By Ivan Cholakov @ Shutterstock.com
President-elect Donald Trump is considering two defense tech investors for the position of Deputy Secretary of Defense: Trae Stephens, a partner at Peter Thiel’s Founders Fund venture-capital firm, and investor Stephen Feinberg, “who led the president’s intelligence advisory board in the first Trump administration.” The Wall Street Journal reports:
The potential elevation of an investor in defense-tech startups to a senior position in the Pentagon would come as many new defense-tech companies have struggled to gain traction with the Pentagon, despite an influx of billions of venture-capital and private-equity dollars. Many of the new companies are surviving on small-dollar awards while most military spending flows to the so-called primes, or traditional weapons suppliers.
Both Stephens and Feinberg have pushed to invest in areas where they feel the government hasn’t moved fast enough. Feinberg, according to associates, decided to invest in hypersonics after growing concerned the U.S. was falling behind competitors such as China. Similarly, Stephens has warned that the U.S. defense companies have lost their edge, while Beijing is innovating faster.
“It’s pretty clear to everybody that the Defense Department is challenged by commercial technology and sabotaged by the procurement system,” said Steve Blank, founding member of the Gordian Knot Center for National Security Innovation at Stanford University. These candidates offer “a radical change with a fresh perspective not beholden to the status quo.”
Stephens was an early venture-capital investor in defense, a sector that had been for many years considered to be anathema for Silicon Valley. He has become a frequent public speaker to young founders and students about the merits of building for national security.
Venture-backed companies have consistently received about 1% of total Defense Department award spending annually, according to data from defense software company Govini. Most startup executives and investors say the department has made improvements in working with the startup sector, but it is too little and too slow.
“Founders who are coming from nothing and have a great idea and the ambition to go and build the future should be able to win, but the government hasn’t produced a lot of evidence that that’s the case,” Stephens told The Wall Street Journal in an interview last year. “The government has a responsibility to create an ecosystem that has open and fair competition.”
The two men aren’t the only ones in the running. Other candidates are being considered, including from inside the Defense Department.
Outsiders alone can’t overhaul the Defense Department, and it will require leadership familiar with navigating department bureaucracy and Capitol Hill, said Sally Donnelly, founding partner of Pallas Advisors, a Washington-based consulting firm for emerging technology companies.
“You need someone who knows the system well enough to crush the counterweights,” Donnelley said.
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