USD R&E has created a new Office of Strategic Capital (OSC), which will be led by former Acquisition Talk podcast guest Jason Rathje. Jason was a co-founder of the AFWERX initiative in the Air Force. He also co-authored one of the better papers on the SBIR process.
Here’s some of the background on OSC:
“We are in a global competition for leadership in critical technologies, and the Office of Strategic Capital will help us win that competition and build enduring national security advantages,” said Secretary Austin. “By working with the private capital markets and by partnering with our federal colleagues, OSC will address investment gaps and add a new tool to the Department’s investment toolbox.”
While existing offices rely on grants and contracts to deploy capital, OSC is investigating the use of non-acquisition-based tools, such as loans and loan guarantees. Many other federal agencies use credit programs to participate in capital markets through loans, loan guarantees, development funds, and other tools.
USD R&E Heidi Shyu hopes that OSC will “strike its first deals by early next year,” i.e., 2023. A Wall Street Journal article goes into a little more depth:
China, like the U.S., is focusing on technologies that it believes are critical to national security, according to Mr. Rathje. In China, “We’ve seen nearly $900 billion of available capital going to companies that are in these critical technology areas,” he said. “And the U.S. has nothing like this.”
I was told recently that China has a $60 billion asset securitization fund for defense capital investments. Would be interesting to see private capital put to better use here in the United States using guarantees and other mechanisms such as used by DOE, DOA, Ex-Im Bank, and other orgs.
OSC does not look like it will have funding, so I’m wondering how the first deals will be struck next year. DoD may not need money in 2023 to guarantee a loan, for example, to a tech company in national security. But if DoD doesn’t buy the technology when it matures, and the company can’t repay some or all of its guaranteed loan, then DoD will have to fork it over:
The new Office of Strategic Capital, which doesn’t yet have its own budget, is unlikely to direct any immediate funding to companies. The staff will spend its first year analyzing where officials see an undercapitalization of critical technologies, said Mr. Rathje.
Another former Acquisition Talk guest Steve Blank was quoted as saying OSC would be insufficient on its own. “It doesn’t really solve the problem that existing VCs and capital investors are talking about,” he said. “There’s a demand problem, not a funding problem.” In his view, the procurement and budgeting system still needs to be changed to bring these technologies in on the back end. #PPBE Reform.
DoD doesn’t have an R&D problem as much as a problem with buying things at scale when they work. Too much TMRR, not enough fielding.
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