The Pen­tagon finds it’s not so easy to be a Val­ley bro

A De­fense pro­gram tries to part­ner with tech com­pa­nies “They had a hard time try­ing to shake loose fund­ing”

Bloomberg Businessweek (Asia) - - NEWS - Nafeesa Sy­eed The bot­tom line A year af­ter open­ing an out­post in Sil­i­con Val­ley to part­ner with tech com­pa­nies, the Pen­tagon is hav­ing a hard time clos­ing deals.

One of Wash­ing­ton’s big­gest bu­reau­cra­cies reaches out to do busi­ness with Sil­i­con Val­ley’s ag­ile and im­pa­tient en­trepreneurs. What could go wrong?

Plenty, based on the ini­tial strug­gles of the De­fense In­no­va­tion Unit Ex­per­i­men­tal, or DIUx, the Cal­i­for­nia technology out­post that’s a pet project of Depart­ment of De­fense Sec­re­tary Ash Carter. DIUx’s role is to scout for new technology and help star­tups quickly get con­tracts with the Pen­tagon, Carter has said, with­out spec­i­fy­ing the kind of projects he’s seek­ing.

Since DIUx was cre­ated last sum­mer,

only 3 of 20 projects in its pipeline have gone into con­tract, an eter­nity con­sid­er­ing a suc­cess­ful ven­ture cap­i­tal pitch can gen­er­ate al­most in­stant fund­ing.

“The whole point of Sil­i­con Val­ley is to be risky,” says Herbert Lin, a cy­ber re­search fel­low at Stan­ford Univer­sity. But the Pen­tagon’s pro­cure­ment and ac­qui­si­tions peo­ple gen­er­ally want to re­move risk from the process, he says.

DIUx has been so hob­bled by the Pen­tagon’s red tape and cau­tious de­ci­sion-mak­ing that last month Carter re­placed its di­rec­tor and brought the Cal­i­for­nia of­fice—lo­cated on the grounds of the Mof­fett Fed­eral Air­field in Moun­tain View—un­der his per­sonal con­trol, adding a se­cond lo­ca­tion in Boston. “We’re tak­ing a page straight from the Sil­i­con Val­ley play­book,” Carter said of the project’s re­launch.

“It took them a while to get or­ga­nized, to get fund­ing, sup­port, to get of­fice space,” says An­drew Hunter, a se­nior fel­low at the Cen­ter for Strate­gic and In­ter­na­tional Stud­ies in Wash­ing­ton. Even the of­fice’s wire­less in­ter­net con­nec­tion took time to get switched on, says Ben FitzGer­ald, a se­nior fel­low at the Cen­ter for a New American Se­cu­rity, who pre­vi­ously worked as an ex­ec­u­tive for technology com­pa­nies with de­fense con­tracts.

The Val­ley has viewed the na­tional se­cu­rity es­tab­lish­ment with sus­pi­cion since Ed­ward Snow­den’s dis­clo­sure of se­cret sur­veil­lance by the Na­tional Se­cu­rity Agency. The dis­trust has been com­pounded by the FBI’s fight with Apple and other technology com­pa­nies over en­crypted data. “Not ev­ery­one in Sil­i­con Val­ley is go­ing to want to do busi­ness with DOD,” says Hunter, a for­mer Pen­tagon ac­qui­si­tion of­fi­cial. The idea that get­ting a con­tract—for soft­ware, a de­vice of some kind, or a ser­vice—could take a year or more “just didn’t trans­late to Sil­i­con Val­ley-speak.”

While Carter’s Ph.D. in the­o­ret­i­cal physics gives him sci­en­tific cred­i­bil­ity in Sil­i­con Val­ley, he fol­lowed a long line of mil­i­tary brass whose “tech tourism” was scoffed at by lo­cals. Gen­er­als would tour “Face­book, Google, Palan­tir, and then call it a day,” with no fol­low-up on how in­ter­ested com­pa­nies could close a deal with the gov­ern­ment, says Jackie Space, a for­mer U.S. Air Force of­fi­cer who’s now a part­ner at BMNT Part­ners, a technology in­cu­ba­tor that fo­cuses on na­tional

se­cu­rity. A lot of com­pa­nies “felt that it was just a waste of time.”

Ma­jor Roger Cabi­ness, a De­fense Depart­ment spokesman, in an e-mail that since open­ing last sum­mer, the of­fice, apart from the three projects al­ready on con­tract, had “17 projects at var­i­ous lev­els of ne­go­ti­a­tion with dif­fer­ent agen­cies/en­ti­ties.”

Some vet­eran Pen­tagon con­trac­tors say DIUx moves faster than the es­tab­lished De­fense bureaucracy. Bob Good­son waited a year for the Pen­tagon to com­plete each of its first three con­tracts with the data-min­ing and vi­su­al­iza­tion com­pany he co-founded. In March, the com­pany, Quid, pitched an idea to DIUx, and by May the Air Force was us­ing its anal­y­sis soft­ware.

In re­boot­ing DIUx, Carter re­placed its first di­rec­tor with Raj Shah, a for­mer F-16 pi­lot and com­bat vet­eran who headed a technology startup, and brought in Isaac Tay­lor, who had worked at Google on re­search projects in­clud­ing Google Glass and self-driv­ing cars. Carter’s will­ing­ness to shake things up res­onated with technology en­trepreneurs, ac­cord­ing to Lin, the Stan­ford pro­fes­sor who is a for­mer staff sci­en­tist for the House Armed Ser­vices Com­mit­tee. “In Sil­i­con Val­ley, the first time you do any­thing, you ex­pect stuff to go wrong,” he says.

The unit had to scrounge for funds from the mil­i­tary ser­vices, ac­cord­ing to Sonny Sinha, a for­mer U.S. Depart­ment of Home­land Se­cu­rity of­fi­cial who’s worked with DIUx. When it was time to get moving on a con­tract, “they had a hard time try­ing to shake loose fund­ing from the ser­vices, be­cause they didn’t have their own pots,” he says.

The De­fense Depart­ment is re­quest­ing $30 mil­lion in new fund­ing for fis­cal 2017, Carter said in May, to “di­rect to­ward non­tra­di­tional com­pa­nies with emerg­ing com­mer­cially based tech­nolo­gies that meet our mil­i­tary’s needs.” But the House-passed ver­sion of the an­nual de­fense pol­icy bill would elim­i­nate that money.

The re­tooled in­no­va­tion of­fice may have only months to prove it­self, in Wash­ing­ton and in Sil­i­con Val­ley, be­fore the next pres­i­dent takes of­fice and Carter is re­placed. DIUx needs to show that it’s “worth keep­ing in that form so that they have enough in­sti­tu­tional strength to con­tinue on their own af­ter the sec­re­tary leaves,” the Cen­ter for a New American Se­cu­rity’s FitzGer­ald says.

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