Team Acquistion - 2022 Technology, Innovation & Great Power Competition

Fall 2022 | Technology, Innovation, and Great Power Competition
Lessons Learned - Final Presentation
1
Team 3: Technology, Innovation and Great Power
Competition

We Refined Our Problem Statement from Contracting to
Broader Capital Vehicles Over The Course of 32 Interviews…
2
Jonah Cader Iris Fu Sophie Fujiwara Spencer Gore
Grant Gordon
32
Interviews
Initial Problem Statement
How can the U.S. DoD match or beat the
speed of great power competitors in
acquiring and integrating critical
technologies?
Current Problem Statement
How can the U.S. DoD deploy alternative
funding mechanisms in parallel to traditional
procurement vehicles to enable and
incentivize the delivery of critical next-
generation technology in under 5 years?
SOURCE: Company Websites

Fall 2022 | Technology, Innovation, and Great Power Competition 3
…Testing And Iterating With Stakeholders Across
Government And Private Industry Along The Way
NOT EXHAUSTIVE
Example Organizations
Interviewed
NOT EXHAUSTIVE
Government
Private
Industry &
Academia
SOURCE: Company & Organization Websites

Our Research Journey Had Four Main Phases, Full of
Foundational Learnings, Pivotal Moments, and Key Insights
Original Problem
Formation
Private Capital As
A Solution
Splintered
Hypotheses
Creative Capital
Pools
Pivotal
Moment
Foundational Learning Key Insight
Phase I Phase II Phase III Phase IV
Team 3 Learning Journey
Project Start
Final
Presentation

Phase I: Original Problem Formation
Original Problem
Formation
Private Capital As
A Solution
Creative Capital
Pools
Splintered
Hypotheses
Pivotal
Moment
Project Start
Final
Presentation

Where Clear, Troubling Themes Emerged About U.S. Tech
Acquisition
SOURCE: Wikipedia, Defense Investor Network
Recurring Themes Across Sessions
● As the U.S. and China compete for
technological supremacy, the ability to
translate commercial and academic
innovation to national security is key
● China is currently able to absorb
technologies faster (e.g., via SOEs) and
bring large pools of capital to bear against
priority pillars (e.g., the Big Fund).
2022 Defense Investor Network (DIN) Conference at SRI

We Pulled Together A Diverse Team That Was Personally
Motivated To Tackle These Problems
SOURCE: Company Websites
Impossible Aerospace | 2016-2020
● Manufactured drones with leading flight time
● Commercial market too small to matter
● Hired a SBIR firm for 10% of contract value to
land a DoD deal
● Won AFWERX SBIR - $1.5 million
● Did not lead to a customer, and could not find
dollars allocated for STRATFI
This Struck A Chord With A Classmate’s Personal
Experience Going Through A Broken SBIR
Process…
…And Other Team Members Who’d Seen Similar
Problems From Vantage Points in Venture Capital
Venture Capital
● Defense traditionally considered
uninvestable in mainstream VC
● Capital-intensive products, long lead-times,
and fickle DoD customers hamper companies
● Rapid expansion of venture industry and
over-concentration in software
● Emerging VC interest but bleak landscape

Statement, Focused on Technology Contracting &
Acquisition
How can the U.S. DoD match or beat the speed of great
power competitors in acquiring and integrating critical
technologies?

Phase II: Private Capital As A Solution
Original Problem
Formation
Private Capital As
A Solution
Splintered
Hypotheses
Creative Capital
Pools
Pivotal
Moment
Project Start
Final
Presentation

Reminder: Venture Capitalists Are Often Looking for 10-15x
Returns Over A 7-10 Year Fund Life
SOURCE: Stakeholder Interviews
Defense Tech Rarely Fits This Mold
● Many companies get SBIRs early on but this is not indicative of future contracts (“Valley of Death”)
● The tech is often hardware which is harder to scale due to higher fixed costs and lower margins
● Process from first application to deployment can be years, especially if R&D is necessary
What VCs Want From An Investment
● 10-15x return profile because they expect 90% of companies to fail and a few to return the fund
(Power Law)
● Preference towards software which is more scalable and generates exponential returns
● 7-10 years to exit (fund life)

We Looked Into Breakout Successes to Understand If They
Provide A Replicable Playbook for Success
SOURCE: Crunchbase, Company Websites, Press Search
Founders: Palmer
Luckey, Exited
Founder (Oculus
VR)
Business: UAV &
AUV Manufacturer
With Integrative OS
Valuation: $8.5B
Valuation (2022)
Founders: Includes
Peter Thiel, Exited
Founder (PayPal)
Business: Big Data
Analytics for Public
& Private Sector
Valuation: PLTR
(NYSE): $16B
market cap
Founders: Includes
Elon Musk, Exited
Founder (PayPal)
Business:
Spacecraft
Manufacturer &
Launcher
Valuation: $127B
valuation (2022)

Key Insight #1
The breakout success of Anduril, SpaceX, Palantir is
likely hard to repeat and most defense tech is not
currently VC fundable

Phase III: Splintered Hypotheses
Original Problem
Formation
Private Capital As
A Solution
Splintered
Hypotheses
Creative Capital
Pools
Pivotal
Moment
Project Start
Final
Presentation

First, We Realized That There Was A Coordination Problem
DoD Customer
Startup
Funding
When all three ingredients—funding,
problem, and solution—are present,
contracting can be fast (e.g., OTAs).
But the main onramps to the DoD only bring
two:
● SBIRs bring startup and funding, but not
DoD customers
● Administrative onboarding processes
(e.g., Blue UAS 2.0) bring DoD customers
and startups, but not funding

Finding Technical Champions In The DoD Is Hard…
SOURCE: Air Force Tech Connect

…Even With New Gateways Intended to Streamline Access
SOURCE: Spencer Gore

In The Midst of Digesting Our Initial Findings, The Team Split
Out Across Three Directions, Which Each Yielded Insights
Program managers
face misaligned
incentives to
prioritize legacy
systems over new,
higher potential bets
from startups.
Primes are an
essential actor in
the integration of
new tech, but DoD
requirements
incentivize limited,
short-term
allocations to
startups.
We need a concrete
case study: Irregular
force integration will
be key to respond to
a possible Taiwan
crisis. INDOPACOM
needs enhanced
ability to coordinate,
arm, and motivate
combatants via tech.
Hypothesis 1 Hypothesis 2 Hypothesis 3

Key Insight #2
The United States tends to reactively deliver critical new
technology in times of crisis

Key Insight #3
While defense primes could help accelerate tech, their
economics come from sustainment and maintenance

Key Insight #4
DoD Program Manager and Acquisition Officer
incentives contribute to this issue

Phase IV: Creative Capital Pools
Original Problem
Formation
Private Capital As
A Solution
Splintered
Hypotheses
Creative Capital
Pools
Pivotal
Moment
Project Start
Final
Presentation

Key Insight #5
Existing processes are broken and would likely require
an act of Congress to change (Congress controls key
bottlenecks)

OCO
23
Multiple Tools Exist for Rapid Procurement
DPA Title III
The Defense
Production Act, Title
III allows the President
to make or delegate
loans, loan guarantees,
subsidies, purchases,
or purchase
commitments.
Other Transaction
Authority provides a
flexible vehicle to
acquire research and
development from non-
traditional contractors in
support of a prototype.
OTA
Overseas
Contingency
Operations funds
provide flexible pools of
capital for time
sensitive, unpredictable
expenses.
SOURCE: NDIA, CRS, AcqNotes

Key Insight #6
A variety of tools exist (e.g., DPA, OTAs, OCOs) but
require creative leaders to deploy them effectively

Key Learnings: Six Insights From This Journey Helped Shape
Our Ultimate Recommendation
1
2
4
3
5
6
A variety of tools exist (e.g., DPA, OTAs, OCOs) but
require creative leaders to deploy them effectively
Recommendation
Appropriate a separate capital
pool (e.g., via Defense
Production Act Title III) for the
time-bound delivery of novel
technology systems in parallel
to--and outside of--the existing
acquisition and sustainment
process. Collateralize the
short-term debt of working
with the DoD through financial
backstops.
Key Learnings
The breakout success of Anduril and others is likely
hard to repeat and most defense tech isn’t VC fundable
The United States tends to reactively deliver critical
new technology in times of crisis
While defense primes could help accelerate tech, their
economics come from sustainment & maintenance
DoD Program Manager and Acquisition Officer
incentives contribute to this issue
Existing acquisition processes are broken and would
likely require an act of Congress to change

Recommendation: A Vision of A Parallel Capital Pool For
Near-Term Delivery of Critical Technology
Creative Funding Appropriation
● Leverage Defense
Production Act (DPA) Title III
for separate capital pool
● Target 5-year delivery of
novel technology systems
● Award venture-scale,
recurring contracts
Alternative Growth Financing
● Offer investment backstops
for growth-stage companies
● Use Treasury to guarantee
loans to established
companies via DPA Title III
● Push legislative allocations
into public or private funds for
critical technologies
Improved Early-Stage Focus
● Concentrate SBIR funding
into fewer, larger awards
($10M+)
● Help companies find their
technical points of contact
● Rethink VC ownership
threshold for SBIR eligibility

Great Minds Think Alike
SOURCE: U.S. Department of Defense

Next Steps: We Aspire to Brief The DoD Office of Strategic
Capital on Our Research and Findings
Potential Future Direction
● Logistics: Dig into the details of how such
a capital pool could be established and
administered
● Capital: Understand private sector
perspectives on potential partnerships and
effective financing tools (debt and equity)
● Case Study: Map out how this could work
for an example technology or set of
technologies to bring the idea to life
Target Output
Brief the newly created DoD
Office of Strategic Capital on our
findings and understand how our
recommendations could dovetail
with open questions they are
tackling and aspects of the
organization they are still
finalizing.

Q&A
Questions?

APPENDIX

Jonah Cader Iris Fu Sophie Fujiwara Spencer Gore
Grant Gordon
Biographies: Team 3 Brings a Diverse Set of Backgrounds
Jonah is pursuing a joint MBA and
Masters in Computer Science. He
is a VP at Valor Equity Partners,
where he helps lead investments
in AI and and other strategic
technologies (defense, security
focus). Prior to Valor, Jonah was a
Manager at McKinsey & Company
in the Tech, Media, and Telecom
Practice, where he worked across
the AI value chain.
(Semiconductors, telecom/fiber,
big tech.) He has also worked in
strategy at Google[x], Alphabet's
"moonshot factory.” Jonah holds
a degree in Computational
Neuroscience from Brown
University, where he researched
brain-inspired approaches to
computer vision.
Iris is a Junior studying Computer
Science. In the past, she
spearheaded growth at a YC-
backed startup, built AR learning
tools at the Stanford HCI lab, and
led growth at Bumble from pre-
to post-IPO. She has software
engineering experience at Meta
and Benchling and currently
serves as a Venture Partner at
Contrary Capital. She also
previously created a YouTube
channel with 2M views, published
an introductory economics book,
and performed a flute solo at
Carnegie Hall.
Grant Gordon is a Senior studying
International Relations and
Management Science &
Engineering. He has worked at
Sequoia Capital for the past two
years on early-stage programs
and company building.
Previously, Grant worked for the
Research Director of Rebuild by
Design, a HUD initiative to build
climate infrastructure in New
York.
Sophie is a Junior studying
Symbolic Systems. She works at
TCG Crypto, an early-stage
consumer web3 fund and
previously worked at GGV
Capital, JourneyOne Ventures,
Hustle Fund and Draper
Associates on investment teams.
She is an angel investor and runs
syndicates in 10+ companies and
is an advisor to 25+. She has
software engineering, design,
sales and marketing experience
at various early stage companies
in fintech, fashion and crypto.
She has also started a fashion
brand, a social enterprise and
two nonprofits.
Spencer is pursuing a Masters in
Materials Science. He started his
early career at NASA Goddard and
SpaceX doing thermal, avionics,
mechanical, and optical design.
He then worked as a design
engineer in the battery module
team at Tesla. He founded
Impossible Aerospace, which
specialized in long duration
electric aircraft enabled by
structural battery technology.
Impossible’s first product, a small
unmanned system called US-1,
found a market in defense and
law enforcement, but struggled
to compete with Chinese firms.
Spencer works full time at Enovix
as the Head of EV products. He
advises and invests in startups..

We Quickly Realized That Our First Problem Statement Had
A Number of Implicit Assumptions That Required Testing
Prior Problem Statement
How can the U.S. DoD reimagine contracting and
and acquisition vehicles that match both the
speed and liquidity of great power competitors?
PRELIMINARY
Hypothesis Tree
Details on following page
Assumptions
● DoD needs new tech from new sources
● DoD’s existing mechanisms are insufficient
● Private firms and capital will be essential
● U.S. defense industrial base is underutilized
but sufficient for DoD needs

To Interrogate These Assumptions, We Took a Step Back
From Our Initial Problem Statement to Identify Root Causes
How can the U.S. DoD match or beat the speed of great power
competitors in acquiring and integrating critical technologies?
PRELIMINARY
Is This a Technology Issue? Is This an Identification Issue? Is This an Acquisition Issue?
Is this a technology availability issue? (E.g., the tech simply
isn’t out there)
● Is there enough capital out there to justify tech
development?
○ Are the public incentives sufficient?
○ Are the private capital incentives sufficient?
○ Is there enough patient capital?
● Is there enough demand for these technologies?
Is this a product management issue? (E.g., are products
designed for U.S. Government uses cases)
● Are companies aware of pressing mission needs?
● Is this a requirements issues? (E.g., the DoD doesn’t
telegraph needs with enough time)
● Is this a design issue? (E.g., companies don’t
understand USG needs and how to design for them)
Is this a reach issue? (E.g., the DoD doesn’t have the
necessary commercial or academic contacts)
Is this a planning issue? (E.g., the DoD isn’t identifying the
right technology)
Is this a funnel issue? (E.g., the right companies aren’t trying
to work with the government)
● Is this a process issue? (E.g., onerous requirements
such as getting an O-6 letter of support, slow process)
○ Is the process attractive to the companies?
○ Is this process attractive to investors?
Is this a capital/liquidity issue? (E.g., the government doesn’t
have the necessary allocated capital)
NOT EXHAUSTIVE
Is this an organizational issue? (E.g., DoD isn’t set-up for it)
● Is this an internal org issue? (E.g., incentives)
● Is this an external org issue?
Is this an acquisition vehicle issues? (E.g., nothing in
between Phase II SBIR and POR)
Or is the root problem
something else
entirely?

Double Click: Example Problem Statement Revision During
Iterative Fact Finding Process
What Issue Is The DoD Worried About? Is There Time Pressure? What Tech Does The DoD Need to Acquire?
Yes. The timeline is tied to likelihood of
(maritime) conflict with China over South China
Sea, East China Sea, Taiwan, etc.
Competition with the PRC in the Indo-Pacific.
Technology that can effectively counter China’s
operational systems designed to blunt U.S.
projection of power through large military
platforms and “sanctuary” bases.
It’s not about matching the speed of great
power competitors, but meeting the timeline
of the China challenge.
The key stakeholder is likely INDOPACOM
Innovation in (comparatively) inexpensive,
automated systems which can address
some of these issues are happening in real-
time in Ukraine.
How can the U.S. DoD match or beat the speed of great power
competitors in acquiring and integrating critical technologies?
PRELIMINARY
Next Iteration of Problem Statement
How can INDOPACOM absorb innovation in autonomous systems
from the European theater in time to meet the mission needs of
tensions in Taiwan and the South/East China Seas?
WIP

Detailed View: Six Insights From This Journey Helped Shape
Our Ultimate Recommendation
The United States tends to
reactively deliver critical new
tech in times of crisis
Existing acquisition processes
are broken and would require an
act of Congress to change
DoD Program Manager and
Acquisition Officer incentives
contribute to this issue
While defense primes could help
accelerate tech, their economics
come from sustainment
The success of Anduril and
others is hard to repeat and most
defense tech isn’t VC fundable
● There is a disconnect between U.S. strategy (NDS, NSS) and execution outside of times of crisis
● The DoD tends to be reactive rather than proactive in translating the NDS and NSS into change
● Funding allocation mechanisms, esp. the PPBE process are ossified and cannot meet the needs of modern tech
● Continuing resolutions add additional volatility where delays in approved funding can endanger the business continuity of
early stage technology during critical periods of technology/company development
● Misaligned incentives for PMs prioritizes legacy systems over new, higher-potential bets
● Exacerbated by limited ownership over requirements, budgeting and deployment, tenure in role, and little sense of
calculated operational risk
● By virtue of holding existing contracts, primes provide a fascinating route to market for new tech on subcontracts
● That said, the majority of their economics come from maintenance and sustainment over 20-30 years, so their
incentives are not necessarily aligned with the rapid delivery of newer (and especially attritable) systems
● A unique combination of capital, connections, and geopolitical events contributed to the rise of these companies
● It is unlikely that they offer a sustainable example of how to innovate outside of the traditional defense ecosystem
● Most defense tech companies are unlikely to generate the required returns (IRR or MOIC) over a VC fund life
A variety of tools exist (e.g.,
DPA, OTAs, OCOs) but require
creative leaders to deploy them
● The allocation of funds is often more complex and problematic than getting new technology on contract
● SBIRs are a stopgap mechanism, but a true solution probable requires the use of separately allocated funds

Detailed View: A Vision of A Parallel Capital Pool For Near-
Term Delivery of Critical Technology
Creative Funding Appropriation
Leverage Defense Production Act (DPA)
Title III to allocate a separate pool of
funds to be administered for the time
bound (e.g., 5 year) delivery of novel
technology systems in parallel to--and
outside of--the existing acquisition and
sustainment process. Use this to award
venture-scale, recurring contracts to
firms building key technologies.
Alternative Growth Financing Vehicles
For growth-stage companies, offer
investment backstops (e.g., contingency
at a certain loss). Use Treasury to
guarantee loans to more established
companies under DPA Title III to bring
more private capital to bear. Push
legislative allocations into public or
private funds towards critical
technologies. Consider leverage as a
force multiplier for selective use.
Improved Early-Stage Focus
For earlier-stage companies,
concentrate SBIR funding into fewer,
larger awards ($10M+) for more
promising technologies. Help companies
find their technical points of contact.
Rethink venture capital ownership
requirements for SBIR eligibility to better
align incentives for public-private
investment in maturing technology.

Double Click: Week 3 Project Evolution
What We Thought What We Found How Our Understanding Changed
● Grant: Venture capital is an underutilized
method of funding in defense tech
● Spencer: Existing methods of contracting
are slower than the pace of innovation
● Sophie: The technology exists, but the DoD
and entrepreneurs are not communicating
● Iris: Lack of capital and domain-specific
knowledge is the greatest barrier for
entrepreneurs
● Jonah: The root problem lies in either
technology, identification or acquisition
1. All routes to getting past the valley of death
are unique, meaning know-how and pace
are not industry-wide blockers
1. Connecting founders with champions inside
the DoD is an ad-hoc, nonexistent and
unscalable service
1. The problem with speed lies with individuals
not the systems
● Government incentives are a greater barrier
to this system than private capital,
specifically the financial incentives of primes
and program managers
● Existing acquisition vehicles have all the
capabilities necessary, but the vehicles are
manned by humans who do not always
execute them in the same fashion
What We Did
About It
A shift from focusing on acquisition speed to the underlying issue of what makes people act at speed
Week
3

● Spencer: Slow/outdated acquisition vehicles
are the core reason behind lethargic startup
interaction.
● Sophie: There are commonalities between
startups which survive DOD valley of death.
● Jonah: Pressing problem is how
INDOPACOM can get right technology to
Taiwan and South/East China seas
1. The higher-ups inside DOD do not feel that
the acquisition vehicles are broken. The
stress they are government-wide.
1. The lack of transparency in the DOD makes
it hard for the right technology to find the
right place.
1. There are not many good mechanisms to
integrate new technology after early stage
SBIR’s.
What We Did
About It
Refocus from acquisition vehicles to the capabilities / knowledge on the startup side
Week
4
● There seems to be an asymmetry between
the startups and government. Gov side
thinks that acquisition vehicles can be fast
and flexible; startups do not.
● We need to think not just about acquisition
but also about integration of new technology.
● It’s not the combatant commands that
dictate technologies

● Grant: AFWERX has started to shift
landscape for defense tech startups
● Spencer: Entrepreneurs without extensive
defense networks find it challenging to
navigate procurement
● Sophie: Outdated acquisition vehicles are
partly responsible for startup death
● Iris: Significant unexplored role for VC in
funding defense startups
● Jonah: Most pressing issue is how
INDOPACOM can get right technology to
meet mission needs.
1. Trying to optimize for dual use for gov
money can distract or kill companies.
1. Contracting officers are inexperienced.
1. SBIR is not selective enough to matter.
1. DOD points of contact think that finding a
tech point of contact is a straightforward
process, and feel that SBIR’s are .
● There is definitely a problem on the startup
side - startups distract themselves trying to
win small, non-recurring contracts and are
unsure about how to grow into sizeable
defense business
● Entrepreneurs struggle to find DOD points of
contact
● The US responds reactively to pressing
challenges, but incentives are not aligned for
responding proactively to long term potential
challenges
What We Did
About It
Dig in deeper on problems with PPBE, understanding motivations of contracting officers, and understanding the success
of the few successful American defense tech startups
Week
5

● Grant: There are adverse incentives for
Program Managers to back risky projects.
● Spencer: We are investing in the wrong
weapons systems for indopacom.
● Sophie: It is hard to predict what the DoD
wants and when it wants it.
● Iris: Defense tech unicorns like Palantir or
Anduril are not repeatable.
● Jonah: There is a disconnect between
American strategy (e.g., NDS, NSS) and
proactive execution on that strategy.
1. Misaligned incentives for Program Managers
prioritizes legacy systems over new, higher-
potential bets.
2. Primes are an essential actor in the
integration of new technologies, but DoD
requirements disincentivize cooperation.
3. Irregular forces integration has played a
significant role in Ukraine. INDOPACOM
needs enhanced ability to integrate irregular
forces, improvize weapons, and motivate
combatants.
● Three key hypotheses emerged around
PMs, Primes, and Irregular Forces
● Neither the private development nor the DoD
integration mechanism functions effectively
● Shifts in paradigm of warfighting create new
opportunities for change
What We Did
About It
Team used Office Hours, further interviews, and research to choose between the three hypotheses.
Week
6

● Grant: There is a repeatable model for
private defense incubation.
● Spencer: The DIU has found how to work
around the FAR’s to issue contracts to
commercial companies quickly.
● Sophie: Alternative funding methods are
needed for defense startups who need
additional capital on top of DoD contracts.
● Iris: VCs are excited about defense tech
and believe in their ability to scale
● Jonah: Tested all three hypotheses from
Week 6
1. Funding is the hard part - but there are
“ghost programs” which were appropriated
years ago and need to be used or lost.
2. There is a huge lag in when an engineering
idea is drawn up, contracted, and then
deployed for use.
3. True defense acquisition reform would
require a Congressional act on the scale of
Goldwater-Nichols
● Systemic change of internal DoD or Prime
incentives unlikely
● How can we leverage the existing system?
● How can we align incentives?
What We Did
About It
Team returned to a hypothesis around new acquisition vehicles and funding structures.
Week
7

● Grant: Not all innovative defense
technologies have venture-fundable profiles
● Spencer: Alternative funding mechanisms
are needed to promote speed of acquisition
● Sophie: Current acquisition vehicles may
not be sufficient to combat the looming
China threat
● Iris: Innovative debt and equity mechanisms
are necessary to encourage the delivery of
critical technology
● Jonah: The highest potential area lies in
alternative funding mechanisms
1. We need funding vehicles (beyond VCs) that
are willing to take on hardware risks
2. We need to fund fewer things (e.g. 100) at
SIEPR stage and diversify the types of
technologies
3. DoD right now relies heavily on venture
funding, even though many innovations in
defense technology are not venture scalable
● Defense acquisition vehicles need to move
away from venture capital or expand into
other funding mechanisms, such as debt
funding
What We Did
About It
Began to synthesize insights and translate learnings into our final recommendations and deliverables
Week
8

Team Acquistion - 2022 Technology, Innovation & Great Power Competition

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Team Acquistion - 2022 Technology, Innovation & Great Power Competition