The inconsistent and relatively limited funding given to NSIC makes it less effective than it could be. Further, using the equity investing model–which is allowed by Congress–NSIC could reinvest returns from successful investments in new ventures. Research we did at RAND concluded that equity investing provides startup firms with more flexibility, particularly those producing dual-use technologies. While such a conservative approach is understandable, given that venture capital investments are in some ways uncharted territory for the Pentagon, greater risk tolerance may be necessary to drive innovation. First, at the Pentagon’s direction, NSIC is investing only in prototype contracts. Two things, however, are holding NSIC back. So far, it has awarded contracts of about $20 million to 12 startups working on things like batteries, metal foams, and optical communications. These contracts provide funding to the startups to produce government-specific prototypes. The Silicon Valley-based NSIC awards prototype development contracts to early-stage startups building dual-use hardware. In response, the Pentagon launched the National Security Innovation Capital program. The goals were straightforward: nudge more private sector development of hardware with national security applications–and deter the kind of strategic acquisitions China has been pursuing. In 2019, Congress directed the Pentagon to do something similar to In-Q-Tel.
invests more than $120 million annually and NATO plans to invest an additional $70 million per year in companies that build dual-use technologies. Respected in VC circles, In-Q-Tel invests in startups working on A.I., virtual reality, biotech, data analysis, robotics, sensors, and more. intelligence community invests nearly $60 million in public funds each year through a venture capital fund called In-Q-Tel. There is precedent for this type of approach within the United States. However, the Pentagon has proven reticent to embrace a venture capital-style approach, even though research has demonstrated it is optimal for driving innovation. Department of Defense to spend $75 million to invest in dual-use hardware startups. Recognizing this problem, Congress authorized the U.S. Meanwhile, China has been pouring money into Chinese–as well as U.S. early-stage hardware startups are seriously disadvantaged by a persistent lack of financing.
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