On Dec. 1, Secretary of Defense Lloyd Austin established the Office of Strategic Capital with the mission of building “an enduring technological advantage by partnering with private capital providers.” The announcement comes after years of growing concern in the national security ecosystem about the wide availability of adversarial capital and the corresponding lack of trusted capital in critical technology sectors. The true test of the well-intentioned office will be whether it has sufficient impact on the American innovation ecosystem.
That ecosystem encompasses much more than just Silicon Valley, ranging from startups, companies, venture capital firms and angel investors to manufacturers and government agencies involved in driving innovation. As the U.S. government pays more attention to the financing of the American tech sector, it’s doubling down on industrial goals, aiming to increase its role in the ecosystem and diminish that of its competitors.
The Office of Strategic Capital, or OSC, could be enormously beneficial to U.S. industry and competitiveness if it proactively prioritizes the needs of America’s innovation ecosystem. However, before it can begin proving its utility by building a policy track record, it must win the hearts and minds in Silicon Valley and of innovation hubs across the country.
OSC plans to spend its first year analyzing the undercapitalization of critical technology, as it is not funded in the fiscal 2022 National Defense Authorization Act. The office will have to wait until at least the FY23 NDAA for funding for a broader scope of activities. Without congressional authorization and funding, the office is only as strong as the support it receives from the secretary of defense.
Silicon Valley recognition and a show of strong, burgeoning ties will help make the case for long-term, cross-governmental support of OSC. Forging strong ties, particularly without allotted funding, is easier said than done. OSC is not the Defense Department’s first attempt to expand investment and contractual support for Silicon Valley — and it will certainly not be the last.
The innovation ecosystem will carefully watch how the new office handles challenges with scope, financing, culture and accessibility, all of which determine whether the office will gain credibility among entrepreneurs, venture capitalists and others looking to potentially invest in this space. If the DoD wants to become a serious player in the tech industry, it must prioritize how Silicon Valley will assess its capacity to keep up with the market.
First, OSC will need to distinguish itself from preexisting ventures in both the public and private sector. To do so, it should delineate how it will meet a unique need in the increasingly busy sphere of industrial policy. Initiatives like the National Security Commission on Artificial Intelligence or the Special Competitive Studies Project have already set the stage, emphasizing the need for improved public-private partnerships and increased government funding of critical technologies.
The Department of Defense has a slew of other related efforts, including the Defense Innovation Unit, the National Security and Innovation Capital initiative, various WERXs (including AFWERX, of which OSC inaugural Director Jason Rathje is a co-founder), the National Security Innovation Network, and the Rapid Innovation Fund.
OSC should not only strive to distinguish itself from existing efforts, but should also take the initiative to identify opportunities to collaborate.
Second, OSC will need to bridge the cultural and thought differences between the public and private sectors, a challenge that has faced many similar government initiatives. The office should prioritize signaling that it understands the stakes, processes, pitfalls and challenges that face industry. OSC will have to distinguish itself in its approach and branch out to interact with companies and organizations in industry that are not the usual suspects in public-private collaboration, while expanding the aperture beyond much of the “innovation theater.”
Third, OSC should delineate its scope of activities. Most critically, it remains unclear whether it will fund the kind of fundamental research that supports innovation itself and, if so, how and to what extent; or if it will simply act as a matchmaker, connecting tech companies and startups to funding vehicles operated by other parts of the U.S. government.
The scope may remain unclear to OSC itself until congressional funding is allocated, further complicating the immediate posturing of the office.
The OSC should distinguish itself from existing targeted government tools and think creatively about new mechanisms of funding and innovation support in a new era of industrial policy.
In government, there is a long tradition of new offices and new initiatives designed to meet contemporary challenges. The organizations that go on to make a difference and build a legacy are those with funding and early successes. As OSC awaits funding authorization and appropriation, it must prove to both Silicon Valley and Congress that it can do something different, and meaningfully advance American industrial competitiveness.
Leah Walker is a senior research associate at the Institute for Security and Technology, where Alexa Wehsener is the deputy director of defense strategy and research.
