It’s been an incredible year for #afventures and #afwerx companies. While we’re still finishing our end of year reports, I’m thrilled to be able to share a preview of 2021 highlights below.
That was AF Venture chief Jason Rathje on LinkedIn. I’m looking forward to the full report, but here are a couple charts that stood out to me. First, the SBIR Phase III awards — which indicate transition success because they are typically funded by dollars associated with programs of record. AFWERX appears to have increased the number of companies receiving Phase III awards by 70% (or more than 100 companies), while total dollars more than tripled from $309M to $977M.
Looking at the charts, I’d guess that the AFWERX-effect in terms of Phase III dollars was probably closer to two-fold, because between 2018-2021 the dollars going to non-AFWERX companies was closer to $500M than it was $300M. Overall, those are pretty decent numbers for working within the cycle-time of a FYDP.
One data question I have is how much revenue these companies have gotten from DoD sources that were not classified as Phase III? For example, subcontracts or maybe jumping on some IDIQ.
Perhaps some of my question is answered in the chart below, labeled Returns on Investment. It shows that from July 2018 up to the end(?) of 2021, Open Topic AFWERX SBIR/STTR funding reached $1.2 billion. Post-award private funding reached a whopping $8.9 billion, while post-award federal funding stood at $2.8 billion.
From the AFWERX data released in Sep. 2020, there was a column labeled “Funding” that had $7.7 billion of private funding identified across 327 companies. Half of that came from the biggest 20 firms, including Joby Aviation, Kymeta, Anduril, Rigetti Computing, Relativity Space, Skydio, Spark Cognition. However, this 2020 data is likely different than what is quoted below as “post-award” funding because there was not even close to $7.7 billion back then.
It’s interesting to think about how much of the follow-on investment is due to the commercial applications vs. defense. But let’s just say for the sake of argument that $4 billion out of the $8.9 billion total were investments to make returns in the world of government contracts. How many contracts would the companies have to win to break even, on average, on that investment?
If these companies can expect 15 percent returns on production contracts, and if investors took 25 percent of company equity on average with that $4 billion, then these companies will have to wrestle up $106.7 billion in production revenue for investors to break even on AFWERX companies. Now we can quibble over assumptions and there are tons of other factors I’m sure, but that puts the $2.8 billion of federal post-award funding into perspective.
Obviously, the post-award federal funding will lag the private investment. That’s actually exactly what we should expect, and it will likely be dragged out longer due to long cycle times to get funding in DoD (3 to 5 years if it works on-time). The question is whether you’ll see an inflection point and exponential growth in post-award federal funding down the line. Jury won’t be in for probably two years, likely five years.
AFWERX, however, should be celebrated for it’s innovative approach to contracting. Not only have SBIR awards made under 180 days increased from 42% to 91% (2017-2021), STRATFI awards of $15 million are a real stepping stone across the valley of death. I’d like to see an updated list of STRATFI awardees and the amounts. But Anduril, Hermeus, and just recently Boom received them.
And BTW, here is the statement from the 2018 National Defense Strategy that AFWERX quoted and I think is indicative of the consensus-view that has emerged from across all defense innovation hubs. I’ll be interested to see whether the Biden NDS contains a similar message. I will also be interested to see whether some of the past transitions to program dollars in the Air Force were driven by SAE Will Roper’s personal intervention, or whether there is a broader change going on that will persist.
New commercial technology will change society and, ultimately, the character of war. The fact that many technological developments will come from the commercial sector means that state competitors and non-state actors will also have access to them, a fact that risks eroding the conventional overmatch to which out Nation has grown accustom. Maintaining the Department’s technological advantage will require changes to industry culture, investment sources, and protection across the National Security Innovation Base.
Wouldn’t it be great if all program offices provided similar reports on their portfolio of efforts, including what they’ve transitioned?
Leave a Reply