Hunting for quality investments requires digging into established deal flow channels and identifying new areas of opportunity. Here’s why TechNexus Venture Collaborative is doubling down on the defense industry and – regardless of if you’re “a defense investor” – why you’re missing out if you aren’t.
Is TechNexus a defense investor? Not exactly.
Is a significant portion of our investment portfolio engaging with the defense industry? Without a doubt.
Here are some recent examples:
- EdgyBees just established its U.S. entity to strengthen its national security efforts
- Nanograf received $10M from the Army to build its domestic manufacturing facility
- H3X brought in $1.25M from AFWERX to develop its integrated motor drives
- KognitivSpark has provided the Royal Canadian Navy with mixed reality tools since 2019
In retrospect, our interest in the defense space is obvious. Our model is primed to bring in and support technologies that drive strategic initiatives within complex business units, so founding teams willing to engage in the defense acquisitions process see value in collaborating with our corporate partners.
But why should other “non-defense investors” engage in the space? Let’s look at the 2024 National Defense Authorization Act Budget Request for answers.
The above chart can be read as the executive branch requesting that the legislative branch allocate $842B to support National Defense efforts, with $170B going towards Procurement and $145B going towards Research, Development, Test, and Evaluation. Together, these allocations for purchasing and innovating would be 37% of the National Defense budget.
Where does this funding – and the rest of the budget – go?
Of course, it isn’t all going towards buying or building lethal technologies. Think of everything a typical organization would need to support 1.3M full-time and over 750K part-time employees. Then, think of an organization of that size that needs its own health and education systems. And any of them live with their families at work, so you’d have to build and maintain their living communities too. How these warfighters and their families move, communicate, and get supplied are critical aspects of a well-organized force structure that are both ripe for innovation and largely ignored by traditional defense investors.
How the Department of Defense supports a warfighter’s family is a great example of opportunity areas for investors to a) look for deals and b) be the “value add” they promised they’d be.
When the Department of Defense is given $2.6B for DoDEA (Department of Defense Education Activity) schools, shouldn’t EdTech investors be digging into what technologies are being used at those schools? If an incumbent solution is inferior to a portfolio company’s, make the intro. If the incumbent looks like a fit for investment, get the intro. Establishing relationships with stakeholders in niche industries to facilitate intros is exactly what many investors promise their portfolio companies and Limited Partners, so finding entryways into a siloed organization that engages with a diverse set of verticals seems like a worthwhile use of time.
There isn’t an established playbook for engaging with the Department of Defense. There are dozens of units, labs, internal programs, and external organizations that are focused on defense innovation, but they aren’t all equal. Some are intended to source immediate solutions to problems warfighters face today, others are meant to be channels for revolutionary frontier technologies. Technologists with FAANG backgrounds run some, others are run by lifelong service members with combat backgrounds.
TechNexus is navigating the landscape by meeting with as many stakeholders as possible and asking them the age-old investor question – who should I be talking to? Among others, AFWERX, SpaceWERX, Army Futures Command, Army Applications Lab, SOFWERX, CFIC, and The Defense Innovation Unit have been instrumental in expanding our market reach.
We’ll be leveraging those ecosystems to invest in and grow technologies that are primed to engage with our corporate partners. How will you break in?
Reach out to Nathan Musso if you’re a defense investor or defense stakeholder that wants to learn about TechNexus’ activity in the space, or if you’re a non-defense investor that wants to learn what opportunities you have in the ecosystem.