NATO creates $1.1B investment fund to target tech startups / Sean Gladwell

The intergovernmental military alliance that connects Europe and North America also wants a big net to find and work with innovative companies, following a model already in use by the U.S. government.

It's not just appearances: everyone across the entire public sector ecosystem of government and industry wants in on the art of scouting for emerging technologies and the promising companies that make them.

We will have to think globally about that constant search for "what's next and will be next" now that around two dozen NATO members have collectively committed approximately $1.1 billion in capital for the alliance's new fund to invest in startup firms.

The initial 23 countries involved in the fund are Belgium, Bulgaria, Czechia, Denmark, Estonia, Finland, Germany, Greece, Hungary, Iceland, Italy, Latvia, Lithuania, Luxembourg, the Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Spain, Turkey and the U.K. Sweden is also poised to join the group following its full admission into NATO.

Direct investments in startups are not the only pathway for NATO's Innovation Fund to access those companies. The fund will also make indirect investments in other funds that back startups as part of the larger mission to find tech and companies that NATO views as “responsible and led by fundamental principles: safety, freedom, and human empowerment.”

NATO characterizes its initiative as the world's first "multi-sovereign venture capital fund." That slightly mirrors how many countries have set up sovereign wealth funds to invest in businesses and other types of assets deemed strategically important to their country.

(This global sports observer is still wondering why Saudi Arabia would claim men's professional golf is of strategic importance to them. But Saudi Arabia's wealth fund also has $650 billion in assets under management and that country is always in competition for power and influence with their neighbors Qatar, who just hosted a men's World Cup.)

But the closer analogy that NATO can look to for its fund is seen in In-Q-Tel, the U.S. intelligence community's venture capital firm responsible for investing in high-tech companies in order to ensure those 18 agencies always have the latest-and-greatest.

In-Q-Tel and the NATO Innovation Fund appear to share interest in some similar technology areas: artificial intelligence, autonomy, biotechnology, communications, cybersecurity, energy, quantum computing, space and emerging manufacturing practices.

Their other apparent shared idea is to widen the aperture of companies to buy products and services from, thus becoming less dependent on a few large businesses that have a technology or system cornered.

One priority for In-Q-Tel over the past two decades has been to develop more partnerships with other U.S. government agencies outside the IC and extend into allied countries such as the U.K., which as we mentioned earlier happens to be a NATO member and participant in the alliance's new fund.

Along with that fund, NATO has also stood up its technology accelerator that issued its first callout for startups in June to apply for grants with the potential to advance and get more investment.

The Defence Innovation Accelerator for the North Atlantic, appropriately nicknamed DIANA, looks very much like what the Air Force does through its AFWERX tech acceleration arm.

Money of course is not all there is in the world of tech and business scouting. The U.S. Defense Department's new Office of Strategic Capital is charged with not just the investments themselves, but also identifying critical tech areas for DOD "that the private sector has not sufficiently supported."

The OSC team therefore will be a traffic cop of sorts for directing some money in that direction, while also working to strike a balance between that approach and letting private sector stakeholders drive innovation.

Of course: we have to mention that blue chip defense hardware companies and government systems integrators are venture capitalists as well.

Those contractors want access to startups whose technologies show promise for integration and scaling into the enterprises of their federal customers, who have an idea of what tools they want but are not always certain on where to look.

Sometimes the defense companies and integrators are not sure either, but work their connections in the VC investment community and others to do so.

As for the NATO Innovation Fund, its leaders have targeted September for when they plan to announce the first block of investments.

Now what of the U.S. and Canada with respect to the NATO Innovation Fund? They are not (yet) officially involved, which means the fund cannot invest in companies headquartered in either country.

But connections are a constant and inevitable across the global public sector ecosystem. The possibilities of NATO allies having a wider collective tech and business scouting net can lead to some interesting conversations and outcomes.

(Editor's note: This story has been updated to clarify that the total fund amount is $1.1 billion based on current foreign exchange rates)