WASHINGTON — Two months after its creation, the Pentagon’s Office of Strategic Capital (OSC) is looking for ways to increase capital flows and market participation in deep technology areas — things like artificial intelligence, biotechnology and quantum computing — and is developing its first investment strategy, it said today. the director of the service.
“How do we enable these tech entrepreneurs to take advantage [science and technology] in products and services that not only support the national security mission, but also greater economic prosperity?” said Jason Rathjee, who was the guest speaker at a Defense Innovation Council meeting today. “Well, the Office of Strategic Capital is exploring two new strategies to help align and scale private investment in support of national security.”
These two strategies are syndication where the govt “we’re just partnering with private capital providers to co-invest in new technology efforts to help scale the business as we help scale the technology,” Rathje said, and a “newer strategy” for the DoD : leverage.
“Leverage is working to change the economics of investing in deep technology areas,” Rathje said. “Basically what leverage does is it lowers the cost of capital for private investors to make the patient capital investments that are required at the scale required to invest in deep technology companies.”
The Pentagon created the OSC last December in an effort to help overcome the “the valley of death”, where innovative technologies fail to move into real-world programs, by developing and implementing “proven partnership strategies to shape and scale investments in critical technologies,” the Department of Defense said in note. While OSC and the Defense Innovation Council are two separate entities, they share a similar focus on using private industry to advance innovation within the department.
“The OSC was primarily created to give the Department of Defense a new tool in our ongoing competition because today the United States … is in a global competition to be a world leader in emerging and critical technologies,” Rathje said. “Technology areas like semiconductors, advanced materials and biotech are just as critical as those defense technologies that we consider — like hypersonics and directed energy — these are technology areas that we’re spending billions of dollars on [science and technology] funding … winning this race is truly vital to national security and economic prosperity.”
In December, the office launched its first program activity, the Small Business Investment Company (SBIC) Critical Technologies Initiative through the office’s partnership with the Small Business Administration. The SBIC program has already helped create new investment opportunities in early-stage deep technology companies, Rathje said.
“Now the way this program works is it uses what’s called the Federal Loan Program … where other departments and agencies use government loans and loan guarantees to increase the use of technology areas and public sectors that in our opinion, they are important for increasing investments,” he said.
OSC will begin accepting applications for the SBIC initiative by this summer and wants to “license our first funds” for the program this year, Rathje added. The office also plans to publish its first investment strategy, which will assess critical technology areas for “capital availability as well as liquidity opportunities.”
“So what it does is it really helps us target those tools to invest in the areas of those technology sectors that most require that source of capital,” he said.