Bloomberg Businessweek (Asia)

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”

- 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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