Pentagon Creates Office To Connect Contractors With Private Capital

Credit: U.S. Defense Department

The Pentagon on Dec. 1 announced a new effort to help smaller companies bridge the so-called “valley of death” between technology development and revenue-generating contracts with the creation of a new office connecting companies with private capital.

The new Office of Strategic Capital (OSC), overseen by Heidi Shyu, undersecretary of defense for research and engineering, aims to help with the development of key technologies including advanced materials, next-generation biotechnology and quantum science with new connections to funding.

“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,” Defense Secretary Lloyd Austin said in an announcement. “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.”

The new office will have an advisory council that includes the undersecretaries of defense, with the goal of scaling investments from science and technology groups such as the Defense Advanced Research Projects Agency and commercially focused groups such as the Defense Innovation Unit.

Existing efforts need funding methods such as grants and contracts for investments, so the OSC will look for nonacquisition tools such as loans from private capital groups, according to the Pentagon.

“America’s strategic competitors are working to influence U.S. technological innovation to their advantage,” Shyu said. “OSC is part of a broader, administration-wide effort to ‘crowd-in’ private capital in areas where our efforts can boost our future security and prosperity. Our hope is that OSC will be able to strike its first deals by early next year.”

In a memo to military leaders, Austin wrote that the Pentagon needs emerging technology to quickly scale, and since private sector capital is the dominant funding resource for development, the Pentagon needs to join in. The new office does not have a director announced yet, and more information on its charter is expected in the coming days.

“This gives us another capability to work with investors and to work with industry to ensure that programs that otherwise may not be funded . . . can be funded in a way that gets them across the so-called valley of death,” said Pentagon spokesman Brig. Gen. Patrick Ryder.

Brian Everstine

Brian Everstine is the Pentagon Editor for Aviation Week, based in Washington, D.C. Before joining Aviation Week in August 2021, he covered the Pentagon for Air Force Magazine. Brian began covering defense aviation in 2011 as a reporter for Military Times.