Meeting

Series on Emerging Technology, U.S. Foreign Policy, and World Order: Frontline Innovations—Defense Solutions for National Security Challenges

Tuesday, April 9, 2024
Wolfgang Rattay/Reuters
Speakers

Director, Defense Innovation Unit; Senior Advisor to the Secretary of Defense, U.S. Department of Defense; CFR Member

Chief Executive Officer, In-Q-Tel (IQT)

Presider

Principal, WestExec Advisors; former Assistant Director for Research and Technology Security, White House Office of Science and Technology Policy; CFR Member

Series on Emerging Technology, U.S. Foreign Policy, and World Order and Series on Emerging Technology, U.S. Foreign Policy, and World Order

Panelists discuss new and emerging commercial defense technology, current opportunities and challenges in defense innovation, and the future landscape of national security.

LOURIE: Great. Hi. Good afternoon to everybody in Washington and around the country. I think we have a pretty good audience that are dialing in. So welcome to today’s Council on Foreign Relations meeting, “Frontline Innovations: Defense Solutions for National Security Challenges,” with Doug Beck and Steve Bowsher. I am Linda Lourie, principal at WestExec Advisors and, full—and, full disclosure, among other things, the former general counsel at DIU, which is how I know the gentlemen. And I’ll be presiding over today’s discussion. Thank you. Nobody went to jail under my watch, so I think it was fully successful. (Laughter.) 

So today’s meeting is part of CFR’s Series of Emerging Technology, U.S. Foreign Policy, and World Order. And, Doug, we’ll introduce you as the director of the Defense Innovation Unit and senior advisor to the secretary of defense; formerly Apple, reporting directly to Tim; twenty-six years in the Navy, Iraq and Afghanistan veteran; and now he finds himself reporting directly to Secretary Austin. Steve has an equally illustrious bio, as well as being the CEO of In-Q-Tel. (Laughs.) 

BOWSHER: Thank you. 

LOURIE: So welcome. 

So, first, I want to thank you both for coming here today. This is going to be fun, I hope. I’ve known you both for many years, and I’m big fan of what you both have done and are doing in this space up to now, and I’m looking forward to this conversation. 

I hope our session has been planned for the—scheduled for the rest of the afternoon because I think we all have enough questions to fill a few hours. But not to worry, I know there’s CFR—strict CFR rules about all of this. 

So I did want to congratulate you both. You are each in relatively new positions in your organizations, for which you have served for many years. Doug, you were a part-time Navy captain serving your reserve duty, focusing on the reserve unit in the earliest days when I was GC, and now you’re director of DIU. And, Steve, you were managing general partner of In-Q-Tel, and now you’re the CEO. 

BOWSHER: Yeah. I was, in effect, number two, running our investing activities out in Menlo Park, and a year ago the board saw fit to kick me upstairs. So now I’m the CEO. (Laughter.) 

LOURIE: I’d love if you could each talk about this transition for each of you—Doug, it’s been almost a year; Steve, it’s been a few months—and see how you see your new role in the organizations and where the organizations are going. 

BOWSHER: Sure. So, you know, I came to In-Q-Tel in November of 2006 with Chris Darby. Chris was the CEO. Chris and I had worked together before, and he led the D.C. office here at In-Q-Tel and managed our relationships with the government agencies that we work with. And I was the managing partner which led the investing activities out in Menlo Park, California, managing our relationships with the venture capitalists and the entrepreneurs that we work with. And we ran In-Q-Tel together for sixteen years in a very close partnership. And you know, I think it’s hard for me to imagine ever being as close to someone professionally as I was—am to Chris. But he decided to step down a year ago, and as I said, the board decided to kick me upstairs and put me in charge. 

I don’t think it’s really that dramatically different a strategy for us, you know, because one of the things that I think we value at In-Q-Tel is our longevity. We’ve been around for twenty-five years. We’ve built relationships, trusted relationships, with the venture capitalists and startup community—(inaudible)—in part because we have the same people, you know, working with them for years. 

That being said, you know, I think with any change there’s some new roles and responsibilities for me. I’m spending a lot more time here in D.C., which is great. 

BECK: I know how that feels. (Laughter.) 

BOWSHER: You know, and I’m spending a lot more time with different members of our government partners. Again, that was something that Chris took on before and I’m doing now. So it’s a little bit less investing, which, quite frankly, was always one of the fun aspects of the job, is working with entrepreneurs in those teams. But I’m spending a little bit more time with CIA, with NSA, with NGA, DIA, you know, a lot of our great partners, helping them understand—or, helping us understand what their mission use cases are, what their technical challenges are they’re facing, and helping them understand the emerging tech that we’re seeing out there that could help them achieve their mission more effectively and efficiently. 

LOURIE: That’s great. 

Doug? 

BECK: So, first of all, it’s great to see everyone. And I just want to say thanks to everybody. Thanks to the Council for having us here. I’m a proud, I think, about seventeen-year, now, member. And actually, I was just thinking when you said that, Steve, November 2006 I was in Ramadi, and I remember coming home and learning about In-Q-Tel and being super excited about it. 

So, really, you know, as, Linda, you talked about it, I kind of come at this from three—with sort of three lenses. You know, I’ve been in the department almost a year, was at Apple working for Tim for thirteen years, nearly twenty-seven years in the Navy, most of my career in INDOPACOM, and really kind of bring all those different lenses together. And the way that I think about it is, as you said, I kind of had the privilege of being there for—as part of the merry cabal that was part of standing DIU, then -x, up, first as a civilian advisor to Secretary Carter and to Vice Chairman Winnefeld, Admiral Winnefeld, at the time; and then as a—as a reservist with my kind of reserve hat on. And really, if you go back to that time—and this kind of gets a little bit to kind of where we’ve been and where we’re headed—you know, Ash Carter, when he was secretary of defense, was truly prescient in understanding—in a way that people like Chris and Steve already understood, but in understanding that we must leverage the unbelievable power of our commercial tech sector in order to meet the strategic imperative facing the nation. And he was already thinking ahead to the challenge represented by the People’s Republic of China as well as the other challenges we face around the world. And he saw that the pace of change in technology was just going so fast and there was so much power in that commercial sector, when we look at it from the department, in eleven of the fourteen areas that we track as a department for tech—areas like artificial intelligence, autonomy, space, biotechnology, energy—those areas are going faster and, frankly, are probably always going to go faster in meeting the relentless needs of billions of consumers and the enterprises that serve them around the world than they’re really ever going to do for our bespoke defense-only needs. 

And so, you know, our job at DIU is to—is to find a way to harness that for our needs. Now, at the beginning—at the beginning, Secretary Carter, when we stood up DIUx—you’ll remember this—at the start, it was really about building a bridge kind of at all. That was DIU 1.0, right? Can we build a bridge at all for the department— 

LOURIE: The Valley didn’t trust DOD. DOD didn’t trust the Valley. 

BECK: The metric back then—and you’ll remember this— 

LOURIE: Yeah. 

BECK: —was, OK, we’d have meetings, and would anybody even go from either side? And if they did, did they see any value from being there, except for it being sort of vaguely interesting? And the answer too often was, no, they didn’t see any value in being there, or it was sort of a reason for a trip to the West Coast, or whatever. And so that was—you know, DIU 1.0 is about building that bridge. We’re, obviously, light years past that now. 

DIU 2.0, which is the period that’s been most of DIU’s history—after the first couple years, you know, then the—most of the time since then—and where really Raj and Mike—and Mike, who I know is here somewhere—were leading the team—Mike Madsen there. That was really about proving that you could take a real military problem and commercial or commercially-derived technologies—not necessarily straight off the shelf, but commercially-derived technology—bring those things together, use authorities that we already had on the books—thanks, lawyer—in order to quickly come up with a prototype, and get that in the hands of the warfighter, and do it in weeks or months, not years and years. And that was what we had to prove. Now— 

LOURIE: Not having a complicated contracting authority like DFARS. I mean, the— 

BECK: Right. 

LOURIE: OTA has made a huge difference on this. 

BECK: Exactly. Those are the authorities that were already on the books, right? 

LOURIE: Yeah. 

BECK: OTA has existed for a long time; we just had never figured out how to use it, right, until the team did. And so that was—that was a huge step, creating what’s now called the commercial solutions opening process, which is kind of the core of DIU’s kind of, you know, main process for doing this. And DIU has now done that a zillion times. Maybe not a zillion, but, depending on how you count it, between sixty and a hundred real, meaningful times where things have actually transitioned to the warfighter. And others around the department have done a ton of that as well as we’ve spawned all these other entities around the department to do much the same thing. 

And that is awesome, but it is not even close to good enough, because what we have to do now is take that capability and apply it for strategic effect. That means we have to focus it on not just the place where there’s great tech that could make a difference; we have to focus it on those most critical operational imperatives that we have to solve in order to deter major conflict or win if we are forced to fight—deter major conflict or win if forced to fight, focus on those problems. And then we have to do the real work of working with the rest of the department, particularly the services, the other engines of scale of the department, in order to scale those things to the point that they can actually achieve that strategic effect. 

And doing that is a completely different game, and that’s why the secretary decided to elevate DIU to be a direct report. That’s why, you know, I messed up my perfectly good life to come join the team. And that’s also why—you know, that’s also why Congress has recognized that. And we really do have a tipping point now, and beyond a tipping point really—I guess we were at a tipping point maybe almost a year ago. We now have this momentum. Now is the time we’ve got to deliver on that. And this is about all of us in this ecosystem working together to deliver on that, because the imperative is clear and the time is not getting longer. We have a—we have a(n) administration and an interagency that gets it. We have a secretary who gets it. We have a deputy who gets it. We have a commercial tech sector that increasingly gets it—and, hopefully, we’ll talk a little bit more about that later. And we also have a Congress that gets it, right? And they—you know, they recognized that with codifying DIU’s elevation in December and most recently with the budget. And so now it’s on all of us together to deliver. 

LOURIE: So in addition to the people who get it, allies and partners now get it. And I know—I know, Steve, you just opened an office in Singapore, and you have offices in Germany, and the U.K., and Australia, and not sure where else. And, Doug, you’re working with all the different organizations, AUKUS and Quad and India. Could you talk—could you each talk a little bit about how you’re working with allies and partner in this next phase? 

BOWSHER: Sure. So the U.S. has never faced more serious threat metrics in modern times than I think we do today. And when you look at our peer adversaries or near-peer adversaries like China and Russia, they’re using commercial tech as a strategic lever in that nation-state competition. And the U.S. was a little slow to figure that out, right, and Huawei sort of got away from us in terms of the way they claimed leadership around the world in the 5G space when it wasn’t just an economic thing but it was actually a geopolitical strategy by China. And so the U.S. now, I think, realizes that in order to combat and compete with those countries it can’t just be a U.S.-only solution, but we have to work very closely with our allies. 

You know, at In-Q-Tel, we traditionally operated here just in the United States. But several years ago, in conjunction with support from CIA, we created a program called In-Q-Tel International, which is a fund that invests in companies outside the United States. That gets funded by the U.S. government, the U.K. government, and the Australian government. And we opened up offices in London and Sydney at the same time. And it’s really in some ways the manifestation, if you will, of AUKUS Pillar 2, for those of you who are tracking that. And we worked closely with the intelligence communities and the defense communities in both those countries. 

But we realized that in order to really be aware of all of the innovation occurring in the world, and also understanding what China and Russia and some of these other countries were up to, we had to expand our footprint beyond that. And so we’ve opened up an additional office in Germany—or, an additional office in Europe in Germany and we opened up an additional office in Asia in Singapore. And so we now have those four offices from an international perspective, and we invest in companies not in China or Russia, obviously, but in—we have great companies out of Australia, New Zealand, the U.K., Scandinavia, places like that delivering impactful technologies to both our partners here in the U.S., but also partners in the U.K. and Australia as well. 

LOURIE: And can I ask if you are—the technologies you’re finding elsewhere, are they being brought to the U.S. or are they staying in their countries of origin? 

BOWSHER: I think each U.S. government agency will make its own decision about the risk profile of accepting and ingesting technology from companies outside the U.S. But when we invest in, say, a rocket-launch company, Rocket Lab, out of New Zealand, that makes a lot of sense; when we invest in a drone operating system company called Auterion in Switzerland. You know, those are situations where the U.S. government is absolutely paying attention to those technologies, as well as those in the U.K. and Australia as well. 

LOURIE: Great. 

Doug? Talk about international— 

BECK: Yeah. So—yeah, so this is a huge area of focus for us. And you know, Steve is talking—kind of introduced the topic by talking a little about the way in which some of our adversaries have been quick to leverage commercial tech, and that we and our partners need to get after that. And I a hundred percent agree with that. And I’d also add that—and this is something I don’t have tell an audience at the Council, but one of the greatest strengths that we and our partners across the international system have is each other. That is one of the most powerful, unique secret sauces, is we have friends and our friends are incredibly capable. And our adversaries barely even have each other, right? And that’s a massive strength. And it’s—you know, if you think about the, you know, technology that goes into something like this, which I used to spend my time thinking about, what’s inside that technology is made up of pieces from all of our friends and allies all over the place, right? And there’s incredible technology that’s happening in all those—in all those countries. And our partners also face, as Steve was saying, the same challenge that we do of figuring out how do they debug their own system to be able to take advantage of that. 

And so in our—in our strategy at DIU in 3.0, one of the major lines of effort is this international allies and partners piece. Delivering on that, it’s really about partnering deeply with those partners who already have a, you know, innovation entity; it’s helping those who don’t yet to stand one up or helping them think about how they can take it to the next level; and it’s knitting those things together and working with them in order to deliver real value. Now, sometimes that real value comes in—provides all kinds of opportunity for us to identify technology where we may have something greater. They may have something great that makes sense for us to leverage together, and I’ll maybe come back to that a little bit in a sec. It’s also about creating optionality for use with third parties—third-party countries—because there are times when it might be challenging for us to share something directly with another country, but we can introduce them to another one of our friends where there’s something awesome from there. It creates markets both ways, right—opportunities for the companies from here to go and play in other markets, and vice versa. And it is also a deterrent in and of itself, because our adversaries hate we are doing this. 

And so, for example, we are working super close with the Indians. And this is something that, you know, has happened quite quickly, although there has been a lot of talk about it for a while. We just last summer—actually, my first international engagement after coming into the role was with our—at the NSX event here in D.C. with our iDEX partners. They’re sort of like the DIU-like entity in India. Very quickly, with them came up with a series of initiatives, including some education initiatives but also, importantly, a joint challenge where we say: OK, where is it that we and you have great tech in both countries on an operational-critical problem that we both care about a lot? The first one we did—it was two. It was undersea domain awareness and maritime ISR. And—or, undersea comms, sorry, and maritime ISR. And— 

LOURIE: You want to explain ISR? Not everyone is from an intelligence— 

BECK: It’s— 

BOWSHER: Intelligence, surveillance, reconnaissance. 

LOURIE: Thank you. (Laughter.) 

BECK: Intelligence, surveillance, and reconnaissance. 

LOURIE: Trying to—trying to de-DOD, take away some of the acronyms for a broader audience. 

BECK: Yeah. So it’s, you know, being able to figure out what’s there, the technology to help do that. 

So—and we came up with that concept with them. We launched a joint challenge. Now, the joint challenge, each of us leveraging our own legal structures and processes but working together and cross-pollinating the judging to come up with real opportunities so that we can cross-pollinate opportunity for companies in both countries and get after this critical problem together. Already did that—went through it, announced the winners in February—and are now onto the second set of those in space, where there’s a lot of common work. 

We’re also working closely—you mentioned AUKUS, so, actually, using that same model with our partners in the U.K. and Australia. Actually, Secretary Austin hosted the defense ministerial for AUKUS and DIU in Mountain View in December, and we’re now—we just launched in February—actually, no, we launched it in March—our first concrete trilateral challenge with the Brits and the Australians. This one’s getting after electronic warfare; again, something where we all have tech to bring and we share that critical need. 

And we’re working really closely with the Japanese, the Singaporeans, the Koreans, our NATO partners. Again, we have friends, and our friends are incredibly powerful and capable. And we need to work together. 

LOURIE: And speaking of friends, Ukraine’s in the middle of a—of a hot war right now, but—and tech has been particularly in their—in their—in this kinetic activity, with this war. What have been the lessons learned that you’ve seen? I know you’re in touch with the Ukrainians. And what kinds of technology are you sending there, if you can say, and what have you learned from their indigenous technology? 

BECK: OK. I’ll jump in on this one first, and please—please, Steve. 

So, first of all, I mean, we’re working very, very closely with our allies and partners in supporting Ukraine. So the Security Assistance Group-Ukraine, the science and technology lead for that is actually a DIU embed. And we work super, super closely with that whole team. 

And I’d say there are three big yeses, a huge challenge, and a not yet. So the three big yeses, first is all over the place in Ukraine you can see the value of commercial tech or commercially-derived tech happening on the battlefield, whether it’s—whether it’s space-based, or the analytics, the artificial intelligence to leverage them, or crowdsourcing, you know, targeting data from not just individual soldiers but individuals citizens, to communications networks to drive into place across different technologies and different domains and slide back and forth in order to manage situations where the cellular infrastructure may either have been destroyed, or is owned by the adversary, or the enemy, to obviously unmanned systems, which we’re seeing all over the place and the incredible evolution of those things. So number one, nobody’s questioning anymore whether there’s important value there. It’s pretty obvious.  

Second big yes is that sharing, that I referred to before with partners, where often it’s actually easier for us to introduce commercial tech direct to our partners, and then they can go access it themselves. It’s a lot easier than something that might be a program of record for the U.S. military, where it may be a lot more challenging to figure out how would we transfer that to a partner, particularly in a hot war.  

Third one is talent. So I mentioned that embed. Often the solution isn’t just about the kit; it’s about the team to help figure something out with kit that may already be there. So those are the big yeses.  

Huge challenges as well. So for example, I mentioned unmanned systems. The pace of change of the electronic warfare atmosphere in which those technologies are having to operate where, you know, it really brings home our normal pattern of saying, hey, we’re going to create a weapon or a system, and then you’ve got three or four or five or ten years before you update it, well, that’s not going to work. When the EW is changing on it three months, three weeks, three days pattern, that just changes things pretty dramatically. That’s a big challenge, as well as the broader counter UAS challenge is a huge focus for us in the department.  

And then last I’ll say there’s also a big not yet. And the big not yet is that even with all that power from tech in Ukraine, we’re not yet at a place where we’re seeing scale adoption of the kind that we need in order to deter our adversaries, whether that’s Russia or whether it’s People’s Republic of China. And we’re also not yet at a place that we’re delivering the kind of scale that those companies need in order to have the ROI work, right? We need the scale for strategic effect. They need the scale for the ROI. And so far, some of those companies delivering that amazing tech I mentioned have had to let people go during that same period, and we’ve got to fix that. BOWSHER: Yeah, so I’d just add we’re particularly proud of having over thirty portfolio companies’ technologies being used in Ukraine right now in support of the mission over there—so that’s fantastic—in a lot of the same areas that Doug just talked about. 

I would point out that, you know, if you look back at the beginning of the conflict, when the U.S. government was for the first time sharing publicly intelligence about Russian troop movements, and people were noticing, well, that was a change in behavior by the U.S. It was enabled by the fact that this information was coming from commercial platforms, space asset platforms, which allowed the U.S. government to share with allies and share publicly information that it traditionally wouldn’t have, because if that information came from classified collection mechanisms, there was a lot of concern about talking about those sorts of things.  

So it’s been—the use of commercial technology in Ukraine, use of commercial technology in Gaza, and the potential contemplated use of commercial technology in a conflict in South and East China Sea I think has been the accelerant to this whole space. You know, we talked a little before about this idea that for a long time the conversation was should Silicon Valley and government work together. Well, we’re past that. The answer is yes. Everyone understands that on both sides.  

And you see entrepreneurs now starting companies in this space at a scale they’ve never done before. You’ve seen venture capitalists investing into, quote/unquote, “defense tech” in a way they never have before. And you see efforts like ourselves and DIU and AFWERX and Office of Strategic Capital, you know; and you see industrial policy coming from Congress in the form of the CHIPS ACT and the IRA, and other things like that; and—at a scale you’ve never seen before. So the question is now, how do we work together more effectively, more efficiently, more faster, and not whether we should be working together. All the sides are agreed on a lot of the question. We just got to do it more, better, faster. 

LOURIE: Well, that’s great.  

That leads to my next question, that for many people, In-Q-Tel is a bit of a black box. People think it’s government. It’s not. It’s a 501(c)(3). People think this is IC. Much broad—you’ve broadened your customer base beyond the intelligence community. How—can you talk a little bit about how you see the technology, commercial technologies, startup technology being absorbed by your customers? Is it different? We complain a lot about DOD absorption, how difficult it is to get technology, commercial tech as a program of record. Are you seeing this is similarly—and the technologies you’re working together absorbed faster, more easily?  

Yeah. You know, so first of all, we are, we like to think, great partners with each other. In-Q-Tel and DIU are very close and work very closely together. The way we think about it is, you know, so we’re the early stage of folks; we’re engaging with two people and, you know, a set of PowerPoint slides. You know, they’re sort of six months, a year, two years away from shipping product. We’re helping them think through how should you think about the federal government market, intelligence/defense, you know, both; what features do you need to build an—(inaudible)—service that will market correctly. You know, and ultimately our sweet spot, we believe, is helping companies get their first government customer. We did that for Palantir and Anduril, two sort of Defense-only or Defense companies. But we also do it for great commercial companies, like Databricks, and FireEye, and Cloudera and Gitlab, you know, that are trying to build technology for commercial markets, but it’s also applicable to the government market as well.  

At some point, those technologies, as Doug was mentioning, need to be scaled across wide parts of the defense and intelligence community. And when you get to scale, you start to really get into DOD. And DIU is in some ways our scale partner, right? And we’ve had multiple companies—I think over twenty-five or so—that have, you know, sort of, you know, engaged with us, and then, you know, scaled with DIU across DOD.  

Last thing I would say is, you can’t really talk about DOD as a generic place, right? It’s very different. There are pockets of DOD, but more often, I would say, pockets in the IC that are what I would characterize as early adopters of new technology. They’re the people that we work with, because they’re interested in engaging with technology before its mature, influencing its product direction with a feature request and don’t complain when, you know, if it’s shipped to them, it doesn’t work perfectly the first time they use it, right? Then, you know, most of DOD and certainly part—a lot a large part of the IC are what we would call late majority customers. They want to buy something today, scale it tomorrow, have it work, and they don’t care at all what the technology does or what the architecture is underlying it all, right? You know, I’m referring to some people out there, people that study the technology industry for a long time; Geoffrey Moore wrote this book, “Crossing the Chasm,” where he talked about that it there. 

So, you know, I think we work really hard to identify those early adopters of new technology who want to get engaged with that company before it’s built a product, influence its product direction, and don’t mind testing something that may or may not work. And then, you know, we turn that over to be scaled to DIU. 

BECK: Yeah. So it’s—(coughs)—excuse me. So couple a couple things just to kind of reinforce— 

LOURIE: And can you just talk a little bit while you’re—about investing in hardware versus software that you’re seeing coming out of In-Q-Tel or— 

BECK: Sure. 

BOWSHER: Well, I’ll just say real quickly, we’re fifty/fifty software and hardware. People don’t realize that, but 50 percent of our dollars go into hardware deals. We’re in microelectronics. We’re in commercial space platforms. We’re in drones, batteries, material sciences. There’s a lot of stuff going on there.  

And I would say really for the first time—I’ve been in the venture business for twenty-five years—really for the first time the U.S. venture capital industry is investing in deep tech at a scale that it’s never done before. You know, and kudos to SpaceX as one of their early companies who are, you know, paving the way there. The number of teams we see right now in Southern California, they’re spinning out SpaceX and building a product or a company that is applicable to the community that we all serve here, that is fantastic, right? And that’s just a really interesting opportunity for all of us. 

BECK: Now, I would say maybe just to build on maybe a couple points. First of all, there are—the way we think about it a bit at DIU is whereas inky In-Q-Tel is actually injecting capital into these places early in order to ensure, as Steve said, that it’s economic for them to take—to create product that heads down, you know, a national security lens—right?—which, you know, otherwise wouldn’t necessarily happen, right? At DIU, our role is about looking for the places where commercially, commercial tech, or commercially-derived-tech—now that may be from a company that’s already got something that they’re doing that’s awesome that is shaped around the commercial landscape, or it may be a company that’s leveraging technology that started off down a commercial universe and now they are the ones who are thinking about taking it into more of a national security landscape, or it may be a combination of those things. But typically, it’s a little bit—a little bit more a mature technology and it’s not two people, you know, in a PowerPoint slide.  

I’d also say it is important to note that, you know, we work with everybody, right? So about eighty—it depends on the—you know, on the time. It’s anywhere around, you know—the vast majority—it depends on the year—but of our companies are small and medium businesses and—but we also work with—we’ll work with primes, the innovative parts of them. And we also, importantly, help those folks to work together. About a third of DIU’s—the companies that we work with, it’s the first time they’ve ever worked with the department when we work them. But again, we work with kind of—we work with kind of all those folks.  

And from our perspective, whether it’s hardware or software, what we’re—what we’re focused on is where is there—that technology that can make a meaningful difference to the department. How can we then help them not just transition but have a pathway to scale? And that really is the big difference in a way between DIU 2.0 and where we’ve got to go with 3.0. We’ve always had the bar at DIU of there’s a transition partner in the department. I spent a lot of my life in the Special Operations community. Very frequently, there would be a special operation. We all spent a lot of time in the intel part of the of the department. You know, nine of the eighteen agencies in the IC are part of the DOD. We work a lot with them. We’ve got to be not just going with the early adopters, but the early adopters with a pathway to scale, right? Both. 

LOURIE: Yeah. Well, I think is a good point to open it up, invite members to join our conversation with their questions. Reminder this meeting is on the record.  

And we’ll start with a question from here in Washington. Secretary Zakheim. 

Q: Hi, Dov Zakheim. 

And, guys, I’m wearing my hat as a member—as a commissioner on the Biotechnology Commission. So that’s what I want to ask both of you about.  

Especially you, Doug. You’ve got nearly a billion bucks now, which even in the department’s budget is not entirely trivial. (Laughter.) How much does biotech figure in what you’re doing right now?  

And the same to you, Steve, because so many—we’ve been around, we’ve been in Europe, we’ve been in East Asia, just came back from there, Singapore and Japan. And of course, we’ve been around the country. One of the fundamental questions is, how do you get to scale?  

And another question is, is there enough interest for small companies to really get going? So if both of you could address that issue, I’d really appreciate it.  

BECK: Yeah. So I’m not going to address the specific budget—the specific budget part of that. Although I will recognize that the—that that increase in budget, which is a dramatic increase for DIU, is still a relatively small part of the overall department’s budget, but it’s also a reflection of Congress’s commitment and support of what we’re all trying to do together. That’s us at DIU. That’s all of us. That’s the rest of the defense innovation community within the department as well.  

So on your specific question, we have a whole—a whole portfolio at DIU that focuses explicitly on the human systems aspect—though that’s everything from biotech, whether it’s bio defense or bio sensing, all the way through to helping the Defense Health Agency with how they can take better care of our people.  

And in a former life, when I was at Apple, one of the things that was my portfolio, you know, our health business in our portfolio at Apple, I’m an enormous believer that there is a huge opportunity in this space. And I guess I would answer the question by saying, first, we’re actually doing a lot. And second, we’re not doing nearly enough yet. 

BOWSHER: So, several years ago, we started talking to our government partners about the topic of bio. We brought it up. And we said it’s not on our annual problem set that we get from—every government agency that works with us gives us annual problem set. It’s not on the annual problem set, and we think it’s important, why isn’t it? And they basically said, you’re right, it is important, but it’s not our job, you know? And no one sort of said it was their job.  

And so we decided, well, we don’t care. We think it’s important. So we created a practice. We have five practices right now that we—that sort of organize our investment strategies across technology areas, you know, enterprise tech, cyber intelligent systems—and sorry, intelligent connectivity, advanced systems, and then biology next. So it’s one of our five practices.  

China’s famous for saying that, you know, Europe won the industrial revolution in the nineteenth century, the U.S. won the IT revolution in the 20th century, we China are going to win the bio revolution in the twenty-first century. So I think it is hugely important.  

We believe we’ve been leading our customers, our government partners in this area, and it’s absolutely an essential area for us to be investing.  

LOURIE: All right.  

Next question, yes. 

Q: Alex Dehgan, former chief scientist at USAID.  

Two questions. First of all, when you when you are thinking of an investment, for instance, in the biotech space, how does that limit, like, when national security gets involved? How does that limit the commercialization opportunities, the international opportunities that are out there?  

And the second question just tied to that is, how do you—just based on what you just said, how do you work with BARDA or ARPA-H? And what’s the integument there? 

BOWSHER: So on the first question, when we invest in companies, we don’t think it limits them or inhibits them at all in terms of certain commercial markets. The—I will point out, though, just to be explicit about one thing, as an investor, we are a strategic investor. We’re investing to ultimately deliver value and impact to our government customers. We’re not optimizing for financial return. So I want to be clear about that.  

But the vast majority, over 80 percent of the companies we invest in are what we characterize as dual-use companies developing technology for the commercial market and the government market, and there’s no restrictions on what we do with them that would inhibit them from service. 

The second part of your question I forget in all honesty. 

Q: BARDA and ARPA-H 

BOWSHER: Oh, BARDA. Yeah, so we work with BARDA. We work with ARPA-H. We—our B.Next team, biology next team includes people that have served in government and in leadership roles in the bio defense area. So we know all those players and we work with them closely. 

BECK: Maybe just to build on that a little bit. So we obviously—we work with all kinds of folks who focus on the defense market, as well as the majority of companies we work with have operations or interest in both spheres as well.  

And I do think that the scenarios in which we’re—an area in which we as a government need to be thoughtful, because one of the enormous disincentives that we can create if we are not careful to—and I say this as somebody who until recently spent most of my life in the—you know, in the commercial tech sector, and all my buddies are still running around that world—that if we’re not careful, we can—we can create impediments by saying, hey, now that you work with us, we’ve just made it so that you can’t do this, this, this, this, this, this, this or this or that. And so some of the things that as we think through everything from the way we think about intellectual property to the way that we—the way that we think about definitions around transferability, to the ways that we think about adversarial capital is important.  

So adversarial capital, for example, it’s very, very important for us to be very thoughtful about who it is it’s actually investing in companies that are working on things that are critical from a national security perspective for all kinds of really important reasons. At the same time, we also need to be thoughtful about the way that we are—the way we’re asking those questions and what we’re requiring, from, for example, a reporting standpoint, because we don’t want to create situations that are so incredibly cumbersome, that the company that’s got five people and a PowerPoint slide is just going to say, you know what, it’s just not worth it. Because there are always other places that you can make a billion dollars, right? 

LOURIE: You know, it’s like if I could just foot stomp on that, when I was out in the Valley with DIU and I would talk about adversarial capital, I would get eyerolls from founders say, well, I’m never going to sell to the government, why do I care? And now there’s a sea change, right? You—can you talk a little bit about that, about how people are really concerned about and understand the challenge of taking a term sheet from an adversary? 

BOWSHER: Yeah, you know, so one of the benefits of our model is we sit—we give board observers a seat to all the investments that we make. So we’re sitting in the boardrooms. And we can see term sheets coming down the pike from a Russian or a Chinese investor, and we can coach companies up on the reasons not to take them and use them to American investors that can hopefully take the place of adversarial capital.  

I think to your point, there is a growing recognition within the community of China being unwanted or undesired investor. Russia has always been, I think, unwanted or undesired. But the nuance of other countries and the pros and cons of other countries is still, I think, a little bit beyond the knowledge of most investors and entrepreneurs. And so it’s folks like DIU and ourselves can help educate them on the tradeoffs and be a thought partner for them as they think about their capital structure and who to take money from. And sometimes that money comes with strings, like let’s build a manufacturing plant in the country of origin. That’s happening a lot from the Middle Eastern funds out there. And you know, there’s some cases where we as a country are fine with that and in other cases where we might not be fine with that. And they need a trusted partner to coach them up on that, you know, is what Doug and I represent?  

BECK: Exactly. And it’s a critical role that we play. It’s also a critical way that we can—that we team up, right? Because each of us have insights into different pieces of that, that the other ones might not have by themselves. 

LOURIE: That’s great.  

Mark. 

Q: Hey, Mark Vlasic. I teach at Georgetown, also a TV producer in Hollywood.  

Both of you guys helped create the industries that you’re now working in and helping lead. What do you know now that you wish you knew before you entered these industries? What are your lessons for those people in the room? Thanks.  

BOWSHER: Okay, so here’s where I would say, you know, I grew up in Washington, D.C., with my dad working twenty years for the federal government. And when I got out to Silicon Valley, and I worked for a couple of startup companies, then I became a venture capital—or just a traditional venture capital firm, I’ve always wondered why isn’t the government ever popping up here as a customer for any of the companies I look at. And in fact, it was that idea that caused me to start to investigate this world that led me to ending up working at In-Q-Tel.  

But the lessons are pretty simple. The first lesson is people like to do work with people they know, trust, right? And D.C. is a club, and Silicon Valley, the metaphorical Silicon Valley—right?—not just the physical one, but you know, places like Boulder and Seattle and Austin and other places like that is a club, and you need to be trusted and a part of both those clubs. And that’s what, you know, I think both of our organizations have done successfully, you know, is create those trusted relationships. You know, and it’s really as simple as that.  

The second thing I would say is, you know, this myth that’s out there that Silicon Valley doesn’t want to work with government, I think it’s just a myth. I think it’s present, quite frankly, in a very small number of insanely profitable consumer facing tech companies. You can—you can figure out, you know, which ones they might be.  

But the vast majority of people want to help because, one, they’re patriotic, and they want to help with the mission of the intelligence and defense community.  

Two, they’re capitalistic, and they want to make money, and there’s large budgets, to one of the earlier comments here and a lot—a lot of money being spent in this space.  

And three, as engineers, they’re sort of geeked out by like solving the hardest problems. And oftentimes, the problems that, you know, this community represents are some of the hardest, most interesting problems to do.  

So I think, you know, you got to build trust; you got to understand that both sides want to work together. You know, I think those are the two lessons that, you know, I think, just continue to hit me over the head over and over again. 

LOURIE: I think there’s a call on online. We have the call from online? 

OPERATOR: We will take our next question from Tao Tan. 

Q: Hi, everyone. Thank you for being here today. 

I have a question about how we think about long-term demand signals. I’m a partner of Perception Capital, and one of the things that, you know, we all know is that if you want to raise project or debt financing to build a plant to build and scale production of items in large quantities, you need not only a track record of producing and selling stuff, but forward visibility for five, maybe even ten years. How do we—how do we solve this problem when, you know, the vagaries of the defense budget are what they are? 

BECK: I can maybe jump in on this a little bit.  

So maybe I’ll back up on this one to talk a little about, you know, once upon a—so capital is one of those words that flies around like AI in this town, often without people knowing exactly what they mean when they’re talking about it. And the issue isn’t scarcity of capital in a way—in this space in a way that I think it was back when, you know, Chris and Steve were first getting all this whole thing going, or even, you know, seven or eight years ago, when friends of ours who are going to create—to think about investing in this space were, you know, really the crazy ones, to quote Steve Jobs. There’s plenty of capital out there. The issue is that we have been, you know, a pretty lousy counterparty for that capital, and we’ve got to be better counterparties for that capital.  

Now, that that doesn’t mean taking risk to zero or having certainty. Now, I’ve spent my—pretty much my whole career in the private sector and a lot of it in the tech sector, and I can’t really think of too many places where the risk was zero. I’m pretty sure that there was a lot of risks, you know. And the key is that we’ve got to make it much easier for the people who assess price, take and manage risk for a living to do so on our stuff and to do so at scale, which gets me to the question that the caller asks.  

Now, that’s not necessarily about giving a perfect line to ten years of funding, because I don’t think that exists. I never had that in my previous lives. But it does mean that you’ve got to be able to give enough clarity about which things are strategic versus which things aren’t, which things actually have a meaningful pathway to scale, which things might not; which things have the potential be enormous, which things maybe aren’t going to be enormous, but are a much surer bet, or a lot closer in, so that people can actually manage risk without having to have, you know, a hundred former flag and general officers on staff to run around and try to guess, right? And that’s a huge part of what we’re doing. 

Now, the fact is that the system, the way that it’s structured after seventy years of building it the way that it is, is not set up to make that easy, right? It’s set up to have this symbiotic structure with the traditional kind of defense acquisition machine, and so it’s not built to go do that.  

But that doesn’t mean it’s impossible. And while I agree that we 100 percent need to reform that whole system, we don’t have to wait to reform that whole system to provide a better, clearer demand signal that allows people to take real risk. The biggest thing that we’ve got to do, though, to make that work—and what I tell all my friends and you know, both founders and funders, is the biggest thing that we’ve got to do is we got to put points on the board. The more reps that we’ve got of companies like ones that—you know, you mentioned Anduril that started with you, came over to us, now they’re scaling and off to the races. There are a whole bunch of examples like that out there. The more examples that there are like that, the easier it will be for people to look at that situation and say, I can now type this into something that I feel comfortable taking the bet. And that’s what we’ve got to get to grow.  

BOWSHER: I can just foot stomp on that a little bit. So that was a great question, by the way. Kudos to the member of the audience there. 

Communicating signal is something that DOD is good at doing to the primes, and the primes are good at interpreting that signal. DOD is not good at communicating that signal to startup companies, and they’re not good at interpreting it.  

And the best analogy I’ve come up with is twenty years ago, the financial services community figured out—you know, I’m talking about Goldman Sachs, Citibank, Wells Fargo, Bank of America, people like that—that if I share my problems with the U.S. venture capital community and say, these are my technical challenges facing me, they will then go out and fund ten, twelve companies to solve each other’s problems, and then all I have to do is buy a small amount of technology from three or four of them, decide which one solves my problem the best, and then buy a lot of technology from one of them. And that’s— 

BECK: Or just buy them. 

BOWSHER: Right, yeah.  

And that one successful company will make enough money for the venture capital community that they’ll do this over and over and over again. And so we are now in the phase here in our world where we’ve convinced the U.S. venture capital community that it’s smart for them to start investing billions of dollars to start ten, twelve, fifteen companies to solve each of the problems that they are interpreting exist for the government. And they’re waiting to see—and I’d say we’re at the stage also where we’re now playing with three—the DOD and intel community are playing with three or four of those companies in each problem, and they’re waiting to see, all right, is there one winner that emerges that makes their investors a bunch of money that starts the spin wheel over and over again. 

Palantir and SpaceX were two companies that were started in 2000-2005 range—right?—that that became huge successes. They became huge successes by like 2015 or so. That’s what prompted this whole world that we’re living in right now. That is what prompted when the venture capitalist saw those two companies become multibillion dollar successes, they said, all right, we want to invest in the next SpaceX, the next Palantir. And Anduril is the first of that next generation companies to have emerged to be successful there. We need there to be five more Andurils coming out of that generation of companies that were started between 2015 and 2020 and then we’ll see that flywheel start spinning again and again and we’ll get billions of dollars of the smartest capital in the country investing in the smartest entrepreneurial teams to build technologies and products that solve the problems of the defense and intelligence community, which is what we want. And so that’s what we need to sort of execute on, I think, as a community in the next couple of years. 

BECK: Absolutely. And I actually want to foot stomp the foot stomp. 

LOURIE: You almost have a dance here. 

BECK: Because this is just such a critical, critical point. This is at the heart of everything that we’ve got to do, right?  

I want to reiterate a point that I made before, which is that we need that scale in order to deliver strategic impact. And the—and the tech sector needs that scale in order to deliver the ROI in at least enough cases for it to make sense across the entire funder-founder universe for people to be able to take bets. That’s the whole thing.  

And I’m glad you used the word flywheel because I was literally about to jump in with that word. That is the flywheel of American dynamism, that actually, after it got kicked off by defense investment originally is what built Silicon Valley. And that is the American way of winning, not creating a world of—a massive world of directed government investment—right?—at massive scale. Right? That’s, that’s the Chinese way of trying to win this game. What we’ve got to do and we’re teamed up on doing is helping to unlock the system to get our flywheel going so that we win our way. 

LOURIE: Yeah. 

Q: I’m Alan Raul, lawyer at Sidley Austin and lecturer at Harvard Law School.  

My question is about the other term that gets tossed around in Washington, artificial intelligence, and ask how you interact with commercial developers of AI. 

And also, this being Washington, how do you interact with the policy development that’s going on in the area that’s directly relevant to your fields? President Biden’s executive order calls for DOD to provide a memorandum to the National Security Council on military applications of AI, and the White House has done an initiative on military uses of AI, a global initiative. So how does that all impact you?  

Thank you. 

BOWSHER: Sure. So we’ve invested in AI for a number of years before generative AI, you know, became even more hyped than AI was originally. And what I would say is, you know, I think if you look at the—both the kinetic conflicts that are going on right now and the sort of intel battles are going on behind the scene, that the U.S. government is starting to take advantage of AI, either from an autonomy perspective, or from a decision making perspective, or from an, you know, analytical perspective. It’s early stages in, I think, a lot of those areas.  

But you know, the communities that we represent are headed in that direction. I think it is an example of a great area of technology where the best technology in United States is going to come out of commercial companies. It’s not going to come out of a traditional government contractor. So it is on, you know, Doug and I to make sure that the U.S. government is accessing the best technology there.  

You know, I think on the policy side of it, we do not—that’s not really our goal as an organization to—is to get that. We’ll abide by whatever the policymakers decide. 

BECK: So first, I mean, four quick points.  

First is, AI is another one of these words that gets flown all over the place, sort of like magic bean and, you know, you’re going to sprinkle AI dust on things and magically it’ll all be wonderful or horrible depending on how you think about it. And by the way, this is not only true in Washington. The same thing is true all over the place. People kind of do that.  

So point number one is, one of the things I think is most critical is as we’re thinking about what’s an AI or frankly, machine learning, because most of what we call AI isn’t really anything you’d consider true human intelligence in the form of a machine. Even amazing generative AI isn’t that yet. But so number one is, let’s make sure we’re clear about what we’re actually talking about and what the use cases are and what those applications are, because in some areas, they’re incredibly powerful.  

So even in the second point, because this is a massive area of focus for DIU. One of our—one of our major portfolios is artificial intelligence. And we do an enormous amount of work in this space, in partnership, third point, with others in the department, CDAO, policy, others in the department and across the interagency, including NSA, on the responsible use of AI, how do we think about that? What does that mean for offense and defense? 

And then the last thing that I will say is it’s very important as we think about the future around AI, it can be easy to say that’s scary and there’s a lot of risk. So let’s focus on the defense here. And let’s also focus on the ways that we kind of control that because it’s scary and there’s a lot of risk and a lot of questions. And that is a losing strategy. If there’s one thing that being in the tech sector for the last thirteen years before I came here taught me is that you do not win in technology by playing defense, right? You win by winning, right? And the best way that you are going to be out in front of what both the opportunities and the risks are around artificial intelligence and machine learning more broadly, aside from doing all the basics of making sure you’ve got the data that you need, you’re training those things in the right way, is by being in that space responsibly, being in that space responsibly, learning about the technology, using the technology, and then frankly, in some cases, using—the best way that you’re going to defend against AI is with AI, right? So we’re going to have to be in that space and we’re going to have to be incredibly sophisticated in that space. 

LOURIE: We’ll take the next call from online. 

OPERATOR: We will take our next question from Audrey Kurth Cronin. 

Q: Hi, this is Audrey Kurth Cronin. I’m at Carnegie Mellon University.  

And I have not heard the word “university” in this entire hour. So I just wanted to ask you, what do you see as the evolution in the way that you’ve worked with universities over the last five or ten years? And also, how do we make sure that the incubators for all of this cutting-edge tech that is then spun off—and for the people who actually are trained to be able to do it—how do we make sure that that sector, the university sector is healthy? 

LOURIE: And can I just add to that, if you can talk a little bit about talent and the talent pool you see and how to develop talent to make sure that innovation is at the cutting edge?  

BECK: Okay. Those actually are deeply connected pieces.  

So first of all, it’s more of an artifact of how this conversation has gone, rather than an artifact of the importance that we haven’t said the word university. So just make that super clear.  

There’s actually—DIU has a supporting organization called the National Security Innovation Network, the whole purpose of which is to—is to be effectively an onramp and an outreach for the very best small companies as well as talent, a lot of which comes from universities. We have a very deep partnership with universities kind of all around the country. We have—also we’ve established now innovation onramp hubs, we call them in, in Kansas, Washington, in Arizona, in in Ohio, and now in Hawaii.  

And we are—those are importantly partnerships, in many cases directly with universities in those spaces in order to help ensure that we are both partnering with talent that comes from those places, as well as the great companies that sometimes come out of there. And in some instances, we may see that through our organization and then find the right place for it to go, which for example might be introduction to In-Q-Tel, right? So that’s a huge part of what we do.  

And maybe I’ll just quickly touch on the talent piece. So dual fluency talent is at the absolute heart of everything that we do at DIU and at In-Q-Tel. We are all about people who speak fluent military-ese or national security-ese and fluent tech sector-ese and can translate those things. Some of them come from this world. Some of them come from that world. Some of them are born simultaneously in both worlds. We need to do much—a much, much better job—and this could be a much longer conversation that we could actually spend the whole time just talking about talent in this space. We need to do a much better job of making more of these people in places like the Army Software Factory, which I think is great. It should be called the Army talent factory. Those young people are amazing. They do work on software for the army. But what’s most powerful is that they become incredible experts who then seed the force. We need to do more about retaining the best of those people so we have career paths for those who want to focus in some specific area of tech or in tech adoption and acquisition. 

Or, frankly, while we, we also want to be making sure we’re doing a great job for the career paths of those people who might come somewhere like DIU but then go back to being an operator, so that somewhere when the—when the Chief of Naval Operations looks around her table, one of her direct reports is somebody who spent a year or six months doing this kind of work and then they go back to being an operator, and but now they understand this world—right?—and they can help the rest of those leaders do it in the same way that we had to generate leaders at that level who had spent—who’d actually had joint experience. That didn’t used to exist, right? Or who’d spent a year at Harvard learning about something else. So we have to do a better job of that. 

We have to do a better job also of leveraging those people who are going to get out, because that’s great, too, right? They’re going to get out, and then they’re going to found the next company that is—that is either one of his portfolio companies, or maybe one of ours, or maybe an investor in one of them. And that’s great, too. We’ve got to do a much better job of harnessing that capability as well. This is a huge area of focus for us.  

And it’s also the one place, by the way, where we’ve got almost all the authorities I think that we need from Congress. The one place where we could use some help is we don’t have all the hiring authorities we need. Don’t need a magic bean here either, but we could use the same hiring authorities that DARPA, some of the other agencies across the department, as well as Jen Easterly and Cyber have. So, advertisement for our friends in Congress, please help us out with that. 

LOURIE: Well, that’s great.  

I think we’re out of time. So want to thank you all for joining today’s session. And thank you to our speakers. And please note that the video and transcript of this session will be posted on CFRs website. So and if you want to get in touch with DIU or In-Q-Tel, Doug, do you want to give your easy email? 

BECK: It’s [email protected]

LOURIE: And Steve? 

BOWSHER: You’re better off trying to get—connect to me through LinkedIn. That’s the best way. 

LOURIE: Sounds good. 

So, I hope so—so thank you very much. (Applause.) 

(END) 

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