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Technology of national interest can manifest itself in many ways, such as in data analysis and cybersecurity, as well as satellites and weapons. Many startups with dual-use applications are increasingly looking at the government as an attractive customer due to its wide range of use cases and the amount of federal dollars available.
Although there are many grant programs (such as those offered through the Inflation Reduction Act) that provide non-dilutive financing to startups, Rebecca Gewalt, managing partner at D-Code Capital She, who used to work for the CIA, says she advises companies to pursue contracts instead.
“The real key is, how do you figure out a recurring way to capture government revenue so that it becomes a core part of your business?” Gevalt said on stage this week at TechCrunch Disrupt 2024.
Gevalt spoke alongside Topher Haddad, founder and CEO of the satellite imaging startup Whitenessand Kai Clover, founder and CEO of a biometric weapons startup Beaufireabout the boom in startups of national interest and how startups can get their foot in the door of government.
Ministry of Defense ‘full of money’
The goal of startups working with the government should be to generate recurring revenue, not just grant money or other non-dilutive financing. An easy target for startups with a use case of national interest? The Department of Defense (DOD), which Gewalt says is “awash with money.”
Ministry of Defense Budget request As for the year 2025, it approached $850 billion, of which $143.2 billion was for research, development, testing and evaluation, and then another $167.5 billion was allocated to procurement. The agency is actively looking to work with startups developing artificial intelligence, autonomous systems, quantum computing and space technologies.
There are a number of entry points for startups, such as the Small Business Innovation Research (SBIR) programs and the Small Business Technology Transfer (STTR) programs through DARPA. While startups can get their foot in the door through these programs, Gevalt recommends that startups have a partner who guides them from the concept and prototyping stages to commercial contracts.
“There are strategies to move from R&D dollars for development to more programmatic revenue, and that’s where our consulting firm helps companies, but there are a number of them in D.C. that help companies do that,” she said.
And Gevalt has a point. A Defense Innovation Board 2023 Report It found that only 16% of DoD SBIR-funded companies were able to access marketing contracts over the past 10 years.
But it’s not all defense
“I think a lot of times people can fall into the trap of thinking, ‘If I want to sell to the government, it has to be defense technology, I have to be involved in drones and missiles and things like that.’ And that’s not it,” Gewalt said. “Basically the case.”
She says Dcode is largely focused on investing in startups that handle and analyze data, as well as companies that provide cybersecurity solutions.
“By law, the government can’t delete any of their data, so it’s going to be an ever-increasing problem for them to manage it and extract insights from it,” Gewalt said. “And then, from a cybersecurity perspective, they get hacked frequently, so we try to give them access to the best tools.”
Put your blinders on in front of politics
In the run-up to the US elections, should startups make contingency plans for various presidential candidates? Blacksmith Gevalt and Albedo say this isn’t strictly necessary.
“Across departments, you’ll have people who are interested in data, tools, cybersecurity, and the latest in artificial intelligence,” Gewalt said. “Where the flow of dollars changes, the size of government can change. But I fundamentally believe that whether or not government grows or shrinks, there will be a need to modernize its systems starting in 2000.”
Haddad noted that Albedo is in a “wait and see” mode, where he expects some effects. But it is not enough to have a Plan A and a Plan B for different candidates.
“In general, space is a big priority, and I don’t think that will change,” Haddad said. “Maybe that will change a little bit of the evolution of the business in terms of how we focus on different agencies or departments.”
Gewalt said the best way to remain unaffected by changing administrations is to seek relationships with non-political appointees.
“As you develop your federal go-to-market proposal, you typically don’t want to talk to politicians,” she said. “You want to talk to the people who do the jobs day in and day out, regardless of who is in management, because those are the people who will buy your products.”
Made in the USA
For the government, contracting with startups that are based in the United States and produce products there is preferable — but more for software than hardware, Gevalt said.
“If there are certain people on your team doing certain work from certain countries, it will be very difficult to do sales to the government, at least to the Department of Defense and some agencies of the intelligence community,” she said.
Both Albedo and Biofire are based in the United States, with manufacturing facilities in Colorado. Kloepfer noted that building in the United States was important to Biofire because of the nature of its business.
“We are subject to strong oversight by the Commerce Department in terms of export controls. The United States is eager to keep its weapons technology within the United States,” he said, noting that Biofire would likely need special approval to contract with foreign manufacturers.
He added that investors would also like to see local manufacturing as it helps in quality control and scaling up.
“For the early stage that we’re at, how quickly can we iterate? How quickly can we improve? And doing that at our current headquarters…is easier than iterating with some kind of outside vendor, if “It’s possible.”
Find the right product market in government
Gevalt says her company often sees early-stage companies hire a salesperson or lobbyist out of the gate when trying to secure contracts with the federal government. Instead, she recommends that startups first find out which agencies need their technology using data available from sites such as Bloomberg government (with government), GovTribeand IQ GovWin.
“When the government says they want to buy something, they have to say it publicly, unless it’s something secret,” she said. “So… you can sift through that data. And if you know who your competitor is, and you know they’re selling their products to the government, you can… find out what contracts they’ve won? In which offices they’ve won them? Are they working with partners like Deloitte or Booz Allen?” “
This also applies to AI startups looking to work with the government.
The key mindset is to be both strategic and tactical, Gewalt says, noting that startups should look at the government’s overall strategy documents regarding AI and then tactically look for offices that are effectively leveraging AI technologies.
“You have a lot of people who have worked in government for a very long time, and they know in theory what AI is, but a lot of the data architecture that they have is not going to actually make it easier to use the AI product on any data sets that they’re working on,” Gewalt said. “So…strategically, you can see that the Biden administration now wants to leverage AI in this way. But tactically, how do agencies actually do that?…How do they buy it? Do they buy it through a partner?”
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