Defense Innovation Unit Tackles Funding Risks After SVB Collapse

When Silicon Valley Bank (SVB) collapsed March 10, the Defense Innovation Unit (DIU) worried some of its SVB-funded vendors would hold off on DIU projects.

“The money was being routed to accounts in Silicon Valley Bank, so we wanted to make sure that we’re able to refactor those to make sure we kept the funds from going,” DIU Director Mike Madsen said at the March 23 Potomac Officers Club’s Research and Development Summit in Falls Church, Virginia.

DIU was stood up in 2015 to help the Pentagon adopt emerging commercial technologies at a quicker pace. “It’s not so much developing the tech, but the ability to integrate it into the way that we present forces is going to lead to the overmatch that we are looking for,” Madsen said.

DIU works with startup companies funded by private capital, which may put DIU at risk during events such as recent bank collapses.

In the aftermath of SVB’s collapse and taking into account further uncertainty across the banking industry, DIU leadership began conversations around protecting DIU from further risk.

“There is gonna be more and more of these banks that go under the same conditions as Silicon Valley. And so … considering those things, we’re starting to meet to look at what we can do,” Madsen said.

DIU leaders spent time with their vendors trying to fully understand the exposure risks they were going through and determine whether the agency could help address those issues. Areas of concern included everything from payroll to hardware issues to indirect problems such as the supply chain.

“The first thing was to really understand what was the exposure risk to a lot of our companies,” Madsen said.

One of the next steps for the DIU, Madsen said, includes looking at some of the commercial capital providers they’ve partnered with in the past and start collaborating with those for certain vendors.

“It’s an opportunity to continue to grow that natural tissue between us and the commercial sector and build that partnership,” Madsen said.

While the risk is always there, Madsen said now is the time to step back strategically and build an understanding of how events such as the SVB collapse can affect organizations such as DIU.

“So if it does happen again, we are ready to respond,” Madsen said. “And I think the response was relatively quick in this instance, but to continue to build that connective tissue and have these conversations and be ready to act with what tools we can use.”