne Ranger-qualified U.S. Army infantry officer for several years. He then received his MBA from Harvard Business School and joined the investment team at Allied Minds, a deep tech venture firm, before starting Hawkeye 360 in 2015.

David 02:56
I’ve had the pleasure of working with John for several years at Shield Capital on our space portfolio, and he is absolutely one of the foremost experts on how to build and scale enduring space startups. In this conversation, we dive into what it really takes to scale a space hardware company, how John evaluates space startups as an investor, the trials and tribulations of working in classified environments and with foreign partners, and along the way, John delivers some hot takes on the current state of the industry.

Maggie 03:26
Now on to the conversation. John, you personally have spent a lot of time building companies, investing in companies, and scaling companies. What would you say is the best piece of advice you’ve received over the years about building a company like Hawkeye?

John 03:45
I’ve been blessed with a wonderful chairman at Hawkeye 360, Mark Spoto from Razor’s Edge. They led our Series A round back in 2017. Mark’s been a great partner to me, and at the time, it was probably more of a flippant remark from his own thinking, but it really stuck with me. I was having a conversation with him a few years after we started the company about what metrics he really wanted me to focus on reporting to the board and what would be our quote, unquote KPIs at the time. I remember thinking through revenue or ARR or ACV, bookings and backlog, et cetera. He kind of stopped me, and again, he’d probably say it was a flippant remark, but to me, it stuck. He said, “John, just build a serious company. Just build a serious company.”

I think that was a really great piece of advice because it forced me to recognize that we’re not building widgets. We’re not building some nameless piece of enterprise software to be deployed by some nameless enterprise entity in the middle of nowhere. We’re building data and data analytics products that are delivered to the warfighter, to the intelligence analyst, to decision-makers who are operating in very difficult circumstances with no margin for error. Accordingly, our technology has to work the first time. It has to work every time. That mindset has to permeate the entirety of the organization and filter up to the KPIs that we care about.

From that small piece of advice grew my own personal thesis on how to build a real, serious company in the defense technology ecosystem. The first thing is you have to be trusted. You have to be trustworthy. This is a hard thing for young companies to understand. If you’re going to sell mission-critical functionality to customers like NGA, NRO, CIA, combatant commands, or their international equivalents, you have to be trusted. You have to do what you say you’re going to do. There can’t be any gap between what your capabilities are and what you claim you’re capable of doing. Customers have to believe not only in you as the CEO and your management team, but also in the integrity of your product.

The second thing is you have to be humble. I don’t mean humility in the traditional sense. I mean recognizing that you are one small component of many different products, services, and technologies supporting the warfighter or the intelligence analyst. They operate within complex systems that are often beyond your full understanding, systems you have to fit into, be compatible with, and interoperate with. Your technology has to be ruggedized. It has to be cyber-hardened. It has to be proverbially camouflaged to work in very austere and difficult environments. I like to say that the sun does not revolve around your startup. The sun revolves around the warfighter and the customer, and your technology must fit into the complexity of the systems they operate.

The third, and hardest for many peer companies to understand, is that you have to be sustainable. To me, that means you have to be profitable, and you can’t be dependent on one or two, or just one, source of revenue or customers. You need high-quality margins, the ability to attract sustainable and consistent capital, and a diverse set of inbound revenue to reduce exposure to any single customer or source. That’s difficult for startup companies to grasp.

When Mark said to me, “You need to build a serious company, a mature company, a thoughtful company,” it meant that we had to be trustworthy, we had to be humble, and we had to be sustainable.

Maggie 08:16
John, what’s a company that you admire, that you think embodies a lot of the principles of being serious and sustainable?

John 08:25
I think, I mean, it’s easy to say a company like SpaceX because they’ve accomplished so much in such a short period of time, but they’ve also had an ungodly amount of capital to grow with. At the same time, I appreciate that their growth has not been linear. Their first couple of years were really challenging, and they were true pioneers. So it’s easy to say SpaceX, but I also have a lot of respect for Peter Beck and what he has built at Rocket Lab. Not only did he build a national security oriented space startup company, but he’s been able to build it out of New Zealand, which is not exactly known as a bastion of defense technologies or a place with a huge local government requirements set for him to naturally fulfill. He’s had to build a company that not only has real functionality that customers can depend upon, but can also export that capability to the United States and other advanced economies where space based launch and other space based capabilities are in demand. None of that is easy.

We take for granted building space related companies today, which is a totally different environment from building a space company ten years ago when he got started. Back then, there were probably five or so venture capital firms that would take him seriously in a seed or Series A round, and even in a Series B round. Today, there are dozens, if not a hundred, that would take that meeting and sincerely consider financing his round. I’m also impressed by how he thinks ahead and how the organization thinks ahead. They’ve not only achieved a great amount of scale in the launch business, which is an extremely difficult business to be in and almost impossible when you’re competing against SpaceX and the scale they have, but he’s also been able to use that initial success in launch to move into other complementary business areas. That includes building spacecraft, building parts of the supply chain, and leveraging access to customers to contemplate becoming a constellation operator in other areas. All of these are complementary to his larger business thesis.

With a relatively small amount of capital and a public listing, albeit via a SPAC, which I think was a challenging path, and one where he could have IPO’d the company the traditional way, he’s built a lot in a relatively short period of time. So I tip my hat to Peter. Of course, I also tip my hat to SpaceX, to Gwynne and Elon, and to what they’ve collectively built. I think both of those companies are great exemplars for us to follow.

David 11:23
Yeah, John, I think that’s a great point on Rocket Lab and SpaceX. They’re certainly preeminent companies in the space economy and may be responsible for a lot of the progress that we’ve seen. You also have to mention that both have been able to orient themselves around the national security environment. You’ve been working in and around government for over two decades, both as an Army officer and now as an entrepreneur. Hawkeye 360 coincidentally started in 2015, the same year that the Defense Innovation Unit, then DIUx, got started. I’m curious whether it’s easier now to work with the Department of Defense and the intelligence community relative to when you started, and if there’s anything you’d like to impress upon other founders as they think about partnering with the department and the broader national security environment.

John 12:21
Well, to answer the first part, which is to compare and contrast the environment in 2015–2017, when we started Hawkeye, versus today. I actually started defense tech investing and company building all the way back in the 2010 timeframe. I could even tell you stories from the 2008 timeframe. Back then, defense technology as a category didn’t really exist. It was about guards, guns, and gates. That changed as commercialization of C4ISR became a thing, particularly with the advent of cybersecurity. When cyber became an investable technology area, people could put capital into what they perceived as enterprise software, see it adopted early by government entities that needed protection, and then use those bona fides to scale into the broader enterprise and into highly regulated industries. From my viewpoint, that was the beginning of the modern defense technology experience.

When Hawkeye was getting started, I would characterize the mindset as getting companies drunk on RDT&E. What I mean by that is there were a lot of RDT&E dollars—research, development, testing, and evaluation capital—sloshing around the system. Pentagon leaders and intelligence community leaders who wanted commercialization equated innovation and moving fast with simply putting more RDT&E capital into the system and seeing what would happen. Ultimately, though, that just created an ecosystem where companies were jumping from one SBIR to an In-Q-Tel work program to a DIU contract and back again. They were never incentivized or provided the capital necessary to reach production contracts, where you could actually take advantage of the value created at TRLs three, four, and five, do the productization at six, seven, and eight, and then deploy that technology to actually help the warfighter.

I like to say that back then you had a bunch of startups getting drunk on RDT&E work, skipping around, and not creating meaningful value. The naysayers would point to this and say, why are we funding all this work to get a company to TRL six, only for them to then need more money, pivot, lose an investor, or simply not be sustainable? What’s the point of the defense ecosystem, the intelligence apparatus, and the national security community starting to depend on these technologies if we can’t trust that companies will make it through the so-called valley of death?

That was the environment from roughly 2015 through 2019 or 2020. There was also a strong mindset that the U.S. government should not be in the business of picking winners. As companies graduated out of the RDT&E phase, even when there were clearly capable firms, the government was hesitant to say, this is the one we need to scale, provide a production contract, and put into a program of record to support deployment to the warfighter community. No one wanted to make that call.

I saw some change during the Biden administration. The overarching philosophy became something like “buy what we can and build what we must.” I think there was a lot of lip service paid to that, but things got much better under the current Trump administration. People really got religion. It wasn’t just a mantra anymore. It became buy what we can, buy what we can, buy what we can. If it’s out there, affordable, capable, and the warfighter wants it, buy it, scale it, and get it to the warfighter as fast as possible. There were no caveats or excessive requirements placed on companies, and far less policy friction that made it difficult to achieve a program of record. It was simply, if you can be successful, we’re going to drop the safeguards and guardrails and put capital behind you so you can create value for the warfighter. That has been exciting.

Today, I think we’re in a golden age of defense tech opportunity, but it comes with a real “peeing in the pool” risk. As the community opens its arms and says we’re going to work with commercial at real scale, if one company screws up, it contaminates the pool for everyone else. It makes it much harder for CEOs and companies doing the right thing and creating real value to succeed. If someone lies, forgets their humility, fails to recognize that the sun revolves around the warfighter, or can’t be sustainable and disappears, the U.S. government won’t trust companies with programs of record if they might not be there a month from now. Best behavior across the entire ecosystem is necessary for all of us to succeed.

So that’s my answer. Back then, it was extremely hard to scale and very difficult to get through the valley of death. Companies made bad decisions, like becoming services providers, just to survive, because there weren’t viable programs of record to allow linear scaling. Today, it’s a very different environment. With a more aggressive and interested customer base comes access to more capital. What we’re really missing now, and I’m sure we’ll talk about this later, is exit opportunities, particularly in space. That has always been the challenge for commercial space: a lack of exits. That’s a natural consequence of having a smaller base of strategic acquirers, and it’s something we’ll have to work through as an industry to be successful long term.

David 18:34
Well, John, maybe we get into it. I know we definitely want to bring things up to the present day with Hawkeye 360 and the success you’ve had working with the national security community. Although I just can’t help myself. We could be in a golden age of defense technology and space technology, or we might end up in a bit of a golden pool. We’ll see how the good actors operate to make that the case. But maybe just talking about the SPACs of 2020 and 2021, right, when we had zero interest rates and money was just flowing from the government into people’s pocketbooks, creating a bit of a market frenzy. A couple of years later, after a bit of a fallow period, we’re seeing a real uptick in the marketplace. One of our portfolio companies, Apex, has raised over a billion dollars. Two space companies raised at three billion. There seems to be some significant momentum coming forward. And of course, how could I forget SpaceX signaling that they may go public in the next 12 to 18 months at one and a half trillion, with a T. So what can this current generation of startups learn from their predecessors who SPAC’d, including Rocket Lab in 2020 and 2021, and how should they think about ensuring they don’t make the same mistakes?

John 20:03
Yeah, so there is a lot of froth in the system. I would point out that you can probably make a case that SpaceX’s valuation is defensible based on cash flows. They have very meaningful cash flows and very meaningful revenue, unlike many of the other companies we’re talking about. Going back to point number three I made earlier, you have to be sustainable. Part of being sustainable is raising capital on the right terms that you can grow into and that allow you to make your investors money and your employees money without setting expectations that are simply unachievable, particularly once the larger macro environment changes.

Some companies, and I won’t point to the ones you mentioned because we have a financial interest in one of them and think very highly of the company, are raising capital simply because it’s available. At some point it becomes, well, if I raise at this level, you need to raise above me to prove a point, and so on. That becomes a tower of cards that’s going to fall down at some point. I think there was some of that in the lead-up to the SPAC boom in 2020 and 2021, where some of these space companies had raised private rounds they were never going to be able to grow beyond just by accessing private markets. They didn’t have access to the scalable amount of capital necessary to build their constellations. They had to start thinking outside the box, and for them, SPAC vehicles enabled a relatively painless pathway to the public markets, where they could market themselves on the basis of forward-looking projections.

That’s no longer the case, but it was at the time. It became an antidote for some of the sins of the past, in a way, allowing them to preserve an up round while getting a public listing and having everyone, quote unquote, make money on paper, at least for a short period of time. Before the 2020–2021 SPAC boom, the only really well-known SPAC success story was Burger King back in the 1980s. It’s just not a sustainable vehicle for accessing the public markets, and you wear that stink as a SPAC company for a long time. No one associates Burger King with that anymore, but companies that SPAC’d and are still around have seen depressed share prices because of their origins, and that’s been very difficult for them to shake.

Probably the two exceptions in the space industry are AST SpaceMobile and their friends at Rocket Lab, who frankly could have IPO’d the regular way, but I think they saw the ease of the SPAC transaction as very attractive at the time. To me, the SPAC boom is indicative of the fact that accessing the public markets is, in some ways, mutually exclusive with too many peer companies doing the same thing. The more companies that access the public markets, the higher the likelihood that overall quality goes down. You get lower-quality companies and less scarcity value on the public exchange for public-style investors.

As more companies SPAC’d, and as more companies contemplate going public in the future, I think it has a marginally deleterious effect on companies that are already public, as well as on those that want to go public later. That’s why you saw the SPAC craze peter out relatively quickly. Some companies that clearly were not prepared for the public markets took that route in late 2021, and that’s when the PIPE market dried up, redemption rates hit 90 percent on SPAC dollars, and it all went downhill in a hurry.

I am concerned about that in today’s environment as well. As companies that may be lower on the quality curve contemplate going public again, and we’ll take SpaceX out of this conversation because it’s a very special case, how are they going to perform in the public markets? If they perform poorly, and I won’t point fingers, what does that do to the companies behind them and their ability to IPO on high-quality terms? And what does it do to their ability to trade sustainably?

Ultimately, it goes back to point number three. If you’re going to sell defense technology companies and applications that matter, you have to be stable. You have to be sustainable. If your stock price looks like a zigzag, going up and down every other day because there’s no basis for the market to value you, no cash flows for the market to associate a fair value with, that’s a problem. That leads you to being the kind of company that could be fly-by-night and gone the next day. You need slow, linear, solid growth up and to the right over time. That’s what I’m trying to solve for at Hawkeye: how we continue to grow by accessing the types of capital available to us in a sustainable manner, for our company, our shareholders, and our customers.

Maggie 25:40
I want to turn back the clock 10 years or so, back to the early days of Hawkeye 360 specifically. I want to ask about how Hawkeye 360 was really formed. I know you were previously an investor at Allied Minds, which focused on investing in companies spinning out technology from academic or federal labs, and that the initial technology for Hawkeye 360 came out of a lab at Virginia Tech. Could you tell us a little bit about the story of taking a piece of IP and turning it into a scalable business, and what some of the challenges and opportunities are when building a company this way?

John 26:22
I had a great partner, a guy named Dr. Charles Clancy. Charles and I had built two other companies together, one called Federated Wireless and another called Optia Labs, that were doing very well in the 2015–2016 timeframe. Charles ran the Hume Center for National Security and Technology, which was a University Affiliated Research Center at Virginia Tech. I did a good amount of classified work on behalf of the National Reconnaissance Office. Today, Charles is one of the senior leaders at MITRE. I believe he’s the CTO and is doing amazing things for our country.

Charles had this idea, and there were two other gentlemen we worked with who helped found the company at the time, one named Christa May and another named Dr. Bob McGuire. The four of us came up with this concept. Ultimately, if you can take pictures from space, a company like DigitalGlobe at the time, now Maxar and since renamed again, was taking pictures commercially, as was Planet, which had just gotten started, and BlackSky, which hadn’t even been around yet. If you can get a license to image from space, whether electro-optical or synthetic aperture radar, and sell that to government and commercial customers, why can’t you also do signals intelligence, which is another highly valued modality of intelligence that can be gathered from space?

From my simple viewpoint, there are three interesting things you can do from a government perspective in space. You can take pictures, you can communicate, both of which have long since been commercialized, and you can analyze signals. We had been doing that for decades, but it had never been commercialized in the way communications and imagery had been. We saw an opportunity to operate in a white space that was unique. We could create space vehicles, satellites that were relatively inexpensive, and this aligned well with SpaceX initiating its transporter missions, where rocket launches became relatively cost effective. That, in turn, began the democratization of low Earth orbit, which previously just wasn’t available because launch capacity at reasonable prices didn’t exist.

We could build satellites relatively cheaply, get them on orbit relatively cheaply, and as long as the regulatory environment was conducive and the stakeholder community was interested, meaning customers across the defense, intelligence, and national security ecosystem, this made a lot of sense for us to pursue. It took us a while to build advocacy, particularly in the intelligence community, and to make sure people were on board with a regulatory environment that would support commercial signals intelligence. We got there over time. It wasn’t immediate. It really was pushing a rock up a hill for a long period of time.

That effort was coincident with our first launch. We got our first satellites on orbit at the end of 2017, early 2018. They were commissioned, and we became truly operational around the 2020–2021 timeframe, when we had enough clusters on orbit to drive down revisit rates. That was when we started to see real adoption, advocacy, and interest from the broader stakeholder community. It took time to build that engagement base. That doesn’t happen overnight, and it’s not just about working with customers. It’s the entire stakeholder environment. It’s engaging the executive branch. It’s spending real time on Capitol Hill advocating for your equities. It’s working closely with the customer base. There’s a whole ecosystem of stakeholders whose interests have to be understood and addressed to make something like this work.

Maggie 30:11
Speaking of the customer base, I know that unlike the vast majority of startups out there, most of the work that Hawkeye does is in the classified space. How can early-stage startups even get started working with classified customers like the intelligence community, and what are some of the technical and operational hurdles you’ve had to navigate to work with those kinds of customers?

John 30:36
Well, part of our value proposition, Maggie, is that we own and operate a constellation of satellites that are ours, right, and we’ve used over $400 million to build them. They’re inherently commercial assets, meaning that the data we collect is inherently commercial and shareable. Yes, we have to get ITAR licenses to be able to sell internationally to our foreign customers, but inside the U.S., what had previously been a highly restricted group of people who had access to signals intelligence data coming from national systems, we could provide our Hawkeye shareable data to them and everyone else inside the U.S. government. Everyone else is a U.S. citizen, and our allies can access it with the appropriate ITAR licenses.

So we do engage in the classified environment because our customers have a lot of classified equities that have to be taken into consideration, and there are requirements and certain information about what they want us to perform that can only be shared in the classified environment. But what we actually produce, the data and the data analytics, nine times out of ten, is an unclassified, totally shareable work product that is sold on an exceptionally high gross margin basis. So that’s the reality of what we do.

To answer your question, though, we did start needing to do a lot of work in the classified environment, and in my viewpoint, it’s exceptionally difficult to build technologies, products, or services that are going to serve the classified environment if you’re not a practitioner. If you’re some guy waking up on an arbitrary Tuesday in Silicon Valley who’s never served, never worked inside the classified environment, doesn’t have a clearance, doesn’t understand the requirements, and thinks you can hang out with your dog in your Silicon Valley garage and come up with some new classified technology that practitioners are going to immediately adopt and say, “This is the greatest thing ever,” you’re just wrong.

You can’t put yourself, the warfighter, or your investors in a situation where you’re trying to push something that might make sense to you, something you came up with in your garage, onto the requirements or conditions of a classified customer, because they’re just going to reject it. It’s going to be a waste of capital and a waste of time. Yet we see this quite a bit, where companies that don’t understand the environment under which these operators are conducting missions try to bring technologies they think will work in the classified environment, but they just don’t know. They don’t have clearances, and they don’t understand the unique circumstances and missions these folks are working under.

So I think the first answer is that you have to be taken seriously by being a practitioner. Ultimately, if you don’t have a clearance yourself, I think it’s really difficult to try to build a capability that will be used by those in the cleared environment. Obviously, if what you’re building is valuable, customers are going to come find you. Probably the best meeting place is In-Q-Tel. If you can get In-Q-Tel to be an intermediary to help vet your technology, match it against classified users, and help secure some kind of work program by which you can further develop and productize your capability and then deliver it to customers who might consider it, that’s a good mechanism. It’s been valuable for many, many companies, particularly those that Shield works with.

But outside of having that kind of intermediary, you can’t expect that there are customers waking up thinking, “Oh, I’ve got to go find the next commercial thing that’s going to solve my problems, and I’m going to give them an FCL so they can have unfettered access to our nation’s classified apparatus.” It doesn’t work that way, and folks need to temper their expectations if that’s what they think will occur.

David 34:28
Yeah, John, that’s great. And I think one of the areas this really boils down to is trust. In-Q-Tel, the investment arm of the Central Intelligence Agency, is certainly a great way to broker trust with the end customer. One other area that’s often talked about, or at least highlighted, especially with some of our other startups, is working with defense primes. For a lot of people, they get a really bad rap. They’re going to steal your intellectual property, they’re going to move slowly, they’re going to be a challenging partner, but it seems like you’ve done a really good job partnering with them. For other startup founders, how would you coach them in thinking about engaging with the defense primes?

John 35:13
People like to use the primes, like a Lockheed or a Northrop, as some kind of proverbial whipping child that they point to as the source of all evils. And the case of the matter is, yes, they move slower. Yes, they have different incentive structures. But ultimately, what they build works. There’s a reason why the M1A2 Abrams tank works like it does. Now, compare that against other countries and their defense industrial base. They may cut corners. They may not have the quality and QA/QC emphasis that ours does, and they may not be anywhere near as effective on the battlefield as the capabilities that we deliver. So what we have to do is find a way to marry the defense industrial base, who move slow and don’t innovate very well but build stuff that works and can be trusted to work in extreme conditions on the battlefield, with the left-hand side, the Silicon Valley–esque mentality where we’re going to leverage innovation, move fast, break things, and leverage private capital and intellectual property to create new functionality. We have to marry that together, taking interesting ideas and creating them in such a way that they can be trusted to work the first time and every time. Again, this goes back to taking care of the warfighter. They need a ruggedized piece of technology that is actually going to work. This isn’t nameless widgets that we’re building for some nameless enterprise customer. So I look at defense industrial base partners as phenomenal investors and phenomenal partners for building better productized capabilities that I can deliver to meet the customer’s needs. The defense industrial base has been working with the warfighter for decades, 50-plus years. They understand the requirements, the missions, the restrictions, and what it’s like to be on the battlefield. That company coming out of Silicon Valley does not. Maybe they’ve got a couple of veterans, maybe they’ve done some work in the past, maybe they’ve been practitioners, but they don’t understand it to the extent that the defense industrial base does. So how do you take the best of the defense industrial base and marry it with the move-fast, innovate-quickly mentality of Silicon Valley? I think part of the rationale is having those defense industrial base entities invest in your companies. For each of our financing rounds, all eight institutional financing rounds that we’ve done, just about all of them included a strategic partner. Some of them led those financings. Raytheon led our A3 round. Airbus led our B round. Leidos and Jacobs were meaningful investors in our C and D financings. We had Lockheed invest materially in our D1 round, and they’ve all been wonderful partners to work with. The idea that these defense industrial base companies wake up wanting to steal some arbitrary startup’s intellectual property and people is asinine. That’s just not how they work. They wake up wanting to take care of the equities of the warfighter and the American public, just as much as this new defense technology company ecosystem does as well. So I’ve taken the perspective that they’re not competitors. To me, they’re not the boogeyman. They’re good people. They know how to build great systems, and if I work with them, they can probably get my technology to the warfighter so I can actually create value faster, better, and stronger than if I tried to do it myself. I would say that strategy has worked for Hawkeye. It’s worked for other companies that we’ve seen replicate it. Awesome.

David 38:52
Well, just for our audience members, John, you highlighted getting an FCL, which stands for facility clearance, and that allows you to do classified work. Another acronym is ITAR, the International Traffic in Arms Regulations, which is the State Department’s program to protect sensitive technology from getting into the hands of our adversaries. For sensitive tech like the stuff that Hawkeye is building, you actually have to get licenses to work with international partners. But what would typically be an impediment or a massive hurdle, you’ve used and gotten through, and now you work with a lot of our allied partners and sell to them. So maybe you can talk a little bit about what that process has been like to allow you to take ostensibly sensitive technology and sell it to our foreign partners, not through something like foreign military sales, but actually going direct to them to provide the type of service and data that Hawkeye 360 uniquely collects.

John 40:00
When I was growing Hawkeye in its incubation stage, one of the things we heard a lot from potential customers and stakeholders was, “Don’t be a ward of the state,” meaning don’t create your company such that it’s highly correlated to the U.S. government purchasing it, because if the U.S. government stops, it goes away. You can’t put the government in that kind of position. Somehow that lesson has been forgotten along the way, and now you’ve got this whole crop of single-use technology companies that, should the U.S. government stop buying certain types of functionality from the defense tech ecosystem, are just going to fall away in a hurry. At the time, if we had architected ourselves to be wards of the state, we would never have gotten dollar one in revenue because we would have been pariahs. By virtue of showing that we could be sustainable outside of government anchor customers, I had to demonstrate that there was a diversity of customers for us. Not wanting to really focus on commercial industry at the time, and I still think it’s not the right area for us to focus, I went naturally to the international markets, and that was a great decision for us. In 2018 and 2019, we were fortunate to pick up a couple of real, meaningful anchor customers early on who wanted access to commercial signals intelligence because they’d never had it before. Some of them might have had rudimentary organic SIGINT overhead capabilities, but they weren’t sophisticated, and they were excited to get access to new forms of overhead signals intelligence. They were willing to spend significant amounts of money and pay a premium on pricing in order to do so, and that’s been a meaningful achievement for our company. I’m very proud of the fact that 50 percent of our revenue comes from U.S. government sources across a diaspora of different agencies and customer types inside the U.S. government. Similarly, there are dozens of customers for Hawkeye on the international side. Recognizing that it’s not easy to do this when you’re ITAR controlled, you have to get licenses, technical assistance agreements, and DSP-5s to be able to market your technology to international customers. You’re certainly at a disadvantage when you’re competing against international entities that can market ITAR-free capabilities and will do so. But the diversity benefit, and being able to command what I would call premium pricing on the international side, is rewarded with very loyal customers. What we’ve found is customers that are very sticky and, in particular, are willing to sign up for longer contract terms than on the U.S. government side. Ultimately, our business is kind of bifurcated. You’ve got U.S. government customers across a number of different buying entities, which tends to be shorter term with very quick turnaround. The sales cycle is literally negligible. It could be hours before we’re on contract, on requirement. On the international side, it’s a longer-term sales cycle. When you sell something to a country like the Philippines, for example, it takes a long time to manage that sales process. It’s not exactly linear, especially for an American company, but the contracts tend to be longer and the pricing tends to be better. It’s an interesting dynamic between the two, and having that diversity in our revenue base has really helped us.

Maggie 43:25
Hawkeye is definitely the most mature startup that we’ve had on this podcast. I know from some other interviews you’ve done that you’re at nine figures in revenue and have several hundred employees. I really want to spend some time talking about what it actually takes to scale a defense tech hardware company in a sustainable way. One of the first questions is, what were some of the unexpected challenges you faced in scaling up your technology, going from that first cluster that you launched to the twelfth cluster you launched earlier this year?

John 43:59
As I mentioned earlier, in 2015 and even into 2020, the number of capital providers for defense technology and space technology was negligible. We are talking about maybe a dozen by the 2020 timeframe. Finding people who were willing to do a Series B round was hard, but it was especially hard for a space technology company in the 2017 timeframe. Being able to go into that Series B round having taken all the technology risk off the table was really challenging as well. If you are going to be a space technology company, the only legitimate way to show that the technology risk is off the table by the time you do your Series B, which should always be the goal, is by having space heritage, putting assets into space, and making sure they work correctly over a long period of time. Today, you are seeing companies raising exorbitant valuations in Series A, Series B, and even Series C rounds without having much space heritage to support those claims, and I think that is a challenge. That dynamic did not exist seven or eight years ago.

We had to think very thoughtfully about how we were going to de-risk each component of our technology architecture. For us, that architecture is pretty complex. You are talking about a space component, the sensor that actually collects the data, which is flying in a collection of three satellites. You have to showcase three assets working in harmony to geolocate a signal from 550 to 600 kilometers in space. You also have to demonstrate the processing of that data, which is entirely complex, including the geolocation, the analysis, and the conversion of that data into something actionable. There is a tremendous amount of different types of intellectual property that has to be proven across the entire continuum of that technology set. It was not linear for us to simply check a box and say it was done and move on to financing. That was a hard thing to work through.

When I think back on what I learned, there are four things that really helped us. The first was starting with a base of employees that was right-sized, made up of thoughtful, mature individuals who were previous practitioners and who deeply understood the technology. Just as importantly, they understood the requirements and the environment the customer was operating in. You cannot have daylight between what you are building and what the customer needs. If you are trying to invent, in your Silicon Valley garage, what you think the warfighter needs and it is not aligned with the reality of what that warfighter actually wants, that is a real challenge. I use warfighter here as a proverbial stand-in for the broader U.S. government customer. Bridging that gap is very difficult, especially if you are trying to get to program-of-record type contracts that ultimately make the entire effort worthwhile. So the first focus was having a small cadre of committed, thoughtful practitioners.

The second was being very careful not to get over our skis and being thoughtful about how much overhead we took on at each phase of the company’s life. I have a just-in-time resourcing mentality. As we achieve milestones with customer X, Y, or Z, or technology milestones A, B, and C, then we take on additional overhead. Then we add headcount, then we open an office, and so on. You do not do it beforehand. A lot of companies get into trouble by growing overhead too fast, and then they find themselves having to reverse course and do reductions in force, which is painful. I never wanted to be in that situation.

The third was the good housekeeping of having a thoughtful fundraising plan and knowing exactly which milestones you need to achieve to unlock the next tranche of capital. That means engaging with a good cadre of investors who are waiting for you to hit those milestones and then actually hitting them on the timeline you told investors you would. Nothing generates investor interest more than someone doing exactly what they said they would do. Every investor should have a logbook that says, when this company comes to me for their Series A, I will look back and ask whether, when they were raising their seed, they did X, Y, and Z as promised. There is always room for explanations like something unexpected came up and we had to work around it or find another technical path, and I will always give people credit for that. But ultimately, if you do not have a track record of achieving the milestones you set, why would I, as a fiduciary of investor capital, provide you with more capital knowing you may not be able to achieve the milestones required to get to the next financing round?

Those were the four things I really focused on: having a small, committed cadre of practitioners; being disciplined and just-in-time with overhead and resourcing; having a well-thought-out, milestone-driven fundraising plan that is executed as promised; and finally, making sure that everything we do is highly aligned with the needs, requirements, and mission expectations of the customer.

Maggie 49:13
Speaking of major company milestones, you said in an interview earlier this year that Hawkeye is officially profitable. When do you think is the right time for hardware startups to focus on profitability versus growth at all costs?

John 49:28
Somehow, we’ve gotten into a mindset that it’s an either-or thing. It’s not. If you go talk to public equity investors, they’ve become almost schizophrenic. They want both value and growth, and you can deliver on that. There’s no reason why you can’t grow at 30 to 40 percent year over year and be profitable. If you’re growing at 60 percent but you’re deeply unprofitable, how does that math work? Ultimately, valuations really should be based on your cash flows. That’s how you ground valuation in reality, on the basis of cash flows and on the basis of EBITDA. We should be valuing later-stage companies, in D rounds and beyond, on a multiple of EBITDA. The only real questions should be the range of that EBITDA multiple and which year you’re using, whether it’s trailing twelve months, leading twelve months, or even two years forward, depending on the financing. To me, a sustainable company starts with an excellent cost structure. What are your gross margins? What is your EBITDA margin? How much are you spending in capex? How is that going to change over time? Are you going to be able to achieve free cash flow breakeven, not just EBITDA breakeven, but free cash flow breakeven? In the space industry, where you’re spending a lot of money on capex, when can you achieve free cash flow breakeven? When can I value you on the basis of free cash flows? Because if you don’t have free cash flows, I can’t really utilize a free cash flow multiple. To me, a company becomes mature when you can value it thoughtfully on the basis of its cash flows.

David 51:08
So John, I think that’s awesome to hear and definitely something other startups should take into account. For Shield Capital, you’re a bit of a talisman. You’re an active CEO and also an investor with us. What are some of the things you’re looking for in early-stage deals that space entrepreneurs should exhibit when trying to raise capital?

John 51:36
There are the obvious things, like whether this is a mature, thoughtful group of people working together in harmony to create something important. You can look at the team. You can look at whether the team has been successful in the past. Do they have a track record, and do they have a track record of working together? You can see these dynamics in pitches and diligence, whether the CEO and CTO are aligned. There are also intellectual property milestones and technology milestones, depending on the phase of development of the company. But beyond the technology and the early adopter metrics that every startup wants to flaunt, all of that can be gamed. Ultimately, what I really care about is this: if you build this thing, does anyone give a shit? Is it a big deal if you create it? If you use potentially hundreds of millions of dollars of venture and LP capital to build this ecosystem you’re conceptualizing in space, and you’re able to develop a commercial product to sell to government customers and others around the world, is it meaningful? Does it solve a real problem? Is it sustainable? Is it a functionality that will exist for a period of time and then be competed away because someone can replicate it quickly or because you lose your economics? That’s what I think about. It’s less tangible and totally intangible at the same time. It’s like that Supreme Court justice who said, how do I know pornography when I see it? I know it when I see it. It’s the same way here. If I can conceptualize what someone is building and know it’s going to be meaningful, that gets me interested. It has to excite me from that perspective.

Maggie 53:26
John, as we close out here, we want to transition to a couple of rapid-fire questions. So my first one is: what is a technology that, 20 years ago, you expected would be further developed today than it actually is?

John 53:40
That one’s easy for me. We built a company at Allied Minds called BridgeSat, which later became BridgeComm. I actually think the company just got acquired by Voyager. Its purpose was to commercialize optical communications, optical comms through lasers, from free space. We pulled a bunch of intellectual property out of Los Alamos National Lab, which were the leaders in developing quantum capabilities and had amassed a significant IP portfolio. What we found was that it was really, really difficult to build high-quality, small transmitters to push optical data, and no one had really invested the time to build the optical receivers needed to support that ecosystem.

You’re seeing that today with the Space Development Agency and the SpaceX Starlink constellation using optical relay networks, and it’s working really well. But it’s not working well for the rest of the space architecture, especially smaller spacecraft that can’t fit a materially sized optical terminal, even with a gimbal. I’ve been surprised that no one has really figured out how to package a small-scale optical transmitter in a way that truly commercializes optical connectivity at the scale we need. The better it is, the faster we can get data down to the ground, and the better the mesh networks will be.

It also amazes me that when I built Hawkeye in 2015, we counted one day and there were over 100 launch companies out there that had raised some amount of venture capital. It could have been seed dollars or something, but still, you would think that with all that innovation, all that capital, all that focus, and with the demand signal being what it is, there would be a lot more fully vetted and highly commercialized launch companies. Instead, you have this kind of monopoly of just a handful. It’s SpaceX, Rocket Lab at a premium, because it costs a lot to use a Rocket Lab dedicated launch, Firefly coming up, and people talk about Stoke, but I haven’t seen it yet because they haven’t demonstrated it. It’s just like, wow, with all that capital that’s gone into the sector, we really haven’t seen the results we were expecting 10 years ago.

David 56:00
Maybe for our next rapid-fire question, launch is certainly an area where we do seem to see a lot more pitch decks, and we’ve sort of stayed out of it given the trials and tribulations of others. What are some of the white spaces in the space domain that you see could be addressed by emerging startups, or what gets you excited about areas that have yet to be tackled?

John 56:24
Yeah, I mean, go back to the optical relay question. I think that’s interesting. There’s a fundamental problem with getting data down to the ground leveraging RF technologies alone. There’s only so much RF, only so much bandwidth, and only so many ground stations. The answer can’t always be ground station densification. The answer has to be more onboard processing in space in order to sort the data, process the data, and only bring down what you really need. And then we need better relay networks. We need better mesh networks that are available to all to get that data to the ground faster, because ultimately constellation companies’ value is highly correlated to speed. The faster you can get that information to the warfighter, the better and more valuable it is. That’s certainly the case from Hawkeye’s perspective, and I’m sure it’s the same for many other intelligence modalities. So I think there’s white space to be developed around trusted relay partners and onboard processing technologies that can be leveraged by constellation companies and would be of interest.

David 57:30
Okay, and for your last rapid fire question, you can plead the fifth, though we’re hoping for the spice. The fate of Hawkeye 360 rests in the hands of working with one specific customer. Are you taking A, the United States Space Force, B, the intelligence community, or C, other?

John 57:50
I mean, obviously that’s a hard one to answer. I think ultimately there are a lot of different stakeholders that have to be addressed. It’s not just the warfighter. It’s the appropriators, and it’s the executive branch. To me, the ultimate customer is those stakeholders on Capitol Hill and in the White House, and the international equivalents for our other customers. So it’s a multifaceted customer situation. I like to say that when we’re doing international sales, we have to sell twice. We have to sell bottom up to the actual warfighter and the person who wants to build the spacecraft and the functionality, and we have to sell top down to get political support. So I’d say that political engagement really matters, and making sure that everyone is aligned with the interests of commercial technologies.

David 58:49
Well, John, you’ve been a successful investor, a great entrepreneur, and clearly maybe you could be a politician moving forward in life with an answer like that. Maggie, over to you to close us out.

Maggie 59:02
Yeah, John, thank you so much for coming on the Mission Matters podcast. We really appreciate your time and all the learnings from the past few years of working with you.

John 59:10
Thank you, guys. Great to spend time.

Akhil 59:13
Hey everyone, thanks for listening to the Mission Matters podcast from Shield Capital. Tune in again next month for another conversation with founders building for a mission that matters. And if you’re looking to build in the national security space, please reach out to us.

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On the personal front, I hit my goal of writing and posting at least one blog post each month, I launched a podcast, I hosted dozens of events across the country (thank you to everyone who came to one and let me know if you’d like to join events in the future), I moved to Los Angeles (although I’m still back up in the Bay Area most weeks), and I got to work with even more amazing, mission-driven entrepreneurs building businesses that will shape the future of U.S. national security in years to come.

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As we near the end of the year, it’s a good time to 1) reflect on the past 12 months and 2) make some new predictions as to what is to come in 2026. In the first part of this two part series, I’ll grade my predictions from last year — then, in my next post, I’ll release a new set of predictions for 2026.

Last year, I laid out 5 predictions about NatSec x Tech for 2025:

1. The DoW RDT&E budget for artificial intelligence (AI) in the FY 2026 POM will more than double

2. DoW will double spending on VC backed startups in 2025

3. The DoW will announce its first program of record focused on FPV drones

4. The DoW will announce the launch of a new project focused on humanoid robots in collaboration with a VC-backed company

5. There will be major shakeups in valuations for some VC-backed NatSec startups: a) Two large NatSec startups will merge, b) one prominent NatSec startup will have a large down round, and c) three new NatSec “unicorns” will be minted.

Let’s go through each one by one:

The DoW RDT&E budget for artificial intelligence (AI) in the FY 2026 POM will more than double

Did it happen? No (but AI spend did increase)

According to Obviant data, in FY25 the President’s Budget requested $15.9B for RDT&E projects that include mentions of “artificial intelligence” or “machine learning.” This year, the President’s Budget requested $18.6B for RDT&E projects that include the same key words ($17.3B from the original budget and another $1.3B from the reconciliation bill). So, while the budget request for AI-related projects certainly increased, it did not come even close to doubling.1 Much of this budget increase was driven by increases in funding for organizations like DARPA and DIU, as well as programs like ABMS, Alpha-1, and the Making, Maintaining, Supply Chain and Logistics program.

Source: Obviant

While I may have been overly optimistic about DoW’s appetite for AI in 2025, overall AI spending continued to increase, with more of the budget going towards commercial AI vendors, aligning with my prediction. CDAO awarded contracts with $200M ceilings to OpenAI, Anthropic, Google, and xAI for AI projects (although only $2M has been awarded to each company thus far). Just last week, the DoW announced the launch of Google Cloud’s Gemini for Government as the first of several frontier AI capabilities to be housed on GenAI.mil, the Department’s new AI platform (so far GenAI.mil is only available on NIPR, the DoW’s unclassified network, but there are plans to expand to SIPR, the DoW’s primary classified network for “Secret” communications). Further, CDAO’s requested budget increased by almost $500M, and DIU’s budget increased by almost $1B (both buoyed by the reconciliation bill). The services themselves are also increasing spend on AI-specific projects. For instance, just last week, the Navy announced a $448M investment in the Shipbuilding Operating System, built on top of Palantir, to accelerate the adoption of artificial intelligence and autonomy technologies across the maritime industrial base. I expect that in the year to come, we will see the DoW’s contracts with commercial AI vendors continue to grow as model access expands to more organizations and classified networks.

DoW will double spending on VC backed startups in 2025 to $10B+

Did it happen? No (but startup spend did increase)

I was overoptimistic not only about the pace of AI adoption within the DoW, but also about how quickly the DoW would award contracts to startups. According to Govini data, defense startups captured 1.3% of Pentagon contracts in the first three quarters of 2025. If that trend continues through the fourth quarter, then overall, the DoW will spend ~$5.5B of its $418B in total award obligations on defense startups. While this is slightly more than previous years, it is not nearly as much as I predicted. According to a 2024 Wall Street Journal study, VC-backed startups won ~$4B in DoW contracts in 2023, and data from SVDG suggests that VC-backed startups (including SpaceX) won ~$5B in DoW contracts in 2024 (SVDG NatSec 100 companies won ~$4B and Palantir won another $1.2B in USG contracts).

However, I suspect that in the next year or so, this trend will accelerate, particularly given new acquisition reforms which highly encourage the DoW to move quickly to procure commercial solutions. I won’t dive into the details of acquisition reform here, but if you’re curious check out this blog post and this podcast episode to learn more about how acquisition reform will make it easier for startups to sell into the DoW.

We can see early signs of acceleration within individual impactful VC-backed companies. So far this year, Palantir has reported $1.3B in USG revenue – Q2 and Q3 were both up more than 50% year over year. Assuming Palantir sees similar growth in Q4, then they are on track to do ~$1.8B in USG revenue this year – up from $1.2B last year (note that Palantir works with several U.S. government agencies, including DHS, but DoW is by far Palantir’s largest USG customer).

Similarly in 2024, Anduril doubled its revenue to $1B. According to data from Obviant, Anduril won $2.3B in contracts in 2024 and $2.6B in 2025, and currently has $2.4B in active contracts (note that most of these contracts are multi-year contracts, so Anduril does not necessarily get all the proceeds upfront).

Further, in April this year, Space Force announced that SpaceX should expect to receive $5.9B in launch contracts between 2027 and 2029, a major win for the VC-backed launch company. SpaceX CEO Elon Musk announced that SpaceX received $15B in total contracts (USG and non-USG) in 2025 (and has plans to go public in 2026, which should only accelerate its growth).

The DoW will announce its first program of record focused on FPV drones (and a VC-backed startup will win the award)

Did it happen? Yes!

In November this year, the U.S. Army announced that VC-backed drone startup Neros was one of three vendors selected as one of the primary manufacturers of FPV drones for the U.S. Army’s Purpose-Built Attritable Systems (PBAS) program.

The importance of FPV drones in modern warfare only became more apparent in 2025. In early 2025 it was reported that FPV drones caused an estimated 60-80% of casualties on the battlefield in Ukraine, and in June 2025 Ukraine conducted Operation Spiderweb, a covert drone attack in which Ukrainian forces deployed FPV drones concealed in and launched from trucks to attack five Russian air bases, destroying a number of Russia’s military aircraft. Operation Spiderweb was a major turning point in the history of drone warfare, as it demonstrated how low-cost, attritable systems like FPV drones could generate strategic effects once reserved for exquisite platforms.

U.S. government FPV adoption appears poised to accelerate in the next year. In June 2025, President Trump signed the “Unleashing American Drone Dominance” executive order, which directs federal agencies to prioritize procurement and operation of American drones and institutes policies and programs that support the development, testing, and scaling of American drone technologies. A month later SECWAR Pete Hegseth released his “Unleashing U.S. Military Drone Dominance” memo, which makes it easier for warfighters to procure low-cost, American made drones. Finally, in early December, Hegseth announced the DoW’s new Drone Dominance Program (DDP), a $1B plan to purchase 300,000+ small, lethal drones over the next two years.

The DoW will announce the launch of a new project focused on humanoid robots in collaboration with a VC-backed company

Did it happen? No

I may have been overly optimistic on this one. While there was significant VC interest in the humanoid robot sector this year (humanoid robot startups raised more than $1.5B in 2025), beyond a few small research projects, the DoW has not significantly engaged with humanoid robots. The only project I was able to find from this year was an Army xTech prize challenge related to humanoid robots (however, the project’s first phase only requires participants to submit a white paper and prizes are only $25k).

However, this could certainly change in the future. Foundation Robotics Labs, which raised more than $100M in VC-funding in 2025, has explicitly stated it plans to build humanoid robots for defense applications. The company claims they have already won $10M in government contracts (although I was not able to find any information about those contracts online). Additionally, humanoid robot startup Apptronik, which raised more than $400M in 2025, has worked extensively with the DoW, winning more than $12M in DoW contracts, according to Obviant data. Thus far, Apptronik’s work with the government has focused on its robot arm product rather than its humanoid robot product, but they could experiment with their humanoid robots in the future.

There will be major shakeups in valuations for some VC-backed NatSec startups: a) Two large NatSec startups will merge, b) one prominent NatSec startup will have a large down round, and c) three new NatSec “unicorns” will be minted.

Did it happen? a) Sorta b) Yes! c) Yes (and then some)!

First, in July this year, IonQ, a public VC-backed quantum company, acquired Capella Space, a VC-backed synthetic aperture radar company. Additionally, in May, Aerovironment merged with Blue Halo in an all stock merger. While neither Aerovironment nor Blue Halo are VC-backed, they are both smaller, more emerging players in the NatSec space. I’ll give myself a “sorta” here because the IonQ-Capella deal was an acquisition, not a merger, and Aerovironment and Blue Halo aren’t exactly VC-backed startups.

Next, Epirus, a VC-backed startup building directed energy weapons, raised a down round in March 2025. After securing $200M at a $1.35B valuation in February 2022, the company’s $240M March raise valued it at just $1.1B.

Finally, it appears I significantly underestimated the number of NatSec unicorns to emerge in 2025. While I projected just three new entrants, an astonishing eleven defense-focused startups reached unicorn status: Fortrerra, Tekever, Quantum Systems, Chaos, Castelion, Apex Space, Stoke Space, Impulse Space, K2 Space, Destinus, and Govini.

Clearly, there was more VC exuberance for national security than I anticipated, and I expect it to continue in 2026. That being said, despite investor excitement for the sector, I anticipate we will see more down rounds and acquisitions in the year to come, as some companies will struggle to scale when faced with the realities of selling into the U.S. government.

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🎧 Introducing the Techquisition Edition — a new sub-series of the Mission Matters Podcast, where David and I break down major defense acquisition news and explain what it means for technology startups building for the national security mission.

Our very first Techquisition Edition episode just dropped (link in comments). In this inaugural conversation, we dive into the NDAA’s most impactful provisions for companies working with—or hoping to work with—the Department of War. We cover:

👉 How the NDAA codifies SECWAR Pete Hegseth’s acquisition reform agenda

🛰️ New guidance accelerating DoW adoption of commercial space capabilities

🚀 What the NDAA signals about Golden Dome

🚨 Key proposals that did not make it into the bill

⚡ And much more...

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

As always, please let us know your thoughts, and please reach out if you or anyone you know is building in the national security domain.

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Transcript

Maggie 00:19
Welcome to the first episode of the Techquisition Edition of the Mission Matters Podcast. Techquisition is a new sub-series of the Mission Matters Podcast that David and I are launching where we will break down major acquisition news and discuss how it will affect tech startups.

David 00:54
Well, Maggie, it’s really exciting to be doing Techquisition with you, and I’m sure we’re going to have Mike Brown joining us on several of these editions. I love a good portmanteau. Today we’re going to be discussing the 2026 National Defense Authorization Act, otherwise known as the NDAA, and we’re going to focus on what this means for tech startups. Over the weekend, the House Armed Services Committee released the full text of the conference bill, which means that the House and Senate Armed Services Committees figured out what they wanted to keep in, what needed to get thrown out, and all the things we call compromise. Earlier today, the House took it to the floor and voted to pass the bill. Next will be the Senate, ideally later this week, at which point it will be sent to President Trump to sign into law. And fun fact, Maggie, that I can’t help but bring up: only once in the NDAA’s history has a President vetoed it and then Congress, specifically the Senate, overrode the veto, and that was just a couple days ago during the first Trump administration.

Maggie 02:13
Interesting. What were they fighting over?

David 02:16
Something very political that we don’t need to get into here, because that’s not what our startups signed up for, but something for them to Google on their own time.

Maggie 02:26
Fair enough. I will say the NDAA holds a special place in my heart. Back in 2021, I was working my very first U.S. government job. I was an intern on the Senate Foreign Relations Committee, and my first assignment as a Hill intern was to read through the whole NDAA and figure out all the reports that the department owed to the Senate Foreign Relations Committee, SFRC. This is a 3,000-page document. This was before the days of ChatGPT, so I was manually searching through this document with keyword search to find all the relevant reports. It was very eye-opening to me about how the U.S. government actually works and how the executive branch actually works. I definitely wish I had LLMs back then. They were very helpful preparing for this episode, actually searching through the NDAA to find some of the key pieces that we are interested in or to identify things that maybe did not make it into this rendition of the bill.

David 03:30
Totally. Speaking of LLMs, big news on the military front. I’m currently doing my reserve duty at the Pentagon, and now there are giant posters of Secretary of War Hegseth pointing at you, doing his best impression of Uncle Sam, saying “I want you to use GenAI.mil,” where we now have access to Gemini. So congratulations to Alphabet and Google for getting Gemini onto the unclassified network known as NIPR. Apparently rolling out soon will be Grok, ChatGPT, and Anthropic in the coming months. I think a lot of legislative liaisons or people who would normally be parsing this document looking for little nuggets can now do more than just PDF keyword searches to figure out how their programs are being impacted by the NDAA. Three thousand pages, lots of reports, lots of authorities, lots of funding tables, lots of everything that we’re going to get into for this.

Maggie 04:40
Fun fact: I used an LLM to count this. The NDAA requests, I think, 122 reports from the Department of War that they’re responsible for providing to Congress in the coming months. But LLMs aside, this year’s NDAA is chock full of provisions relevant for startups looking to sell into the Department of War. It includes everything from acquisition reform to encouraging the use of commercial space assets, a little bit on ATO reform, changes to the Defense Innovation Unit, and much more, all of which we are going to break down in this episode. So let’s get started. David, I’m going to start with the most basic, dumbest question, but it’s one I actually asked you yesterday, and I think some of our listeners may have the same question. What exactly is the NDAA, and how does it compare to all these other mechanisms we hear about, like the budget bill, the reconciliation bill, continuing resolutions, executive orders, and more?

David 05:39
Sure. I’ll give you an unvarnished answer. I’m sure there’s a very well-scripted way to talk about it, but for me, having served in the military, the NDAA essentially gives us the authorities by which we can do our job, specifically in Title 10, which is what the military executes. If the department wants to stand up new organizations, spin down old organizations, retire existing platforms or weapon systems, or if they need new policy or new laws to execute their missions, all of that comes through the NDAA. It is the one bill that gets passed every year through Congress, going back decades. What it has also become is a bit of a catch-all. You’ll see in this NDAA the Intelligence Act, which gives the intelligence community some of their authorities. That really should be its own standalone bill. They have their own committees that go through it, but it gets attached to the NDAA because it’s something everyone will vote on, and more often than not, it will pass because national security is so critical to the U.S. people and to our largest government body.

Maggie 07:16
So just to confirm: we have the NDAA, which basically tells the Department of War what they’re allowed to do, what weapon systems they can field, what authorities they have. And it’s separate from the budget bill, which has not been passed yet, and which actually gives the department the money to do the things laid out in the NDAA. Is that the right way to think about it?

David 07:38
Exactly. The appropriations bill, which hopefully we get this year — last year we did not — is what gives the dollars to programs or activities so the department can carry out its missions as outlined in the NDAA. Something that’s confusing is that the NDAA has its own funding tables against various programs. It matters because it provides a gouge that the Appropriations Committee, specifically the defense subcommittees in the House and Senate (HAC-D and SAC-D), will take into account. But if your organization needs money to execute its mission, it is the appropriations bill that tells you what you get. They do anchor around what the NDAA puts in, which is anchored on the President’s Budget, submitted very late this year as the new administration wanted to put their own tentacles into the department’s priorities instead of using the one the previous administration had been putting together up until they left office.

Maggie 09:06
Got it. So at a high-level overview, we have the NDAA. It has $900 billion for the Department of War. One hundred sixty-two billion of this is going to procurement. One hundred forty-six billion is going to research, development, test, and evaluation. The rest is going to operations, maintenance, and then spending on personnel.

David 09:23
And military construction. Don’t forget about MILCON, its own separate—

Maggie 09:27
Thing. Okay, and military construction, but that’s—

David 09:30
Just an authorization. But $900 billion will probably be somewhat aligned to what the appropriators decide, but they truly have the power to determine how much money and to which programs this budget goes.

Maggie 09:47
Got it. So I want to really dig into the key parts of this bill that are going to be relevant for startups building in the national security space. One of the most relevant pieces of this year’s NDAA for startups, from my perspective, is this section on acquisition reform. Just last month you, me, and Mike Brown recorded a podcast discussing the Secretary of War Pete Hegseth’s new memo on acquisition reform, which is really looking to shake up a lot of the ways acquisitions are done today, like the requirements process and program executive offices. So how does this NDAA complement or add to that memo?

David 10:29
The NDAA codifies in law the concept of portfolio acquisition executives. This was highlighted by Senator Wicker when he originally released the FORGE Act. As the Senate Armed Services Committee Chair, he talked a lot about giving what used to be known as program executive officers—very senior acquisition officials—much wider authority. PAEs are now going to have a much broader range of responsibilities than PEOs ever had. All functional elements, whether finance officers or contracting officers, are now going to fall underneath the portfolio acquisition executives. They’ll be able to make more trade-offs with the resources at their disposal to prioritize based on a more fluid requirements dynamic.

They will still get their requirements from the service chiefs. But another big thing the NDAA codifies, which had been hinted at in other department memos, is the dissolution—or maybe that’s too strong a word—of the Joint Requirements Oversight Council. They will no longer provide overarching requirements that program offices then execute. Instead, portfolio acquisition executives are expected to receive requirements directly from their service chiefs. So Air Force PAEs will get them from the Chief of Staff of the Air Force; Army PAEs will get them from the Chief of Staff of the Army; and so on. To me, this is a huge tectonic shift in acquisition, providing significantly more flexibility across a diversity of capabilities and programs and giving more authority to individuals who previously would have seen it fractured across many other personnel.

Maggie 12:43
So the way to think about this is: previously the JROC was this joint group that led the requirements process, which was the multiyear process of collecting all the specific requirements for anything we wanted to procure. But today the change is that this requirements process no longer needs to be as rigid or as time-consuming as it was in the past. And now, instead of having this joint body in charge, you’re going to have the service chiefs themselves—the CNO and others—in charge of their own services’ requirements. Is that right? Correct?

David 13:24
Yeah, and, I mean, you know, it’s not like the JROC did every single requirement, but certainly for a lot of major programs it drove a lot of timelines. We’re just delegating that authority or responsibility back to the services, and then we’re also giving the senior acquisition officials significantly more latitude and accountability to execute the programs over which they have jurisdiction, all with the goal, as the conference report highlights, to reduce bureaucracy and increase decision making.

Maggie 14:00
And what’s the significance of codifying this into the NDAA rather than just relying on this memo from the Secretary to carry out these reforms?

David 14:11
Now it’s law, right? And so the department has to fulfill this, whereas if it’s a memo directive coming from the Secretary, Congress could actually say, Not so fast, and say, Actually, no, we like it the way that it is, and you’re going against the law and we’re going to double down on the law. Maybe a good example of this and how the NDAA oftentimes differs from the wishes of the Department of War: take the retirement of certain aircraft. I think the Air Force has been trying to retire the beloved A-10 Warthog since maybe before I even joined the military in the aughts. Once again, Congress has said, No, you are not going to be able to spend one dollar to retire the A-10. You think you are, or you would like to, and we’re saying, No, you cannot. And so with this PAE construct, Congress is saying, Go do this versus waiting for, you know, Mother, may I.

Maggie 15:17
So reading through this document, I noticed there was a lot of focus on commercial space and changing the way that the department works with commercial space providers. What were some of the provisions you came across that were most relevant for commercial space startups looking to work with the U.S. government?

David 15:37
It seems like Congress is continuing to march down this road of buying commercial space as a service instead of owning the entire system from soup to nuts as a government-owned, government-controlled system. Instead, it’s continuing to explore different commercial offerings and how we can use the data coming off these satellites to fulfill our mission operations instead of having to own it full saddle. You might think of it as here on Earth: I could buy my car and be responsible for the maintenance of my car, or I could just Uber around where I need to go when I need to be there. I think the Space Force in particular has been moving in this direction, and this NDAA continues to reinforce and emphasize those salient points, because there’s a lot of benefit from a cost standpoint to doing it this way.

We’ll see. There’s one program in particular that’s been bandied about for a while: the tactical surveillance, reconnaissance, and tracking program, which gets into this debate between what the intelligence community does with its Title 50 authorities and what the United States Space Force or the combatant commanders would like in terms of more tactical information coming off satellite vehicles that they would use for their own mission sets. This continues to be an area of interesting debate, and Congress once again seems to be reinforcing the idea that the Space Force, or the services in general, can start to provide some of this outside of the intelligence community, which has traditionally provided a lot of the overhead imagery to the combatant commanders.

Maggie 17:30
So basically, instead of the US government having to own the satellites that are collecting imagery and data, now they can just buy that data from a commercial player?

David 17:41
Exactly. And this is really important, because the department is still a very large buyer in this community. A lot of companies that were built ten years ago were thinking they would have massive commercial businesses of people buying their overhead imagery, whether it was electro-optical or thermal or multispectral or hyperspectral. You name it. It hasn’t really played out that way. The United States government and the national security apparatus have very large budgets to do these types of things, but traditionally those budgets have been tied up in building and launching the asset itself, instead of just getting the good data off the bird in the first place. For us, we have a lot of investments in this area, and we think this bodes well for those companies.

Maggie 18:35
While we’re talking about space, it’s impossible to ignore the elephant in the room, which is Golden Dome. This is a major priority for this administration. What does the NDAA have to say about this initiative?

David 18:50
I think it’s really important that you bring this up, because Golden Dome is the big winner in the reconciliation bill that was passed earlier this year. But I think what Congress looked aside—

Maggie 19:04
David, what is the reconciliation bill? How does that fit into this tapestry of bills?

David 19:10
Oh man, yeah. We talked about this on an earlier, not-yet-called-Techquisition edition of the podcast, so I’d definitely encourage our listeners to go back and brush up there. It was essentially a one-time funding bill pursued by the current administration and passed by Congress to provide, what was it, $110 billion around a variety of things. I think what some members of Congress didn’t like was how little definition was provided to that overall funding pot. Very much the opposite of what we’re seeing with this NDAA and what will be the ensuing appropriations bill, where some might say Congress is micromanaging. The reconciliation bill was quite the opposite.

So for this NDAA, they’re trying to set parameters around what they expect to see from Golden Dome going forward. That includes setting US missile defense policy around deploying and maintaining the next-generation missile defense shield, protecting against different foreign attacks, and ordering a description of a system architecture, which I believe General Gutline, who’s the head of the Golden Dome program, has been putting together for quite some time. Congress is essentially articulating: we expect to see this from you.

Maggie 20:37
Moving on from the world of space, I want to talk about some of the organizations responsible for tech innovation in the department, specifically the Defense Innovation Unit—your alma mater. What, if any, changes did the NDAA make to DIU?

David 20:56
Not a lot. There was one initiative that asked them to set up several hubs around the country, and they gave them a little bit of money for it. But if you looked at the funding table, DIU, through the President’s budget, requested $48 million, and it seems like that’s where HASC and SASC landed. So they’re authorized up to $48 million. Of course, as we’ve already talked about, everything depends on what the appropriators do.

If you recall, in the past couple of years the appropriators have plussed up the DIU budget by quite a bit—some order of magnitude of a billion dollars across a couple of different funding efforts. It wasn’t necessarily totally flexible for DIU to use that money as they wished. Some of it was partitioned off to Replicator, which has now transitioned to another organization.

Another thing mentioned in the NDAA relating to DIU is a discussion on the Blue UAS program. There was some reporting that Blue UAS was moved away from DIU, so there was discussion around that not being needed from them anymore, but Congress still expects more information around Group 1 drone requirements. Overall, things were pretty quiet for DIU relative to past NDAAs. It’ll be interesting to see what happens with the appropriators, as Representative Calvert, the chairman of the House Appropriations Committee for defense, has been a big fan of the organization and has plussed them up in previous years.

Maggie 22:36
There was also something in there about the new BOOST program that’s assigned to DIU. Is that something we should be paying attention to?

David 22:43
When I first read the draft, I was intrigued. But after more reflection and talking to some other sources in the building, it seems BOOST is just the NDAA’s way of codifying what is already transitioning from DIU. There was no funding line associated with BOOST and no new reporting requirement. I think it’s really just: how well is DIU transitioning their prototype projects to production?

In past years DIU has put out annual reports, and within them they highlight a lot of their prototype-to-production transitions and how those move on to different services. We haven’t seen an annual report in a little while, so maybe this is part of that. I don’t know—that’s speculative. I’m just spitballing here.

Maggie 23:42
What did the NDAA have to say about how the Department of War is using AI?

David 23:49
Yeah, well, you know, Maggie, this would be good fodder for your Gray Matters blog, which is always writing about AI. And I think the reality is there wasn’t much in here about it, which I think was surprising. I don’t know—you kind of read a little bit about what was going on in the NDAA. How would you interpret it based on all the research and writing you’ve been doing over the last, I don’t know, two years now?

Maggie 24:15
Yeah, I was surprised that there was not more in here. There didn’t seem to be any major changes made to the Chief Digital and AI Office, the CDAO, even though in the news there’s been quite a lot of discussion about potentially changing the organization. They set up an AI Future Steering Committee to understand how AI and AGI will affect the department. They set up a task force to investigate developing potential sandbox environments for AI testing. There was a little bit in there about ATO reform. It was relatively light, but basically they were directing the different services to find some ways to speed up the Authority to Operate process, which is the process by which software vendors are able to get their software authorized to operate on DoD networks. So it’s not explicitly AI-related, but it will certainly affect AI companies.

But then something I actually did find interesting was when I dug into the document that describes the discussion between the House and the Senate during the conference in which they come up with the compromise bill. It looks like the House version of the bill initially included more on generative AI, trying to force the department to conduct a few pilots, but it was not in the Senate version and was ultimately struck from the final version. So it looks like we actually could have had a more aggressive NDAA when it comes to generative AI, but for whatever reasons—unclear from the document—they decided not to do that.

There was a little bit of justification given. It basically said the Department of War has not yet come out with a comprehensive AI strategy on how they’re planning to use these tools in a responsible and safe way. So Congress did not want to force the department to start experimenting with these tools until they had done their own strategic thinking around how this was going to be used and how it was going to be used responsibly. They were basically saying they want to see a DoW AI strategy before they’re going to force their hand. I guess we’ll see how that turns out in the ensuing years. There are certainly a lot of great people in the department working on AI adoption and a lot of companies building tools looking to improve the lives of end users in the Department of War.

David 26:49
Yeah, well, I mean, obviously we’ve now got GenAI.mil, right? So it seems like the department is reading between the tea leaves that this is something that may be important to Congress in the future and is trying to get out in front of this technology trend that has certainly had a massive imprint on the commercial world. I will also say that, just being in the Pentagon the last few days, there’s a lot of talk around artificial intelligence, specifically generative AI and using it for different work streams. So it seems to be top of mind and present, regardless of what is or isn’t in the NDAA.

Maggie 27:31
So David, what are some pieces that did not end up making it into the NDAA that you might have expected to be in there?

David 27:40
Certainly a number of things. I was surprised because it feels like they have bipartisan support. One of them was access to SCIF-accredited spaces. SCIF stands for Sensitive Compartmented Information Facility. This is where classified conversations or classified networks occur. My understanding is that this was a pretty important thing to the Defense Modernization Caucus, and for whatever reason it did not get in, although it was in the House bill. So it was in the SPEED Act but didn’t quite make it during conference.

Another area that we often talk about as being an impediment to access to government is the Authority to Operate. I would have expected stronger language around ATO reciprocity. We’re getting to a point where the tech stacks are leveraging a lot of the same infrastructure. The differences are at the user application layer, but the reality is approving officials across different weapon systems, commands, and services have the power of the pen, and they’re just not incentivized to leverage another person’s work to quickly bring software onto different network systems. I think that’s a huge miss and clearly an impediment to commercial innovation or really just warfighter effectiveness.

Another thing that didn’t make it in or was controversial—and I recommend people read about it because there were a lot of news articles—was the right to repair. This would give the services the ability to actually fix their own equipment and provide them the technical orders to do so. Despite being in both bills, it seems the defense industrial complex was able to keep that one out. So maybe something to follow in the future.

And then maybe near and dear to my heart, though I was not surprised based on what I’ve been hearing from Congress: the Small Business Innovation Research program was not reauthorized through the NDAA. That means it could either be attached to the appropriations bill, some other bill, or done as a standalone bill. Tough sledding there. A lot of small businesses and startups really depend on SBIR. It’ll be interesting to see how the services respond. The SBIR/STTR program is mandated by Congress, but that doesn’t mean federal agencies can’t execute a similar program on their own. They would just have to do it independently.

We’ll see how different organizations respond. I wouldn’t be surprised if the Army, through FUSE, continues to execute SBIR-like programs even if they’re not technically SBIR. But there are going to be ramifications for that, and we should continue to watch it.

To our listeners—because we did this in our last non-tech edition podcast with Mike Brown—if you have not talked to your congressional representatives or senators and you think SBIR should go the way of the Innovate Act, which Senator Ernst is pushing for, you need to do it. It actually matters, and it’s what gets members of Congress energized and motivated to do things that may not seem intuitively obvious to them. Okay, enough about SBIR, because this is not a SBIR podcast, and there are other things to discuss about the NDAA, but SBIR was not in it.

Maggie 31:44
I called my representative right after we wrote that blog post together, David, so I’ve done at least a little bit of my part.

David 31:52
Amazing. I live in DC, so mine can’t vote.

Maggie 31:56
Well, that’s a whole other can of worms we don’t need to go down on this podcast.

David 32:00
So another area that I thought would have made it in but didn’t was the Economic Defense Unit, which was referenced recently in the big transforming acquisition memo put out by the Secretary of War. This seems to continue building on the theme of leveraging third-party capital as a warfighting instrument. We’ve seen the creation of the Office of Strategic Capital, their work on the Small Business Investment Company Critical Technologies Initiative, providing third-party VCs with leveraged capital to deploy into critical technology areas, and now also the loan authority, which we saw with the MP Materials investment from the government. The Economic Defense Unit just continues to build on that. I believe we’ll see it in the next NDAA, and this is probably just a case of not all of Congress being on board, since we saw it in one house in one bill but not the other.

Maggie 33:10
So what were some other notable provisions in this year’s NDAA, rapid fire, that are going to be relevant for tech startups?

David 33:19
Okay, rapid fire. One thing I think was interesting was key reforms to the Test and Evaluation community, putting a lot of those authorities inside the portfolio acquisition executive and creating an accredited test pipeline to speed up software for continuous improvement on already fielded systems, so you don’t go through a super laborious process. I think that will be key to readiness. Another area was the Modular Open Systems Architecture. A lot of pen to paper on that, which I think bodes well for commercial innovation. There are still a lot of discussions around intellectual property and what the government needs to own versus what will be restricted rights based on commercial technology developed with private or non-government funding. The more MOSA is adopted, the easier it will be for commercial vendors to engage with the department without getting tripped up by the IP debate. Those were a couple of the big things that will definitely benefit the overall acquisition system for startups. Great.

Maggie 34:41
And then last question. What advice do you have for startups, given the way this NDAA came out, to best take advantage of the new provisions that are going to help push them forward?

David 34:55
If you had things that didn’t make it in that you would have liked to have seen, that tells you where some of your lobbying efforts have come up a bit short. You need to pay equal attention to both the House and the Senate, because we saw plenty of areas where one chamber put something in and the other did not, and it didn’t automatically make it into the final bill. That would be one area. Also, continue to work with the department to make sure that when Congress calls up the DoD and says, “Hey, is this important to you? We’re thinking about putting it in the bill,” the department is advocating accordingly. It’s a full-court press. Everyone is your stakeholder, and sometimes you have to bring them together to see things through. You can never start too early on government relations and lobbying efforts. In fact, if you’re waiting until the springtime, you might already be too late for what should be released in the fall’s NDAA. So get going. And we’re happy to provide recommendations here at Shield Capital, as several of our portfolio companies work with some great government relations firms, and that has made a huge difference for them.

Maggie 36:27
Great. Well, David, thank you so much for an amazing first episode of the Techquisition Edition of the Mission Matters podcast. Looking forward to many more to come.

David 36:37
Always a pleasure. Thank you, Maggie. Yes, very excited for this new part of the Mission Matters podcast ecosystem.

Maggie 36:46
And excited to see how the Senate votes in the days to come. Definitely.

Akhil 36:50
Hey everyone, thanks for listening to the Mission Matters podcast from Shield Capital. Tune in again next month for another conversation with founders building for a mission that matters. And if you yourself are looking to build in the national security space, please reach out to us.

Keywords: NDAA, Tech Startups, Acquisition Reform, Defense Innovation, Commercial Space, AI, Military Spending, National Security, Golden Dome, Defense Modernization