New Office to Help Pentagon Address Innovation ‘Valley of Death’

The Defense Department’s newly established Office of Strategic Capital (OSC) intends to bridge the so-called “valley of death” that has long plagued the Pentagon’s ability to adopt new technology and keep pace with innovation.

The “valley of death” refers to the phenomenon of new, DOD-funded capabilities innovative technologies failing to materialize due to not bridging the gap between product development and deployment.

“There are several valleys of death if you are a young company trying to be successful,” Defense Innovation Unit Director Mike Brown said during the IST Addressing the “Valley of Death” panel last year. “But in working with the Department of Defense, the specific one that we have created for companies is, again, successfully demonstrating the capability, or we would say prototyping, but then not having the money in the budget to scale that. That’s the DOD’s unique ‘valley of death’ that we need to solve.”

The acquisition process at DOD is designed well for acquiring complex platforms but struggles to incorporate emerging technologies due to convoluted contracting and acquisition processes. The Defense Innovation Unit (DIU) and the Defense Innovation Board help bring in emerging technologies (according to the 2021 DIU annual report, 35 prototype contracts out of 279 have successfully moved to production contracts), but sometimes projects lose steam due to a lack of funding, which the OSC aims to address.

The OSC, established in December 2022, will develop and execute strategies to increase private capital flow to companies developing critical technologies important to national security, and will work in partnership with other agencies across the federal government to accomplish that mission.

“It will identify gaps in investment that limit the Department’s ability to access critical technologies and partner with private capital markets to fill those gaps. The office is now focused on building out its program activities to accomplish that mission,” LCDR Tim Gorman, Pentagon spokesperson, told GovCIO Media & Research.

The office will primarily focus on identifying promising technologies for DOD and investing in critical areas “the private sector has not sufficiently supported.” The OSC will also inform and encourage private sector investments in areas essential to the department.

“Our friends in private capital can’t respond alone to major shifts like global supply chain disruptions. So without access to capital, for the time that it takes to develop key new technologies, those innovations could die on the vine, or our competitors could get there first,” Lloyd said during the letter-of-intent signing with U.S. Small Business Administration (SBA) Administrator Isabella Casillas Guzman in California. “So, we’re looking for new and creative approaches to sharpen our edge. That’s why earlier this week, I announced the creation of the Department’s Office of Strategic Capital.”

The OSC is currently working with SBA on the Small Business Investment Company Critical Technologies initiative (SBICCT) as its first official activity. This partnership also intends to advance the Biden administration’s efforts to lead innovation around the globe.

“It’s a major advancement in the relationship between DOD and SBA,” Lloyd said. “It will allow our agencies to work together to build trusted investment funds to align and scale private capital in support of national security priorities.”