DUAL-USE VENTURES: How to Navigate your Tech Startup in … · 2019. 12. 19. · innovation.mit.edu...

innovation.mit.edu | [email protected]

DUAL-USE VENTURES:

How to Navigate your Tech Startup in Government and Commercial Markets

Tuesday, January 21, 2020 9 am to 5 pm (lunch included)

E51-372

Course Description This course is for students who want to learn useful and actionable steps to create dual-use ventures (DuV). A dual-use venture is one that has both defense and commercial (enterprise and/or consumer) customers. We’ll discuss frameworks, funding opportunities, entrepreneur roadmaps, and government resources. Topics in this course are particularly relevant to aspiring technology entrepreneurs interested in learning more about working with the Department of Defense. We divide this course into three key parts:

1. Introduction and Framework. Professor Fiona Murray 2. Entrepreneur Stories. Each pre-selected entrepreneur is invited to tell their story through

the DuV lens in 15 minutes. See list below 3. Government and Accelerator Connectors. Each guest will talk about their program, its

intended audience, and why or why not it might be right for you. See list below Immediately after the event, we invite all students and guests to join in a networking event. This course is for MIT students and community members who are interested in learning more about how to navigate both government and commercial markets.

Course Thesis Startups can be purposeful about designing their company to be ready to pursue both commercial and federal markets. This requires being informed, prepared and ready when either market opportunity becomes available.


Why is MITii hosting this course? The MITii Mission Innovation Lab is committed to examining and understanding the science of mission-driven innovation. In particular, we find that education on the topic of navigating the defense space is limited, and we want to create a clear path and systemic method for understanding what it takes to navigate this industry. For entrepreneurs, defense can be an incredible opportunity, but it must be done with the understanding that the government can be an inconsistent customer. Due to this nuance, it’s imperative to seek a commercial market fit as well. These two markets mean there is an opportunity to dip into two pools of funding: non-dilutive federal funding and dilutive VC funding. But they also mean founders will be navigating two markets instead of one. We’ll address this and many other niche defense-related topics in this Dual-use Ventures pilot course.

Time & Location This IAP course will occur on Tuesday, January 21, 2020 from 9 am to 5 pm Eastern Standard Time (EST). The course will take place in E51-372. Breakfast, lunch, and hors’ oeuvres are included. Networking, which is optional but highly encouraged, will follow from 5 pm – 7 pm with Boston-based military technology stakeholders.

Prerequisite homework (optional, but highly recommended) o Research how to establish company o Explore beta.SAM.gov o Explore how to obtain DUNS o Familiarize with the CAGE request process (takes about 4 weeks) o Review Eastern Foundry’s SBIR videos here: https://info.eastern-foundry.com/how-

to-win-sbir-grants

PARTS, MODULES, & SPEAKERS Part 1: Introduction and Framework (Fiona et al) (9 am – 12 pm)

Modules: ○ Why do dual-use ventures matter? ○ What is a dual-use venture? Why pursue a dual-use venture? ○ How do you determine whether government is a good customer for you? ○ How do you pursue government funding? ○ How do you conduct customer discovery in the government market? ○ Does being a dual-use venture limit you? ○ What is the venture capital landscape for dual-use ventures? ○ How does a company become DuV-ready?

Commented [KP1]: Add a few links


12 – 12:30 Break Part 2: Entrepreneur Stories (Working Lunch) (15-20 minutes each) (12:30 – 2 pm)

Speakers: ○ Warren Katz (confirmed) – “topic here” ○ Felipe Gomez (confirmed) – “topic here” ○ Shahriar Khushrushahi (semi-confirmed) – “topic here” ○ Fourth one

2 – 2:20 Break Part 3: Government & Accelerator Programs (15 minutes each) (2:20 – 4)

Speakers: o Jared Evans – “AFWERX SBIR and STTR Open Topic Solicitations vs other

SBIRs/STTRs (confirmed) o Debra Zides, MITRE - “Typical Government IP Philosophy & How to Negotiate in

your Favor” (not confirmed) o VC speaker o Steve Taub on In-Q-Tel (confirmed) o Mike McGinely on DIU (confirmed) o Bernadette Johnson on Lincoln Laboratory venture programs o Kyle Palko on new AF-MIT AIIA lead (semi confirmed)

Part 4: Networking Event (4 – 5 pm)


WORKING MODULE DETAILS

MODULE 1a: Why do dual-use ventures matter?

• Adapt “urgency” section from NSWC Crane paper • Readings:

o https://www.wired.com/story/opinion-industry-must-team-up-with-government-to-keep-america-on-top/

MODULE 1b: What is a dual-use venture? Why pursue a dual-use venture?

• Define “dual-use” companies. ○ In this context, “dual-use” refers to a venture that is exploring both commercial

and federal markets. ○ This is not to be conflated with companies that receive government funding to

develop science and technology, such as those ventures that get NIH or NSF funding.

• Steps to create a DuV 1. Prepare a DuV 2. Launch a DuV 3. Focus on one market 4. Keep the other market in mind 5. Go back to step 3 if you pivot

• Why pursue a dual-use venture? o Because you can. There are myths that it’s hard and that you have to choose –

we’ll show you that this isn’t true. o The USG offers non-dilutive funding which may either complement or replace

risk capital o The USG offers non-dilutive funding to conduct technical risk reduction.

However, even if a company accepts a Phase 2 SBIR contract, that company is not required to pursue additional government contracts.

• History of dual-use ventures and technologies • Dual-use began long ago –

○ Examples ■ Napoleon had prize for food preservation ■ Da Vinci invented longitude, useful in trading and warfare ■ WW1 when fertilizer became chemical warfare ■ Aircraft

○ Gov started looking at the industrial base in WW2 in a way where government set policy and procedure to propagate dual-use

■ Eisenhower quotes


■ Today – instead of military-industrial complex, we have the national security innovation base (courtesy of the 2018 National Defense Strategy)

• Over time, we learned government and primes are not the only innovators ○ DoD got interested in working with Silicon Valley more in the early 2000s with

the advent of the Information Age. We see the establishment of DIU in Silicon Valley and the DIB which hosts Eric Schmidt and other non-traditional defense advisors

MODULE 2: How do you assess if government is a good customer for you? • Dual-use technologies extend well beyond airplanes and cybersecurity. Some

common industries1 include: ○ Enterprise software ○ Analytics ○ IoT ○ Robotics ○ Biotech ○ Energy

• To assess demand for a particular technical area, do the following: ○ Access SBIR.defensebusiness.org and search through open and closed

solicitations using your technology keywords ○ When searching through open solicitations, identify those that relate to your

expertise as a company ○ If no solicitations are open, identify the next date solicitations will be posted.

(This information should be on the left side of the homepage.) ○ When searching through closed solicitations, take note of the solicitation

dates, specific agencies requesting proposals and what technical aspects are being requested

○ Network across the organizations that offer solicitations whether through LinkedIn, conferences, etc.

○ Submit proposals for solicitations that your company can solve. If none of the solicitation topics apply to your area of expertise, apply to one of the “open topic” solicitations, such as the Air Force sponsored “early stage/university team” topics.

○ Apply to appropriate accelerators or seek out defense tech matchmakers that have sponsorship from defense organizations (whether government or industry).

1 https://www.lw.com/thoughtLeadership/lw-cfius-pilot-program-makes-notifications-mandatory-for-specific-areas-of-critical-technology


○ If your area of expertise is in or related to AI, register and search in the Air Force AI Café.

○ Conduct searches and query the latest National Defense Authorization Act (NDAA) to identify any organizations that are particularly interested in your area of expertise and coinciding budgets.

○ Join relevant consortiums as traditional or non-traditional contractor. (These consortiums send out solicitations to their members exclusively. Many solicitations require that a traditional contractor subcontract a portion of their award to a non-traditional subcontractor.)

MODULE 3: How do you pursue government funding? • Funding opportunities typically come in two varieties: non-dilutive government and

dilutive venture capital funding. • DoD SBIR Phase 1 awards are contracts, not grants, and up to $150,000 for 3

months. • DoD SBIR Phase 2 awards are contracts, not grants, and up to $1.5M for 24

months. SBIR Phase 2 requires applicants to have already won a SBIR Phase 1 award on the research/development that they intend to pursue in with the SBIR Phase 2 award.

• DoD SBIR Direct to Phase 2 awards allow companies that have not already pursued and won a Phase 1 award on the research/development at hand to pursue a Phase 2 award.

• The same technical mechanism (subject of the SBIR proposal that the applicant submits) cannot

• DoD pays for research and development for early technologies. (See chart below.)

Idea Tech MVP Prototype Product Scale Exit

Pre-seed Seed A B C D+

Phase 1: Feasibility Study

Phase 2: Research, Development and Technical Commercialization Planning

Phase 3: Non-SBIR funding via a Program of Record, Sole Source, OTA, etc.


MODULE 4: How do you conduct customer discovery in the government market?

• Due to the size and complexity of DoD, it’s important for dual-use entrepreneurs to understand various stakeholders.

○ Program offices (which manage cost, schedule, performance) ○ Research and development offices ○ End-users (who have no money to sponsor projects) ○ Requirements writers (who often sit far from program offices and research

and development offices) ○ Contracting Officers (KOs) and Contracting Officer Representatives (CORs) ○ DCMA, DCAA and other third party (albeit government) inspectors/auditors ○ Matchmakers (DIU, NSIN, AFWERX, NavalX, challenges, government-

sponsored accelerators, etc.) • Unique tools for entrepreneurs to search potential DoD buyers (program offices,

laboratories, etc.) do not exist. Customer discovery must be done utilizing someone with insider knowledge of the defense acquisition landscape or through rigorous networking. Linkedin, while not unique to DoD, can be a very useful tool for this process. However, some government scientists and engineers do not participate in social media depending on the culture of their work environment and sensitivity of their work.

• Defense laboratories and program offices are spread throughout the United States. Each military service has their own program office for similar technology. And program offices focus on certain types of equipment and end-users as opposed to specific technical areas. For example, instead of a program office for artificial intelligence (AI), AI engineering services and software products are likely purchased by many program offices such as PM Vertical Lift (when associated with helicopters), PEO C3T (when associated with telecommunications), NSRDEC (when associated with aerial delivery) and so many more. These organizations are unlikely to have familiarity with peer projects. This can make customer discovery challenging for technology startups.

MODULE 5: Does being a DuV limit you?

• Common IP strategies when working with government • Before going in for a non-SBIR opportunity, understand the government contract

spectrum. ○ The government uses a variety of contract types that are predefined and

include very specific tradeoffs in risk. Each contract type is suitable for certain kinds of contracts. For example, a Firm Fixed Price contract is best suited for commercial-off-the-shelf products that have been in production for an extended period of time, whereas a Cost-Reimbursed contract is best


suited for work with high technical risk and evolving requirements. (See below.)

• CFIUS and limitations in foreign investment • ITAR and what you need to know about selling to foreign governments • Demand for foreign-owned startups: What does the government opportunity

landscape look like if your company is not 51% US owned? ○ SBIRs and STTRs awardees must be companies that are at least 51% US

owned ○ Options include but are not limited to: ○ Start a US-based company – full wall – Israeli company example? ○ Subcontracting to a larger company such as a major defense prime

contractor ○ Foreign Comparison Testing (FCT) ○ Inspirilia-type companies ○ Unshackled Ventures - ?

MODULE 6: Why and how does the risk capital sector factor into DuV? • The pool of Venture Capital firms willing to work with dual-use companies is

growing. (See Appendix) • Certain government organizations (AFWERX, NavalX) offer more funding (via

aggregated SBIR dollars) if a VC is also investing in a startup.


MODULE 7: How does a company become DuV-ready? • To submit a proposal to a SBIR/STTR solicitation, a company must have already

completed the following. The time it takes to complete all tasks takes about six weeks and therefore exceeds the time from when a SBIR/STTR topic is posted and when it closes.

■ Be a legal entity ■ Register at SAMS.gov ■ Obtain a DUNS ■ Request a CAGE (takes about 4 weeks).

• While all DoD SBIR and STTR opportunities are listed on one website (sam.gov), and while end-users can query the massive listing of solicitations, the search process remains formidable. Sam.gov does not provide a listing of all approaching solicitation announcements, and, instead, end-users must check the website every week or so to determine whether an agency has posted its solicitations. These solicitations are released on a scheduled basis at least 12 months in advance, so this release schedule should be more transparent.

• Assess demand and identify several possible defense customers. Determine those customers preferred method of soliciting technical work.

○ Some entire program offices heavily rely on consortiums which can stipulate a requirement that each contract include a certain percentage of revenue to go to “non-traditional” contractors. If that’s the case for one of your key potential customers, register with the affiliated consortium.

• Matchmakers and accelerators exist that specialize in connecting startups with funded defense projects. These include but are not limited to: Mass Challenge, Techstars, AFWERX, NavalX Tech Bridge, NSIN, Activate.org, I-Corps, MITii MIL, etc.

• Trough of Disillusionment ■ Compare “Valley of Death” (trough of disillusionment?) in commercial

companies with that in federal contracting companies. Layer opportunities to minimize impact.

● In Com - period between creating a prototype to producing at scale

● In Gov - period between Phase 2 and “Phase 3” contracts • Prepare to generate revenue when waiting on slow government contracting cycles.

■ Plan on multiple revenue streams that will ebb and flow depending on government buying cycles <provide examples from companies>

● Submit more proposals!!!!! ● Find new customers ● Create something new in house ● License IP from defense lab or tech transfer office (fedtech.io,

techlinkcenter.org, etc) ● Provide engineering services


● Others


Appendices A. List of Resources to post of IAP course website B. List of Dual-use Ventures in the Area to be considered for case study and/or speaking

at course C. List of VCs in buckets: won’t invest in dual-use ventures, will invest in dual-use

ventures, and might invest in dual-use ventures (if the financial projects meet the needs of the VC)


Appendix A: Resources <to be better organized> • Techstars – Air Force program, MassChallenge, NSIN, DIU, AFWERX, MIT-AF AI

Accelerator, activate.org, BAE Fast Labs • SBIRs and STTRs • Join relevant consortiums as traditional or non-traditional contractor. (These consortiums

send out solicitations to their members exclusively. Many solicitations require that a traditional contractor subcontract a portion of their award to a non-traditional subcontractor.)

• Subcontractor to large prime • DIU • BAE FastLabs • Air Force pitch events • SOFWERX pitch events • AFexplore white paper submissions for opportunity to contract for up to $1.5M to advance

technology of topic ■ Other OTAs like the COBRA OTA at PEO EIS. Check “business

opportunities” on organization websites ■ Find Broad Agency Announcements at SAM.gov

• In-Q-Tel Accelerators of note • https://alchemistaccelerator.com/ • https://www.boost.vc/ • https://bunkerlabs.org/ - non-profit incubator • https://www.mach37.com/ • https://masschallenge.org/ - safety & security track • http://starburst.aero/ • https://www.techstars.com/programs/air-force-program/

others • https://www.1776.vc/ • https://www.eastern-foundry.com/ • https://www.lmi.org/ventures • https://www.linkedin.com/company/the-ridgeline/about/ • https://ridgelinepartners.com/ • https://secondfront.com/


Appendix B: Master List of Entrepreneurs and Dual-use Ventures

• ARMR Systems - Boston, MA – Chibueze “Chibs” Ihenacho • Cleo Robotics – Boston, MA – Omar Eleryan, CEO • CounterTack – Waltham, MA – Neil Creighton, CEO • CyPhy Works – Danvers, MA – Helen Greiner, CEO • DocBox – Newton, MA – Tracy Rausch, CEO • Conjur – Waltham, MA – Elizabeth Lawler, CEO • Cybric – Boston, MA – Ernesto DiGiambattista • Evolv Technology – Waltham, MA – Michael Ellenbogen, CEO • FCG Plasma – Cambridge, MA – Felipe Gomez • Neurala – Boston, MA – Massimiliano “Max” Versace, CEO • Onapsis – Boston, MA – Mariano Nunez, CEO • Resilience – Boston, MA – Jeff Sabados, CEO • Reversing Labs – Cambridge, MA – Mario Vuksan, CEO • SimSpace – Boston, MA – Lee Rosey, CTO • smileML – Boston, MA – Shannon Anderson, COO • Soft Robotics – Cambridge, MA – Carl Vause, CEO • Sqrrl – Cambridge, MA – Ely Kahn, Co-founder / VP Biz Dev


Appendix C: Master List of VCs divided into 3 Buckets: DoD-friendly, DoD-opportunistic, non-DoD-friendly <to be better organized>

VC’s w/ nat’l security focus (or tilt) http://www.alliedminds.com/about-us-2/ https://bluventureinvestors.com/about/ http://govtechfund.com/company/govtech-fund/ https://harpoon.vc/about-us/ https://www.iqt.org/ non-profit for IC https://lavrockvc.com/portfolio/ http://www.lightspeedic.com/ https://www.moonshotscapital.com/ https://www.paladincapgroup.com/ https://www.razorsvc.com/ http://sinewave.vc/ https://tfxcap.com/ https://www.trackercap.com/#process Not focused on DoD, but unafraid of it https://8vc.com/companies/ https://a16z.com/ https://www.bvp.com/ https://www.cit.org/service-lines/cit-gap-funds/


https://www.dcvc.com/ https://foundersfund.com/ https://www.engine.xyz/ https://www.greylock.com/ https://www.insightpartners.com/ https://www.mithril.com/ --SEAL and naval aviator on team; firm relocated from SF to Austin, backed by Peter Theil (obvious Palantir link to DoD and now Anduril) https://www.scoutventures.com/ https://www.tdfventures.com/ https://www.usv.com/companies/ - note clarifai, dronebase, goTenna many more… look at investors in companies that also received funding from IQT, DIU, AFWERX, SOFWERX…. A&D CVC https://www.lockheedmartin.com/en-us/who-we-are/lockheed-martin-ventures.html https://airbusventures.vc/ http://www.boeing.com/company/key-orgs/horizon-x/ https://www.baesystems.com/en-us/productfamily/fast-labs--advanced-technology-and-defense-r-d

DUAL-USE VENTURES: How to Navigate your Tech Startup in … · 2019. 12. 19. · innovation.mit.edu...

Documents

Transcript of DUAL-USE VENTURES: How to Navigate your Tech Startup in … · 2019. 12. 19. · innovation.mit.edu...