The Defense Innovation Board adopted a series of new recommendations and praised the Air Force for its big bets on emerging technology in recent years that seem primed to help new entrants to the defense market bridge the so-called valley of death between initial investment and actual production contracts.
The Board, including former New York City Mayor Mike Bloomberg, former assistant secretary of the Air Force Will Roper, and former chairman of the House Armed Services Committee Mac Thornberry, adopted eight recommendations for how the Pentagon can improve innovation by focusing investments, streamlining management of innovation offices, and changing the culture.
Citing the Air Force Research Laboratory’s approach, the report said DOD should more frequently place “routine large bets using programs resembling Air Force Research Lab (AFRL) Vanguard initiatives.” The Board wants DOD to to commit “to procuring and fielding five to 10 game-changing capabilities inside 2027.”
AFRL launched its Vanguard concept in 2020, selecting three of its highest-value research projects for intense, dedicated funding—some $157 million combined in the first year alone. Among them:
- Skyborg, an artificial intelligence-enabled system to control unmanned aircraft in a future manned/unmanned aircraft teaming concept
- Navigation Technology Satellite-3, an experimental satellite meant to complement GPS and increase the resilience of satellite navigation.
- Golden Horde, munitions that can set up their own network, change their targets in flight, and synchronize their strikes.
Skyborg has since transitioned to a program of record, becoming the major Collaborative Combat Aircraft program to which Air Force leaders are pinning much of their hopes for future combat mass.
According to Air Force budget documents, Golden Horde also transitioned from a research effort to an acquisition one under the service’s Weapons Program Executive Officer.
Other programs have since been added to the Vanguard initiative, with funding exceeding $100 million every year and reaching as high as high as $255 million in fiscal 2024.
“As private investments get larger, they necessarily get fewer. With so much capital on the line, investors go all-in to ensure companies succeed. While having the equivalent of Seed and Series A investors that build portfolios of small investments is critical and needed in DOD, having Series D-like investors that place big bets for crossing the valley to the [program of record] is needed to finish the process,” the board wrote in its report.
Small Business Research
The DIB also said the Air Force offers a better model for managing Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs.
The SBIR/STTR programs award small contracts to smaller businesses to research, develop, and hopefully commercialize promising technologies. Companies can receive anywhere from a few hundred thousand dollars for a “Phase 1” contract to a few million for a “Phase 2” contract, while “Phase 3” deals are bigger and meant to commercialize the tech. But many companies get stuck in Phase 1 and 2, coming back year after year for more awards without ever progressing to Phase 3.
To overcome that, the board recommends establishing “Oasis Funds,” essentially a pool from which service acquisition executives can pull larger sums to help companies make the transition from prototyping to production. These funds would be based on “the AFWERX Strategic Funding Increase (STRATFI) and Tactical Funding Increase (TACFI) programs,” the board noted.
AFWERX, the Air Force’s innovation arm, developed those two programs to attack the same problems the board noted. Both rely on a combination of SBIR/STTR, government, and private capital funds, with tactical funding increases going up to $2 million and strategic funding increases topping out at $15 million.
In 2024, the programs combined to award funding increases to 158 companies, using $583 million in SBIR funds, $702 million in matching government funds, and $619 million in matching private funds: $1.9 billion total.
By pairing public and private funding sources, the board wrote, AFWERX entices program managers to invest their own dollars while also providing “a better measure of product-market fit” by seeing what the commercial market will back.
Yet the board also found fault with the Air Force for not giving AFWERX even more latitude to invest in nontraditional companies.
“Formalizing AFWERX as the investment acquisition authority provided top cover to push boundaries. But AFWERX lacked sufficient staffing, equipping, and administration from the Air Force to sustainably scale it,” the board wrote. “This paradigm still exists today.”
Indeed, while AFWERX and AFRL are two of several pockets within DOD trying to invest in new tech and innovation, coordination and scale are persistent issues across the Pentagon, the board wrote.
“Methods for both investing and transitioning R&D into programs of record were demonstrated. … However, these methods were never formalized, shared, and integrated into a repeatable, transparent process capable of transitioning new DOD R&D entrants to recurring revenue at scale,” the board wrote.
Organizationally and culturally, the report states, the Pentagon is still not set up to consistently scale new technology or tap into new innovation.
Experts recommended the Defense Innovation Unit, a relatively new department-wide organization, be expanded to serve as the guide for small or nontraditional defense companies across all the various innovation arms and organizations set up across the Pentagon, such as the Air Force Research Library and AFWERX. They also called for the DOD to cut back on “burdensome, confusing, or lengthy contracting” and speed up the security clearance process for innovative companies.