Economic uncertainty is no barrier to tech investments, DOD official says

Lanier/Getty Images

The head of the Defense Department office that connects promising companies with private capital said they will “continue to advance these technologies and support DOD operations, even in tougher economic times.”

Government partnerships with early-stage companies can strengthen the production of innovative technologies vital to national security, even in times of economic uncertainty, according to the head of the Pentagon’s Office of Strategic Capital, or OSC.

During an event hosted by the Center for Strategic and International Studies on Friday, Jason Rathje—whose office is tasked with connecting firms developing critical products and devices with private capital—said that market volatility caused by the collapses of Silicon Valley Bank and New York-based Signature Bank last week demonstrated “the value of government partnerships and the value of government-guaranteed financing when it comes to the things that are vital to national security.”

OSC, which was established by the Pentagon in December, partners with private capital providers to help tech companies navigate the so-called “Valley of Death,” where firms struggle to financially navigate “the gap between the laboratory and full-scale production.”

Rathje said that the office’s mission fits within an all-of-government approach “to help the United States compete in today's global competition over critical technology areas”—regardless of external market forces.

“The important part of this—from a DOD perspective and certainly from a national security overarching perspective—is that there are things that are vitally important to national security,” Rathje said, noting that the ability to “support and guarantee financing in innovative new ways that allow us to advance these critical technology areas” remains a federal priority. 

He added that, while these efforts are “not completely carved off from market volatility,” they position OSC “to continue to advance these technologies and support DOD operations, even in tougher economic times.” 

Rathje said the first program OSC has launched—a partnership with the Small Business Administration to provide startups with long-term funding, known as the Small Business Investment Company Critical Technologies Initiative—demonstrates the value of these types of “patient capital” investments, where investors are prepared to wait a longer period of time to see results, in the development of critical technologies.

“That approach that we're taking with the [Small Business Investment Company] program is one where we're trying to increase the investment to crowd-in private capital, to create patient capital investment funds,” he said, adding that they are prioritizing investments in technologies “that have large applications—like semiconductors—but aren't necessarily going directly to the things that we buy.”

Rathje drew a parallel between the new joint OSC-SBA initiative and SBIC funding that supercomputer manufacturer Cray—which he noted “helped the Department of Energy compete during the Cold War”—received during a difficult economic period in the 1970s.

“It, as a company, required investment from patient capital sources,” Rathje said. “It struggled to raise money on the private markets. And, fortunately for Cray, there were three SBICs that invested into Cray to build the world's first supercomputer.” 

He noted that this kind of funding could have similar benefits for other early-stage companies today.

“For us, looking back through our history—understanding that market volatility comes and goes, but finding ways that programs have worked in different times in our history and have supported companies that we all use today, products we use today—just really helps us to better understand what are the things that we think we can use in the future to help us better compete,” he added.

Pentagon officials, however, have continued to monitor the potential national security implications resulting from uncertainty in the banking sector.

Rathje also sent an email to OSC’s engagements listserv on March 12 saying that his office was “heads-down in assessing impacts to national security” resulting from the collapse of Silicon Valley Bank, and was “actively collaborating with our DOD and other government colleagues to advocate for our national security community and provide insight into ongoing mitigation efforts.” 

OSC’s work is poised to expand, however, regardless of market volatility. DOD’s fiscal year 2024 budget request proposes allocating $115 million to OSC to, in part, enable the office to incentivize investments “through loan and loan guarantee programs that lower the cost to private capital investors and increase the flow of investments.” 

Rathje said that DOD “does not have the authority today to do federal credit programs,” but added that it is “an ongoing conversation.” 

“I think the vital part of the budget request today is that we believe that we can build an effective organization through our SBIC partnerships and increase our participation in the market if granted the authority and the appropriations to do so,” he said.

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.