From the DoD Press Release of yesterday, Thursday, December 1, 2022:

Secretary of Defense Lloyd J. Austin III today established the Office of Strategic Capital (OSC), a Department of Defense organization that will help build an enduring technological advantage by partnering with private capital providers.

OSC will connect companies developing critical technologies vital to national security with capital. Critical technologies such as advanced materials, next-generation biotechnology, and quantum science often require long-term financing to bridge the gap between the laboratory and full-scale production, often referred to as the “Valley of Death” in industry. (1)

OSC Mission

The United States is in a global competition to be the world’s leader in emerging critical technologies. These technologies are vital to creating enduring national security advantages and increasing economic prosperity. Today, the private sector provides the majority of capital for U.S. technology R&D and production, and private capital providers are a powerful force in shaping the agenda for America’s technology advancement. Consequently, the Secretary of Defense established the Office of Strategic Capital (OSC) with the mission to develop, integrate, and implement proven partnered capital strategies to shape and scale investment in critical technologies. (2)

“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.”

These technology companies also suffer from a limited supply of longtime-horizon “patient capital,” which results in an inability to transition technology into military capabilities – even for technologies developed with the help of federal research grants or contracts. Moreover, many of these technologies are essential for future defense capabilities but are not purchased directly by the DoD, meaning existing procurement programs are unable to support the relevant companies’ immediate capital needs.

“America’s strategic competitors are working to influence U.S. technological innovation to their advantage,” said Under Secretary of Defense for Research and Engineering Heidi Shyu. “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.”

As an office overseen by the Secretary of Defense, the OSC will have an advisory council that includes the Under Secretaries of Defense. The OSC will work across policy, acquisition, and research efforts to increase the amount of capital available to critical technology companies. OSC will also help counter non-market actions by strategic competitors that use U.S. capital markets to advance their own technology goals.

In support of the Under Secretary of Defense for Research and Engineering, OSC will complement the innovation organizations already executing programs to support critical technology developers. OSC aims to scale investments between science and technology-focused organizations, such as the Defense Advanced Research Projects Agency, and commercially-oriented organizations, such as the Defense Innovation Unit, by increasing the capital available to critical technology companies to help them reach scaled production.

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.

These types of federal investments have been vital in helping companies such as Apple, Cray Research, and Sun Microsystems early in their development. The OSC is unique within DoD by seeking to use proven credit programs, making strategic public-private investments in supply chains, and supporting critical technology companies from early-stage to full production. (1)

What Next?

Partnered Capital for Critical Technologies

Broadly, the OSC will do two things as part of its partnered capital strategy for critical technologies:

1. First, it will identify and prioritize promising critical technology areas for the Department of Defense.
2. Second, it will fund investments in those critical technology areas, including supply chain technologies not always supported through direct procurement.

To accomplish this, the OSC will partner with private capital providers and other federal agencies to employ investment vehicles that have proven successful in other United States government contexts.

As the OSC begins its work, it will work with the private sector to develop new partnership models that rely on the existing authorities of the Department of Defense and its federal partners. Specifically, the OSC aims to offer “patient capital” to investors and companies through a variety of financial tools. These financial tools are new to the Department and will be complementary to ongoing technology innovation efforts. The objective is to help companies access the capital they need to grow from prototypes to scaled production. The work of the OSC is consistent with the Department of Defense’s legacy of supporting the technological innovation that has led to American economic prosperity and strong defense capabilities. (2)

Press Release Establishing the OSC: Secretary of Defense Establishes Office of Strategic Capital

Read more about the OSC at: www.cto.mil/osc

If you are interested in learning more about OSC and future programs, please sign up for more information. Click here and fill out the form to receive news and updates from the OSC team.

Further OODA Loop Resources

https://oodaloop.com/archive/2022/11/21/another-seminal-call-to-action-strengthening-innovation-and-protecting-the-u-s-technological-advantage/

• Research and analysis on the Global Computer Chip Supply Chain Disruption, the Chips Act, and the Chips and Science Act.
• The OODA Network on Deep Tech and the Valley of Death.
• America’s Frontier Fund and the Quad Investor Network:  In July, Cyberscoop.com reported on the launch of America’s Frontier Fund (AFF), which is an extraordinary public/private partnership and non-profit organization dedicated to America’s Great Power competitive advantage through global technology leadership in what some call “deep tech” or “frontier tech.” The initial Cyberscoop coverage suggested that the fund was dedicated to cybersecurity, but upon further research and analysis, the fund is designed for a much broader portfolio of technology investments.  By all accounts, the AFF is serious business and a refreshing private sector commitment at scale –  with tech industry heavyweights putting financial resources on the table along with the unique expertise of equally as impressive a roster of government policy experts.
• A Proactive National Technology Strategy in the Great Power Competition with China:  The co-authors of a recent article in Foreign Affairs, America Could Lose the Tech Contest With China, Eric Schmidt, and Yll Bajraktari, are Chair and CEO of the Special Competitive Studies Project (SCSP), respectively. The SCSP “builds on the work of the National Security Commission on Artificial Intelligence (NSCAI), which ended its congressionally-mandated work in October 2021.  NSCAI made recommendations to the President and Congress to “advance the development of artificial intelligence, machine learning and associated technologies to comprehensively address the national security and defense needs of the United States.” The author’s diagnosis of the root cause of the problem is aligned with the drivers behind the recent launch of America’s Frontier Fund and the Quad Investor Network (with which Eric Schmidt is also affiliated) and maps to many of the recent “Deep Tech” and “Valley of Death” discussions here at OODA Loop.
• CSET on China’s Advanced AI Research and the China AI “Watchboard” Pilot Program:  We have integrated Center for Security and Emerging Technology (CSET) research into our OODA Loop research and analysis on topics ranging from artificial intelligence, dis- misinformation and information disorder (what we characterize as a crucial strategic need for National Cognitive Infrastructure Protection), technology talent retention, and the CHIPS Act.  The recent CSET report “China’s Advanced AI Research: Monitoring China’s Paths to ‘General’ Artificial Intelligence “examines what paths to general AI are available in principle, as a prelude to describing work underway in China to realize that capability. The report authors also “preview a pilot program…as a starting point for China-focused indications and a warning watchboard…that will track China’s progress and provide timely alerts.”
• Mergeflow CEO and OODA Network Member Florian Wolf on “Small Data” (Part 2 of 2):  In Part 1 of this interview, we checked in with Mergeflow CEO and OODA Network Member Florian Wolf about all things machine learning and small data.  In Part 2, we continue the conversation with Florian spanning a wide range of topics, including the real-life lessons of machine learning innovation, the centrality of data, problem-solving over performance as the competitive advantage while developing ML systems, leading a team, what keeps him up at night, what he is tracking and what he is excited and hopeful about in the future.
• The September 2022 OODA Network Member Meeting: Dr. Bilyana Lilly Presents Research on Russian Information Warfare:  The September call (held on Friday, September 16th) had a unique format, with Dr. Bilyana Lilly presenting to the OODA Network on the topic of Russian Information Warfare: Questions, Cases, Frameworks, and Conclusions – which is also the subject of her new book,  Russian Information Warfare: Assault on Democracies in the Cyber Wild West.
• From AI Principles to AI Practice at a Global Scale: The MIT AI Policy Forum (AIPF) is a global initiative at The MIT Schwarzman College of Computing, which was launched in 2018.  The Blackstone Group Chairman Stephen A. Schwarzman donated $350 million of the $1.1 billion of funding committed to the school, which is the “single largest investment in computing and AI by an American academic institution.” What sets the AIPF apart from all other organizations dedicated to AI research and policy is its commitment to global collaboration moving from AI principles to AI practice. The leadership at the AIPF is committed to making a tactical impact.  In the last few years, the sheer amount of think tanks, government agencies, and academic institutions developing “high-level principles on the social and ethical issues” of AI started to feel like a perfect storm of analysis paralysis and scope creep.   It is this transition from principles to practice with a sense of urgency, intervention, and action which sets the AIPF apart from all the other resources we have explored in our research and analysis of the future of AI.  Simply put:  It is time for a “Decide and Act” phase after the collective “Observe, Orient” analysis phase which has been applied to certain aspects of mission-critical social and ethical issues such as privacy, fairness, bias, transparency, and accountability. To echo the AIPF:  “Now, it is time to take the next step.”

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