Defense Tech and VC Update - January 5, 2025 (Unit X Observations | AFWERX)

Issue 11 (Happy New Year!)

Deep Dive - Unit X Observations

First published in July 2024, Unit X by Raj Shah and Christopher Kirchhoff detailed the evolution of the Defense Innovation Unit (DIU) from its inception as an experimental unit in 2015 to today.

At ~250 pages, the full book is worth reading to understand how Silicon Valley works and clashes with the establishment defense industry, but a few important observations:

1. Secretary of Defense Ash Carter granted a set of strong powers to DIUx at the onset, including:

   1. Reporting directly to the Secretary of Defense

   2. Having regular meetings with the Vice Chairman of the Joint Chiefs of Staff and the Deputy Secretary of Defense

   3. Receive support from the Chief Management Officer of the Department of Defense and any other official within the DoD

   4. Hiring completed within 14 days (vs. 7-9 months otherwise in the DoD)

   5. Billet an O-7 (one-star) general officer to DIUx

   6. (most importantly) Waiver authority on any regulation or policy that disrupts DIUx’s mission

2. Personal and political interests can outweigh national interests, even in critical areas like national security which nominally is supposed to be bipartisan

   1. “[A congressional staffer] informed [DIUx] that she had killed DIU’s budget because she worked for a congressman from Indiana and DIUx was not spending any money in Indiana.”

   2. “The air force was loath to switch away from their established program … [the incumbent provider] was three years behind schedule and over budget, but had spent eight years on this massive enterprise and wasn’t going to let a bunch of outsiders (DIUx) derail their program.”

3. The DoD historically operated as a monopsony (one buyer for goods) because it bought tanks and fighter jets, which are only sold to the government. As such, the DoD is used to dictating the terms of deals to prime contractors accustomed to government procurement and accounting regulations.

   1. US tech companies are pursuing the $25 trillion market for consumer and enterprise technology; DoD’s acquisition budget is $310 billion. Selling to the DoD is a commercially difficult proposition for a comparatively small market

   2. DoD procurement follows the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS) and has to be negotiated with and signed by a warranted contracting officer.

4. China is moving faster than the United States in militarizing commercial technologies due to what Xi Jinping calls “civil-military fusion.” This allows China’s military to 1) access and integrate any Chinese commercial technology for military purposes and 2) place military staff on company boards

   1. China is accessing US technology by investing in 15-18% of all US startup venture deals

   2. China is projecting hard power (constructing bases on disputed islands in the South China Sea) and soft power (providing financial bailouts to Belt and Road Initiative participants)

5. Proposed ideas from the authors to improve US military readiness:

   1. Mandatory national service (military or civilian positions). This increases the stakes as everyone now has a relative who is serving; this also bridges the gap across society

   2. Reopen shuttered military bases. This further tightens the military-civilian bond, as bases in large cities normalize soldier-civilian interactions

   3. Expand ROTC, National Guard, and Reserves. This encourages career service amongst university graduates, especially in STEM fields.

   4. Create better career paths for active-duty service members. This improves the appeal of military service as soldiers have better civilian career prospects

   5. Fix the immigration system. This is especially important for the H-1B visa process; other ideas include granting permanent residency to foreign PhD graduates (as proposed in the STAPLE Act)

   6. Place purchase orders for Silicon Valley. This is important to position the DoD as a customer and partner for the US technology industry

6. The Russo-Ukrainian War is a notable example of technology granting asymmetric advantages to warfighters and enabling government efficiency

   1. SpaceX Starlink terminals kept communications up after Russia jammed Ukrainian radios

   2. Ukrainian citizens reported Russian military movements on WhatsApp and Signal

   3. Russian and Ukrainian soldiers used drones to conduct battlefield reconnaissance, direct artillery strikes, and attack enemy positions and assets

      1. '“What we’re witnessing is the democratization of precision-guided munitions. Every actor, every individual in the battlefield can have a precision-guided munition.”

      2. “Small kamikaze drones that cost $400 and carried three pounds of explosives were nearly impossible to shoot down … in the future, like flocks of starlings, ruthless swarms of AI-empowered kamikaze drones will track mobile targets and algorithmically collaborate to strike past an enemy’s electronic countermeasures.”

   4. Ukraine moved all government data into an Amazon Snowball and uploaded it into the cloud

   5. Ukraine’s Ministry for Digital Transformation released an app called Diia which allows access to 80 public services via browser or smartphone, including paying taxes, renewing ID documents, registering businesses, and even transmitting information to the Ministry of Defense for artillery strikes

Recent Funding Rounds

None of note in the past few weeks.

Defense Acronym of the Week - AFWERX (Air Force Work Project)

AFWERX is part of the Air Force Research Laboratory (AFRL). AFWERX aims to expand the defense industrial base for advanced technologies, grow talent, and accelerate technology adoption. The 4 arms of AFWERX:

• AFVentures - provides SBIR / STTR grants, has issued $1.9B in contracts to 1,044 small businesses as of FY23

• Spark - connects Air Force personnel with civilian companies for networking and knowledge sharing

• Prime - identify and accelerate dual-use technologies. Focused on:

  • Agility: vertical / eVTOL / distributed propulsion vehicles

  • Autonomy: autonomous flight with minimal to no human interaction

  • Integration: JADC2 (Joint All-Domain Command & Control) enablement; bring private sector software/data/cybersecurity practices to military

• SpaceWERX - accelerate space capabilities; focused on cybersecurity, AI/ML, vehicle autonomy, vehicle longevity, and maneuverability, visibility and awareness, in-space servicing/assembly/manufacturing (ISAM).

Tech-Focused DoD Contract Awards

December 16

• Air Force

  • $30M (K2 Space Corp): completing the Mega-class (4.5 metric ton) satellite bus (main body and structural component of a satellite)

• Army

  • $14M (SimVentions): model management capabilities to build kill-chains in mission and theater-level environments

December 17

• Navy

  • $120M (Lockheed Martin): development and delivery of the F-35 Autonomic Logistics Information System (ALIS) and Operational Data Integrated Network (ODIN) - software to help with F-35 maintenance

December 18

• Air Force

  • $100M (Firestorm Labs): small unmanned aerial systems, support services, and R&D for integration into AFWERX Prime Proving Ground, support the Adaptive Air Enterprise, Babbage Flock, Hale Cluster, and robotic / autonomy platform for interoperable devices (unmanned swarming tech)

  • $33M (Turion Space Corp): 3 satellites and real-time command and control (high-resolution satellite-to-satellite imagery collection capabilities)

December 19

• Missile Defense Agency

  • $3B (Johns Hopkins Applied Physics Laboratory): R&D for the Missile Defense System

• Air Force

  • $211M (Systems Planning and Analysis): development of a security and operations platform for space command and control software

  • $10M (General Dynamics Mission Systems): Proliferated Warfighter Space Architecture modification (network of military satellites)

December 20

• Navy

  • $58M (CACI Enterprise Solutions): technical support for the Military Sealift Command’s Integrated Business Systems

  • $32M (Huntington Ingalls): production of the Lionfish Small Unmanned Undersea Vehicle

• Air Force

  • $21M (Qubitekk): R&D in quantum networking for secure and robust systems

• Army

  • $70M (Microsoft): Joint Warfighter Cloud Capability

• Missile Defense Agency

  • $191M (Raytheon): Missile Defense System modeling and simulation efforts

December 23

• Air Force

  • $15M (Cummings Aerospace): high-speed weapons R&D

December 26

• None of note for tech-related defense procurement

December 27

• None of note for tech-related defense procurement

December 30

• None of note for tech-related defense procurement

December 31

• Air Force

  • $8M (URSA Major Technologies): mature advanced liquid rocket engines

January 2

• Army

  • $481M (Northrop Grumman): software updates and improvements to the Integrated Air and Missile Defense Battle Command System

January 3

• None of note for tech-related defense procurement

Calendar: US Defense Primes Earnings Calls

• Lockheed Martin - January 28, 2025

• Northrop Grumman - January 23, 2025

• General Dynamics - January 22, 2025

• Boeing - January 29, 2025

• Raytheon - January 28, 2025

Calendar: Other Defense Earnings Calls

• L3 Harris - January 23, 2025

• Honeywell - January 29, 2025

• AeroVironment - March 3, 2025

• Palantir - February 3, 2025

Interesting Charts

2023 AFWERX Report