People Flow Into VC for National Defense
The print title of the NYT article “Ex-Pentagon Officials Flocking To Join Venture Capital Firms” is a much better headline than the online version: “New Spin on a Revolving Door: Pentagon Officials Turned Venture Capitalists.”
It’s no secret that many current and former national security officials believe that the DoD needs to leverage the innovation economy — especially venture-backed companies — to transition to the digital age, deter America’s adversaries, and, when necessary, fight and win the nation’s wars.
Former Secretary of Defense Ash Carter, well-steeped in technology himself, grasped the urgency of closing the divide between the DoD and Silicon Valley and launched the Defense Innovation Board, Defense Innovation Unit, and the Defense Digital Service. His actions inspired defense officials and servicemembers to look beyond the traditional defense industrial base companies for emerging and disruptive technologies critical to national security and economic strength.
While the overall tone of NYT investigative reporter Eric Lipton’s article was somewhat negative — a critical view of Washington’s so-called revolving doors — the piece also offers a beacon of hope. Lipton accurately profiled former DoD officials and servicemembers who are now investing in dual-use and defense-focused technologies, because of what they learned during their time in government. He could have paid more attention to the rationale for these senior officials’ decisions: why they are making this career choice and why this is a good and healthy outcome for the country.
Knowing some of the people in the article, I can say firsthand they are mission-focused people who believe passionately that the defense ecosystem needs new, innovative entrants. They believe that there ought to be ambitious companies investing ahead of where DoD is directing R&D (which mostly goes to national labs, federally funded non-profits, and the large defense primes). They believe in working with mission-focused entrepreneurs and executives who are determined to build better software and systems for our servicemembers. These former officials know better than anyone the current state of the government’s systems and technologies and do not want to see the United States risk losing the next war because the national security enterprise remains stuck in the industrial age.
I take issue with the article’s use of “cash-in,” “windfall,” and “paydirt” — terms that make VCs investing in national security seem like a casino. Yes, investors take on more risk by investing with venture-backed companies. Some don’t work out at all or barely return the capital invested — and some return a multiple of their invested capital after many years, sometimes even a decade or more later. And while VC-backed companies might start small, they can grow to be large, especially over time. Seven of the ten largest companies in the world by market cap — Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia, Tesla — were originally venture-capital backed. The VC model isn’t perfect, but it is something that we ought to celebrate in national security.
The article and Lipton’s past reporting accurately highlighted that there have only been a few apparent winners in the past decade, like Palantir and SpaceX. It is true that absent more such success stories, risk capital will recede. Going public can’t be the only liquidity path for shareholders — there also have to be robust strategic and financial buyers longer-term.
There is also the interesting question of how VC-backed companies will partner with the traditional defense industrial base — still something that is being figured out. Will it look like a big pharma and biotech startup relationship? Or more of a big tech and startup relationship? Or some other model?
I take particular issue with the phrase “revolving door” — a pejorative frame on public servants continuing to work in the national security arena from the private sector. With the appropriate safeguards in place, we want and need former servicemembers, DoD civil servants, and political appointees contributing to the defense industrial base and the innovation economy.
Maybe I’m biased as someone who entered government for over five years in the middle of my career, but I think we need more “people flow” — people coming in and out of government at all levels — not less. A dynamic workforce is a stronger one and makes for a healthier government.
(As an aside, that is why I’m such a fan of the Defense Ventures Program — bringing mid-career servicemembers into startups and VC firms for 6–8 weeks. Insight has participated several times in this industry immersion program, and it has been mutually eye-opening.)
In my view, former DoD officials serving in venture capital (as investors, advisors, operating partners, etc.) and working directly in startups is an incredibly positive development for the country. One that should be encouraged, not assailed. These officials bring with them unique perspectives and a deep understanding of the policy, budget, and bureaucratic impediments to scaling innovation. They want to take advantage of their hard-earned battle scars to make it much easier for the next generation of national security leaders, and to nudge the government into a new era. I’m proud to serve on the Atlantic Council Commission for Defense Innovation Adoption (co-chaired by Secretary Esper and Secretary James) and stand by the recommendations we made, some of which are already being implemented. Check out the final report just released this week.
The NYT article also misses perhaps the most important point: that as a nation, despite massive defense budgets, we are incurring unacceptable risks by spending vast amounts of money on exquisite systems developed in a centrally planned system. Systems that will put the DoD on the wrong end of the cost curve in a future conflict. Part of the problem is there has been tremendous consolidation in the defense sector. We need more competition, not less. New entrants, especially those that are VC-backed, are key — but only if some of them cross the proverbial valley of death and become winners.
As I’ve said before, let’s get Silicon Valley tech intro production.
Personally, I was proud to be included in the NYT article and the related list of former government officials working in VC. It’s a badge of honor. My mother loves the photo but my brother wonders why the photographer is stalking me from the grass!
I also liked that U.S. Central Command is part of the discussion in the article and am glad Lipton interviewed the Command’s Chief Technology Officer (CTO) Sky Moore. Far too often in DC we focus on the budget, policy, and strategy — and not nearly enough on the end users of software and systems.
As I discussed at Insight’s recent National Security Conference, my 2023 trip to the CENTCOM area of responsibility gave me a firsthand perspective of the legacy software that so many of our servicemembers struggle with in the field. It helped renew my passion for defense modernization very concretely for the Americans who are serving today.
