Leveraging Private Capital to Advance DAF Priorities

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This transcript was generated with the assistance of AI. Please report inconsistencies to comms@afa.org.

Brooke Stokes:

Good afternoon, everyone. Thank you for joining us after lunch. The topic for this panel, leveraging private capital, is a topic that has become increasingly central to driving mission impact and to accelerating the fielding of capabilities. To level set for this group, there are a host of types of private capital, public capital, so forth, different investment classes or asset types. But to simplify things, not bore you all with credit and hybrid and infrastructure investing, this group will primarily reference two types of capital, venture capital, or VC, and private equity, or PE. They have different risk return profiles. In the most simplistic of terms, think about venture capital as investments in early stage companies, longer investment durations, smaller check sizes relative to private equity, and importantly, a venture capital investor is investing across a portfolio of companies, with the concept being that if one or more hits it big, they have the opportunity for outsized returns. On the other hand, private equity is an investment in a mature company, cash flow positive, much larger check sizes on average, a typical holding period of, say, five years or so, give or take. So certainly there’s more nuances, but that’s just to level set this audience on the basics of those different types of risk return profiles and investment types. Getting this topic right is critical. As we think about needing to field capability faster, to scale production, that requires bringing investor capital into the ecosystem, and doing so in alignment with the department’s priorities. So let me just briefly give you an orientation to the lens each panelist is going to bring to the discussion, and then we’ll get into hearing from them. So from the government side, we’ve got Lieutenant General Cropsey, who sits at the center of acquisition execution. He also works intimately with the non-traditional companies that the department partners with. Brigadier General Lindsey works on force planning, bringing together requirements, operational planning, and investment decisions. He’s also co-located at Wright-Patt, having a front row seat to AFRL, and the interplay there of public and private funding. Gareth Keane brings the investor lens as an investor at In-Q-Tel, and with a long career spanning venture capital investments in technology and national security companies. And finally, but certainly not least, Dan Jablonsky is a long-time space and defense industry executive, most recently serving as CEO of venture capital-backed defense tech company, Ursa Major, and prior to that, as CEO of Maxar Systems, where he oversaw the company through the $6.4 billion take private, buy private equity. So with that, let’s get into hearing straight from the panelists. Gareth, can you start us off, eye level set on different types of investments, but I would love you to, recognizing there’s different levels of fluency with private capital in the audience, bring to life an example or two of where private capital was deployed into the defense industrial base, and the role that played in accelerating the Air or the Space Force’s priorities.

Gareth Keane:

Of course, it’ll be a pleasure, and thank you so much for inviting me to participate. For those who don’t know, In-Q-Tel is a strategic investor focused on resilience and security for the US and its allies. We are a not-for-profit that asks, as a trusted partner to USG, venture capital investors, and startup companies. And I can certainly pull a couple of examples out of In-Q-Tel’s history. We were one of the very first investors in Anduril, and I think if you go talk to Trey Stevens and Palmer, they will tell you that In-Q-Tel was instrumental in getting Angiril its first US government contract, which actually happened to be with Customs and Border Patrol, standing up reconnaissance and sensor towers on the southern border. And obviously, that relationship with Anduril is still very strong for us, and we have seen them grow into a very important partner, I think, for the DOW generally in multiple domains. There are other aspects, particularly in Space Force activities, primarily, or previously with the Air Force, but now with US Space Force, where In-Q-Tel has been a very active investor in early technology capability for everything from communications, space to ground, ground to space, Earth observation, sensors, the ability to do interesting things with sensors in space, and allowing, essentially, commercial, dual-use-capable companies to scale into being a provider to DOW needs.

Brooke Stokes:

That’s great. General Cropsey, where do you think private capital can have the greatest impact against the Air Force priorities?

Lt. Gen. Luke C.G. Cropsey:

Yes, we were actually talking beforehand a little bit on the difference between what happens before a contract gets awarded and what happens after a contract gets awarded. And I think that distinction is important when we start talking about where and how private equity ends up landing with respect to the types of things that we’re trying to do inside of the department. And if we’re talking about pre-contract award, and maybe more on the venture capital side of it, we’re talking maybe non-traditionals and what they’re trying to do in that space, I think there is a significant innovation base there that, as a collective whole, we’re trying to figure out how to tap into more effectively. And I think in the context of where and how we’re leveraging private equity as a function of where those companies are at and the other things that they may be doing, how we actually draft off of commercial-based industry opportunities, I think becomes really an important conversation about how do we grow the base and how do we grow the source of innovations that are potentially available to the department. And if we’re smart about, I think, how we do that, and a little bit to Gareth’s point about, hey, are there things that we could be seeding money into that would help leverage a much broader pool of investments on the private equity front that would potentially accelerate the fielding and the scaling of capability, I think that, quite frankly, if you’re listening to the news, is where everybody’s headspace is at right now. So how do we get more capacity, more capability, faster, and how do we do it in a way that starts to get after what we’ll call the bottlenecks associated with existing supply chains and some of those other aspects of what plays out in a kind of a day-to-day, typical storyline of any program. So I think on that early-stage side, that’s one thing I think I would focus on. On the back side of it, we actually had a conversation about, hey, where and how does that CAPEX conversation come into this, and where and how is the department leveraging that contract and leveraging the money that’s flowing into these companies in a way that allows us to build that capacity that we need in the DIB, the Defense Industrial Base. So between those two things, shrinking that front end and expanding on the back end, that’s where I’d say up front we have opportunity.

Brooke Stokes:

Yeah, and you mentioned if we’re smart about it. Dan, I’m gonna go to you. There is different impact and return on investment equations for all the different stakeholders here. If you think about USG, DIB, the investors, they need to be working in synchrony and understanding one another’s objectives. Do you think that’s happening today?

Dan Jablonsky:

I think it is to some degree, but I would not say it’s across the board. And if you think about it, depending on that time horizon of money that you were talking about and your risk profile, you might say, hey, look, let’s put $100 million against something. That’s a lot of money, but we think over the next three to five years, we can make a decent return, we can beat the market returns with that. That will continue to attract money into this ecosystem, and here’s a risk profile we can put on it. This is not firefighter and teachers union money, this is more venture-oriented money. There’s other money, though, that might be like, hey, look, I can take a lesser return, but I need more certainty that it’s actually going to pay off or that capital will go someplace else. And I think that your question was about, is there an understanding on both sides of that equation? In some instances, there is, and you see it best when you get into firm fixed price awards. Because for a firm fixed price award, the company, if they’re doing their homework and the government’s doing their homework, will say, hey, look, I’m going to have to put $100 million into the ground on that contract, which means that I need to make, I’ve got a hurdle rate, I’m borrowing money, or I’ve got money from investors, so I need to make X on the other side of that to justify doing that. And you can take the risk on then performance, but you understand the financial parameters. I think that where you don’t understand the risk, that’s where, or it’s not simpatico, that’s where you see a lot of times both sides defaulting, logically enough, to cost-plus type contracts, because you can’t quite understand the risk. And nobody likes those, right? Because the incentives aren’t aligned correctly, but they end up with it there a lot of times.

Brooke Stokes:

Yeah, we’re going to come back to some of that, but General Lindsey, I want to bring you into the conversation as well. And I think when we talk about those different stakeholder groups working in unison, you’ve got specific experience about the government and investors being complementary in helping those early-stage companies pass the valley of death. Can you speak to that a bit, and what you think that role is?

Brig. Gen. Jason Lindsey:

For sure, for sure. Good afternoon, Brooke, thanks for having me. It’s good to be up here with everybody. First, I just want to kind of acknowledge up front, right, that we are in a global competition for technological superiority, one. Two, private capital is the driving force behind the stuff that means technological superiority today. And three, that’s the US’s key competitive advantage. And so our business is about leveraging that advantage. And I always say it is to speed new capability to the field and to improve the readiness of the capability already fielded. And so lots of action in this space. At the Department of War level, there’s the Office of Strategic Capital, which we’ll probably talk some more about, which is really driving this value creation model, which I hope translates to, this means that there is significant opportunity here on both sides. In sectors where there’s some alignment that we can discover between national security requirements and market dynamics, right? So at the Air Force level, right, I know, it’s sort of the, what can I do for you? It’s not the same, right? It’s not the $100 million that Dan mentioned, probably. But we talk a lot about how we play a complementary role in trying to leverage a small investment in an area that we need focus on. One of those is signaling. General Cropsey mentioned this. This is our, you know, our relatively small seed money is often a strong signal to other private money that this is an area that the Air Force or the department is interested in. And is explicitly how we leverage relatively small investments to get action in an area that we think aligns with our needs. And then the other one is non-financial support. So material support that is not cash, essentially. And this is, I think what you’ve mentioned. You know, the Air Force can make available, that’s my caveat, non-interference basis, space available basis. But these are things like, you know, your Air Force research lab has world-class specialized labs that are uniquely suited to do work in autonomy, in hypersonics, in advanced materials. Your Air Force test center has, obviously, right, the world-class assets for ground tests and for flight tests, wind tunnels, right? Infrastructure that these companies that we’re talking about would otherwise have a difficult time getting access to, we can make available in a non-financial but material support way, which I think are just sort of two of the big ways that we can play a complementary role with the private capital to drive action in the specific areas that we’re looking for.

Gareth Keane:

I might just build on something both General Cropsey and General Lindsey have talked about. Like, from a private capital perspective, the existence of programs like SBIRs, the TACFI and STRATFI, those are phenomenal vehicles for small companies because you’re right, it is a signal to the private investment community that there is a demand for this particular product service capability, and often they act as a forcing function for private capital to aggregate around that, particularly when there’s a matching requirement for something like a TACFI or a STRATFI. So I think that’s a really cleverly architected vehicle, like, really, really works.

Brooke Stokes:

So there’s some excellent vehicles, there’s some good signaling, things like that, but there’s clearly hurdles to perfect matching of department priorities and investor capital. General Cropsey and Dan, I’d love you both to speak to, what do you think stands in the way of maximizing private capital potential into the DIB today?

Lt. Gen. Luke C.G. Cropsey:

So I’ll riff off Dan’s earlier statement. I think one of the biggest problems is information asymmetry. So I know where I wanna go and what I wanna get done, but anybody that has to read an RFP to figure that out is probably hosed, technical term. And so if I can’t clearly communicate what that destination looks like so that industry has a really clear perspective around what that vector is and how I’m gonna get there, short of me putting money on a barrel head, I think it’s gonna be really hard for them to look at it and go, yeah, that’s something I wanna get into, because they don’t actually have a way of knowing for sure, am I going left, right, or up the middle? I mean, it’s kinda over there, but I’m not exactly sure how that’s gonna land or where, when, and how much. And I mean, there’s a lot of, I don’t know. And then it gets back into, okay, well, I’m gonna have to go cost plus, I can’t go fixed fee, right? So I think that’s a big piece of it. How do we actually change the way that we articulate our requirements at an acquisition level, maybe not so much at an operational level, but down at acquisition level where the rubber’s gonna meet the road and I’m gonna put cash on the barrel head, so that there is a clear articulation of where a company could invest and know that if they went in that direction, they’d be aligned with where the broader department’s trying to get to.

Dan Jablonsky:

Yeah, I’d echo that, and then I’d add one more. I’m excited, by the way, to see some of the reforms coming through the department, particularly the DEFSEC initiatives on getting the PAEs in place so that you can spend less time generating requirements all the way across the services and more time trying to figure out what the mission objective is. Because if private industry knows, hey, this is actually what we’re trying to solve, and wow, I can see how we might do that as opposed to just giving them hundreds of pages of requirements on the document that we’re kind of scratching our head, we’re not sure which ones are important or which ones are gonna get kicked off or held to at the end of the day. That’s phenomenally important. So giving a better sense, and sometimes it’s gotta be in cleared rooms, the people that can sit there and say, this is what I’m actually trying to achieve. If I get this level of a performance in this theater of war, we get dominance. So this is what we’d like you to help us with. Oh, okay, now we can start to draft those requirements together, go back and forth really quickly and maybe get to a better solution. The second one I think has been a hurdle is speed. So if you get to that understanding and you go, that’s great, and you get really geared up to do it, you start investing in advance, and they go, you know, not this year, maybe not next year, ’cause the POM’s gonna be tough next year. We’re thinking maybe those are 20, $30 for a 20, 35 mission. You’re like, hey, wait a second, you guys just told me you needed this to win wars. And now we’re thinking maybe this is a decade out. So I think that really having an understanding of that and then making sure, and this is kind of both on private industry side, but the department side, we have the muscle to carry that program through and get it forward and get it funded and get those capabilities in the hands of war fighters. ‘Cause that’s what we really wanna do, not just have a bunch of great ideas sitting on the shelf that might come out one, two, three decades from now.

Brig. Gen. Jason Lindsey:

Yeah, and if I may, I might jump in. We’re talking about clear, consistent priorities, right? And we were talking backstage. There’s a lot of movement in this area, and hey, maybe we’re making some movement, you know, and at the SEC war level, R&E, you know, the six critical capability areas, but just for the audience, we were kind of joking backstage. You wouldn’t be surprised with what any of those areas are, but they’re awfully broad. It’s like applied AI and, you know, quantum, very broad. I think, maybe, I hope I have some good news to get to what Dan’s talking about. So certainly we have all heard of the Integrated Development Office, which is closely partnered with the A57 at Air Staff. And this is the place where, at least the vision in the Air Force is that these organizations come together to make sense of what the force design is, but then do the mission engineering for exactly what are the critical gaps in, for example, in a critical kill chain or in some specific capability area. And the notion being that we could zero in on that specific thing that we need help with, and then make that information available to industry. We’ve done this already, where you want to make it available to a company that’s kind of already playing, because you’re trying to influence IRAD in that case, but maybe also make it available to private money, because you’re not only trying to influence IRAD, but you’re also hoping to influence private capital investment, to empower those companies, right? To get after what’s possible, what’s the state of the possible in that specific area. Which I think is one of the demand signals we’re hearing, is the big, broad investment in quantum is great, but no, it’s this, this specific thing, so that hopefully you don’t get the message, that’s great work you did, but it turns out we don’t need it, or we don’t need it for another FYDP.

Brooke Stokes:

Yeah, Gareth, as an investor yourself, and talking to companies on a daily basis, who are working to navigate the ecosystems around the government, right? So things like the Office of Strategic Capital, and AFWERX, and all the different innovation entities, and then also the private capital community, are there other hurdles you see today?

Gareth Keane:

I think General Lindsey identified a very important one, where that translation of requirement or need, to something that a commercial company can understand and serve, and it’s where entities like In-Q-Tel try and bring value. It’s maybe a little bit easier on the departmental war side, but certainly with our partners in the intelligence community, they often can’t talk outside of cleared rooms, Dan, all the conversations have to happen there. And In-Q-Tel essentially acts as that translation layer, to kind of take the need of a partner, and sort of describe to a private sector company, okay, you’re building this product, it’s amazing, it’s red, we need it to be blue, we can’t tell you why it needs to be blue, but it needs to be blue, and we have a customer who will take it on board if it is blue. So helping to do that translation between private sector and government need, I think is just challenging, given the size of the US government, right? There are so many different parts, I think last time I checked, there were 400 plus different innovation units, or entities across the Department of War, and making sure, we talked about this backstage, like, how do you know you’re knocking on the right front door? Are you talking to the right team, the right group, the right end user? And then as well, I think the disconnect between the acquisition folks, the folks who have the money, and the end user who has the need, that maybe is a disconnect that could be solved, I think. And I do feel that the current administration is very focused on taking obstacles, taking friction out of the process as much as possible. We’ve seen them be very enthusiastic about vehicles like OTAs, where you’re not bound to the restrictions and the process of the FAR, but you have the ability to execute potentially very quickly if you do find a technology or capability that could be transformative for a given need in a given moment. So, lots of things to solve, but I think lots of positive momentum as well.

Brooke Stokes:

Great, so you and Dan both brought up the reforms underway. General Cropsey, I want to go to you. How do you think the acquisition transformation strategy and other reforms underway is going to further pave the way for private capital to fuel the ecosystem?

Lt. Gen. Luke C.G. Cropsey:

Yeah, so I think one of the things that we’re very clear about up front is that when we talk about acquisition transformation, we can’t have that conversation in the vacuum from what is happening on the requirements front and what’s happening on the resourcing side. So, to piggyback a little bit on the mission engineering front, I think one of the things that hamstrings our ability to really get private equity engaged is we oftentimes will specify a specific widget. And that widget might already have a brand name and a label on it, and then you’re just kind of like, okay, well, it’s not my widget. I’m like, what’s the market? I think by going back to the mission engineering approach up front where we’re actually detailing out the operational architecture and the theory of victory around how this is how we expect we’re going to fight, these are the particular functions that we’re going to have to do in that fight, and these are the places where we have the gaps and the holes. Now I can hand an In-Q-Tel, right, a very clear functional requirement that’s not attached to a particular widget, and basically say, hey, here’s the marble that I’m currently using to go do this. Can you do it better, faster, cheaper? And in a lot of cases, the answer to that is yes, if I can specify it in a way that gets to the functional requirement and not actually hand a formal, like, I need this thing, right? So that enables a whole conversation to happen, and then once that happens, and we get into some of these more specific acquisition-related changes that we’re trying to make, one of which is trying to push more authority and decision space down to individual program, said it, right, portfolio acquisition executives, 30 years of training, don’t let this leave you overnight here. I think what happens is you start to free up more trade space around how an individual PAE is able to actually pull in that alternative sources of innovation and capability into their portfolio, because let’s face it, right now, if I’m a program manager, the last thing I need you to do is show up as a good idea fairy on my doorstep with another good idea. Like, I’ve got cost, schedule, budget, risk, performance requirements, there’s probably some test guy telling me what’s broke, and, right, 29 other people Monday morning quarterbacking me in the building, so go away. If we don’t change that underlying acquisition philosophy and culture around how we think about getting innovation into that, and not just the POM and the FYDP, right, but in the here and the now and the current execution year, we aren’t gonna go fast enough. And a lot of what we have to be able to do on the app transformation side of this is change a mindset and a way of thinking about taking good ideas that come to us off the shelf, or from maybe non-traditional areas, and rapidly integrating them into the thing that we’re trying to get done at an operational level. And right now we’re not meched to do that very well. So a lot of what you heard from the secretary yesterday was, like, what are the things that we’re doing to try to get that mechanized in a way that will actually be innovation-friendly in that kind of a way, and then also put the right fiscal flexibilities into place with the help of Congress that will enable us to pivot to things that we may not even have invented yet when we did the POM three years ago, right? That, I think, is gonna be clutch in order to make this real.

Dan Jablonsky:

I think another important point, and this has been very helpful in a lot of our discussions, I think, with different government customers, is how many of something are you thinking? How fast do you need it? Not just the capabilities, but the size and scope and scale of that. And then giving us some signal on price point, too. Hey, if you can get to this, I’ll buy dozens. But if you can get to this, I might buy thousands. You can kind of change the calculus with volume thing, too. So having those conversations right up front, that gives the private companies, the private sector, the private capital allocators an idea of, yeah, this is a good place to go forward on some bets because we know this is a big mission set. We know it’s gonna be in quantities that make sense, and the dollar signs are there.

Brooke Stokes:

Dan, let’s actually stick with you. What you’re speaking to is buying down risk, right? So having a much clearer demand signal and a view on price point and volume interactions. I think one of the things I often hear is that given the mechanisms, processes, structures the government’s dealing with, even with reforms, there can’t be a perfect view into demand, and different parties need to assume elements of the risk. I would love your take, right? I know you’ve been at the helm of aerospace and defense companies where you had to take on risk ahead of knowing what the government was going to purchase. How have you thought about that, and how do you see that equation working going forward?

Dan Jablonsky:

So risk is just a factor of life, and you gotta decide how much of it you want and what things could invariably, even possibly turn a company upside down, right? This is a really good capital cycle right now, but there haven’t always been good capital cycles. Debt markets can dry up. I’ve been in a lot of different capital cycles now in my career. And when I think about those, I think, okay, well, what happens if? And let’s play that game in the executive room, let’s war game this and say, if we make that bet, and it turns out slightly off-center, what is plan B, what is plan C? Can we repurpose the technology? Can I repurpose that factory to somebody else? Would somebody else want to buy that? If not, then I might be kind of sole-sourced into one customer. That’s a different risk profile. And then the other is, what I found very helpful is just being up front with the customer about the risk. Hey, look, we’re asking about a 10-year potential investment. We’re ramping up a production line here. We’re going all in. But if that doesn’t work out, what’s the plan B? How do we shut this thing down? How do we take quantities down? What happens on that event? Because the government’s not in the business of turning companies upside down either. And sometimes that gets into contract negotiations. I remember, this is several years ago with one of the companies where we were talking about inflation and trying to predict what the inflation levels might be. And everybody’s like, well, don’t worry about it. Like, inflation’s so low, it’s not a problem. We’re like, well, yeah, but this is 10 years. What if someplace in that cycle, inflation spikes? ‘Cause I still have to pay people. I still have to provide healthcare. I still have to buy parts to make the thing that you want to be made and the service that you want. And it was a really hard conversation because nobody wanted the risk, but you had to put it on the table and say, well, how actually are we going to deal with that? Because I could just charge you a lot more and hedge the risk, but you don’t want that. You can allocate funds that aren’t yet available from the government, so how do we deal with that? You know, and like, where do we end up in the middle? And we ended up, you know, we got some clever solutions on it.

Brooke Stokes:

Yeah, and you hit on a really interesting point that I think is relevant to this discussion, which is there was a traditional world of cost plus, customer funded, RDT and E, single customer driven, military tailored products. And there’s a lot of development happening or innovation around more commercialization of the technologies that the warfighter is buying. I would love any of the panelists to sort of react to how you think that influences the ability for private capital to bet against some of these companies and areas of technology innovation.

Gareth Keane:

I can throw a couple of thoughts at, I mean, I think there will always be a need for the exquisite system provider. You know, there are capabilities that the United States needs that cannot be provided by folks who are working on sort of small, commercially driven technology solutions, right? The ability to build something completely one of a kind, but it performs to an amazing sort of envelope around specification is going to stick around. The interesting thing from a venture capital investment perspective is you look at the budget for the DOW, I don’t know, $900 billion this year, potentially scaling to a trillion and a half over time. I think 2% of that currently goes to what you could call neo-primes or upstart startup companies. You know, that is, if that even grew to 5%, that is an amazing sort of target for venture capital investors. They’ll get very excited about that. And the fact that companies they fund could be beneficiaries of some of that additional funding flowing to more neo new companies than the existing sort of defense industrial base. So I think those are two things that are important to keep in mind, right? The exquisite systems won’t go away and that there is a lot of scope for the smaller companies to grow, just given how little of the budget they take right now.

Dan Jablonsky:

I think about it from the government side too, which is if I were on that side of the table, I would want more competition, more innovation, more drive on the other side so that I could have some leverage in the discussions, right? And so I think some of the reforms that are geared in a meal, Michael talks about this. He wants to see double the number of primes. Very, very upfront about it because he wants to see more competition. Now that he doesn’t want necessarily companies to die, but that, you know, that happens in cycles, but you have to have more competition. If you’re going to have industry sharpen its pencils, sharpen their performance objectives, be better operators, continually give you gains every year. And we see that in the commercial sector all the time. We need to make sure that’s there in the government side as well.

Brooke Stokes:

Generals, you want to respond?

Lt. Gen. Luke C.G. Cropsey:

So to that point on competition, the modular open system architecture work that we’re doing on a technical level in a very real sense is designed to actually build out exactly the kind of ecosystem that you’re both talking about, right? So rather than it being a winner take all, massive prime contract for, right, pick your next generation platform. How do you build an architecture that allows you to essentially chunk the problem down into much smaller, like, discrete sub-assemblies or subsystems that a much broader set of industry would potentially be capable of competing for if they don’t have to do the whole thing, right? So to your point, building an exquisite system is really hard to do and it requires a massive amount of undertaking to do it. If you can break that apart into pieces that are actually more manageable or have parallels in a commercial industry sense, then I think we actually increase the opportunity for more competition. If we build good, consistent interfaces, we actually build a scenario where somebody could go out on their own and know that if they met the specification that they would have something that would plug in and it would work, right, when they plugged it in. Right now we have specifications but we’re not always sure it’s gonna work when we plug it in and there’s, right, there’s always this question. So I think on our side of the ledger, we actually have to get really serious about the engineering that goes into those platforms and how we modularize them because it needs to be done smartly and then offer that back into the marketplace so that we’re creating a full ecosystem around that platform and not just on a winner-take-all kind of a basis.

Brooke Stokes:

Helpful. You all have spoken in depth about many of the hurdles in the way today, right? Demand signaling, information asymmetry, the marketplace dynamic. One that I think was referenced earlier though, and I want to pull the thread on a bit more, is the concept of every party understanding what the others need and what they need to, so investors feeling comfortable that government understands the risk-return profiles they’re looking for, vice versa, the defense industrial base, similarly, those interactions. How do you think we make that happen? How do we get the folks in different uniforms to understand what everyone’s talking about and bringing to the table?

Lt. Gen. Luke C.G. Cropsey:

So I went down and talked to the Education with Industry group last month and I had a really interesting dialogue with folks that were in the program and also sponsors of folks in the program. So companies that were sponsoring UE fellows. And the conversation with the sponsors was interesting because depending on what they had them doing in the company and at what level, they had them doing more or less. And a lot of the conversation got around to the fact that, hey, when we pull somebody in wearing a uniform that are, call them a captain, let’s just say they’ve got five, six years in, they’re going into that environment, generally speaking, there’s always exceptions to prove the rule, with zero understanding of what’s happening on the boardroom side of the company that they’re going into. And they’re actually a liability if they take them with them into the boardroom. So a lot of the conversation was around, hey, how do we actually create better understanding on the information asymmetry side of how business actually works? The dynamics that are driving you, right? Is it ROI, is it cashflow? Like what’s driving that particular company? Do you understand a financial statement? Can you look at a financial statement and know whether or not a company had a good year or a bad year? I mean, one level you look at it and go, that’s pretty basic, Cropsey. Right, but I think we gotta start there. And we have to be at a point where we’re teaching our, especially in our acquisition side of this business, the folks that are showing up to the other side of that table and saying, hey, look, your industry counterpart that’s sitting across from you is going to be concerned about the following things, and these are the reasons that they’re gonna be concerned about those things. How are you bringing the conversation to a point where you’re addressing those concerns in a way that it’s also driving the conversation in the direction the government wants it to go? If we’re not doing just that basic level of cross-leveling with the folks at the table, we’re missing. And that’s both a cultural thing that we’ve gotta go figure out how to work, but there’s also an education and training piece to this that, quite frankly, we’ve just not been doing what we need to to make that happen.

Brig. Gen. Jason Lindsey:

And it’s funny that you asked that that way, because I was sort of anticipating the advice to ourselves. We’ve already done clear, consistent priorities, easy, yes, got it, right? And then that, an endeavor to really understand those other two parties, this is a great answer, because I was gonna generally say, I don’t know. That’s the challenge, I think, on our side of this. We are a department, we’re a service of specialists, and thankfully we do have at least some specialists in this on our team. You’ve got AFWERX and SpaceWERX, whose full-time job is to understand the motivations of private capital and of the small, innovative companies, or the large companies that are doing something innovative in a field that we are specifically interested in. So we can rely on them for some mentoring. Hopefully, those PEOs and PAEs who have the list that long, they can rely a bit on AFWERX or SpaceWORX for that kind of insight and help. But that’s a little tiny part of our infrastructure, or our ecosystem, and those aren’t the only people who you’re interacting with, as you said before. We want those to be our front door, the Department of the Air Force’s front door to private money, but as you observe, there’s 52 others across the broader department, and we understand that.

Brooke Stokes:

Well, speaking of advice, we are getting towards the end, but I’m gonna ask each of you to leave us with one thought, which is you can give one piece of advice to implore one of the stakeholder groups, so elements of the department, investors, or the defense industrial base, to do something different, such that we can better leverage private capital. What would that one piece of advice be? I’m gonna go down the line, starting with Dan.

Dan Jablonsky:

My first biggest one, nobody can affect in this group, so I’ll give you two, but get the budgets passed. It’s just, it’s so debilitating. None of those don’t happen, anyway. I really have open and frank dialogue about the issues and the challenges. When we understand your issues and challenges better, we can be better partners to you. When you understand what kind of time pressures we’re under, or a fund might be aging out, or something like that, it’s good to just have that conversation, be like, hey, if this isn’t gonna happen in the next 18 months, I just want you to know this is gonna happen on this end, and that’s okay, if that’s the rule, but let’s at least be aware that there’s a calendar item to this, or there’s another constraint, so that we can figure out how to solve this together.

Gareth Keane:

I think I would encourage, we’ve seen an amazing explosion of interest, I think, in the wider venture capital community around defense, aerospace, industrials. I think it would be good for some of these more generalist investors to understand the timelines involved. I think that’s sort of, again, it’s an education process. Aerospace companies, space companies, defense-focused companies can often take a long time to grow to significant value, but 15 years later, all of a sudden, you’re valued as a prime, so it’s a good outcome, typically. But I think just that internalization of timelines would be an important thing for the investor community.

Brig. Gen. Jason Lindsey:

I basically already said it, but I’ll still do it real quick. It’s pointing at us, it’s clear, consistent priorities, ’cause I know that’s the demand signal that the enterprise needs. And then, too, we spend a lot of time understanding the technology that we’re after, and the mission requirement for that technology. We have to also understand the marketplace, where we can get that technology, which is the conversation we just had, so that we can understand the motivations of the company, of the private money, and all the players involved. That’s a challenge on our side, for sure.

Lt. Gen. Luke C.G. Cropsey:

So I would say we’ve gotta change the mindset on the government side of this, in terms of the way that we look at industry, and the role industry plays in the broader construct. And if we’re not seeing industry as a full partner in what has to happen in order for us to get war-winning capability out the door, we’re not gonna get it right, because we aren’t gonna, anytime we set up an adversarial relationship in the context of the business deal, I know that there is a process that we go through to negotiate these things, but at the end of the day, if we aren’t lockstep together on what has to happen in that operational setting, and what capabilities have to get delivered by when, how many, to who, what are we doing? It’s gotta be a team effort, and collectively, we have to push on the rope, in some cases, together, if we can’t pull on it. So how do we change that dynamic? How do we change that thinking? And then how do we get after it, to make sure that we’ve got what we need on the other end?

Brooke Stokes:

Well, hearing the back and forth leaves me optimistic about the potential for private capital in this sector. Please join me in thanking these four excellent panelists.