Technology of national interest can manifest in many ways, such as data analysis and cybersecurity, as well as satellites and weapons. Many startups with dual-use applications are seeing the government as an attractive customer because of its wide range of use cases and the availability of federal dollars.
And while there are several grant programs (like those offered by the Inflation Reduction Act) that provide unsecured funding for startups, Rebecca Gewalt, managing partner Decode Capital who used to work at the CIA, says she advises companies to hire instead of contract.
“The real key is, how do you figure out a repeatable way to get government revenue so that it becomes a core part of your business?” Gewalt said this week on stage at TechCrunch Disrupt 2024.
Gewalt spoke with Topher Haddad, founder and CEO of the satellite imagery startup. Albedoand Kai Klopfer, founder and CEO of Biometric Weapons startup Biofireabout the rise in startups of national interest and how startups can get a foot in the door of government.
DOD “is flush with money”
Startups working with the government should aim to generate recurring revenue, not just grants or other non-recurring funding. An easy target for a startup with a national interest use case? The Department of Defense (DOD), which Gewalt says is “fluffed with money.”
of the DOD Budget request For 2025 was around $850 billion, with $143.2 billion earmarked for research, development, testing and evaluation and then another $167.5 billion for procurement. The agency is actively working with startups developing AI, autonomous systems, quantum computing, and space technologies.
There are many entry points for startups, such as the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs through DARPA. And while startups can get their foot in the door through these programs, Gevalt recommends having a partner to guide startups from the concept and prototyping stages to commercial contracts.
“There are strategies for getting in the door earlier, R&D dollars to grow more programmatic revenue, and that’s where our advisory firm helps companies, but there are a lot of them in DC that help companies do that. helps,” he said.
And Gevalt has a point. Oh 2023 Defense Innovation Board Report found that only 16% of DOD SBIR-funded companies participated in commercialization contracts in the past 10 years.
But this is not all defense.
“I think a lot of people can fall into the trap of thinking, if I want to sell to the government, it has to be related to defense technology, and I have to be involved in drones, missiles, things like that. And it’s Basically it’s not,” Gevalt said.
DeCode focuses heavily on investing in startups that handle and analyze data, as well as those that offer cybersecurity solutions, she says.
“By law, the government can’t delete any of their data, so it’s becoming an ever-increasing problem for them to manage it and extract insights from it,” Gevalt said. “And then, from a cybersecurity perspective, they’re often hacked, so they try to get access to the best tools.”
Put your blinders on politics
Ahead of the US election, should startups have contingency plans for the various presidential candidates? Gevalt and Albedo’s Haddad say it’s not necessary at all.
“In all administrations, you’re going to have people interested in the latest in data, tools, cybersecurity, AI,” Gevalt said. “Where the flow of dollars changes, how big can government get? But I fundamentally believe that whether government grows or shrinks, they’re going to need to upgrade their systems from the year 2000.”
Haddad noted that Albedo is in a “wait and see” mode, as it anticipates some impacts. But having plan A and plan B for different candidates is not enough.
“Typically, space is a big priority, and I don’t think that’s going to change,” Haddad said. “Maybe it will change a little bit in the development of the business in terms of how we focus on different agencies or departments.”
The best way to stay unaffected by changing administrations is to seek relationships with non-political appointees, Gewault said.
“As you’re preparing your federal go-to-market motion, you don’t usually want to talk politics,” he said. “You want to talk to the people who are working day in and day out, regardless of who’s in management, because those are the people who are going to buy your product.”
Made in the USA.
For the government, Gevalt said, contracting with startups that are based in the U.S. and develop products is a priority — but for software more than hardware.
“If you have certain people on your team who are doing certain things from certain countries, it becomes a very difficult sell in government, at least in DOD and some intelligence community agencies,” he said.
Albedo and Biofire are both based in the US, with manufacturing facilities in Colorado. Klopfer noted that building in the U.S. was important to Biofire because of the nature of its business.
“We’re pretty tightly regulated by the Department of Commerce in terms of export controls. … [T]”The U.S. is passionate about keeping its weapons technology within the U.S.,” he said, adding that Biofire would need special approval to contract with foreign manufacturers.
Investors also like to look at onshore manufacturing as it helps with quality control and scaling, he added.
“For the early stage that we’re at, how fast can we iterate? How fast can we improve?” Klopfer said. “And doing that at our current headquarters facility … is much easier than iterating with some kind of foreign vendor, if that’s even possible.”
Finding Product Market Fit in Govt
Gewalt says his firm often sees early-stage companies hire a salesperson or lobbyist when trying to win contracts with the federal government. She instead suggests that startups first find out which agencies need their technology by using data available from sites like Bloomberg Govt (BGov) Government Triband GovWin IQ.
“When the government says they want to buy something, they have to make it public, unless it’s a classified item,” he said. “So … you can sift through that data. And if you know who your competitor is, and you know they’re selling to the government, you can see what contracts they’ve won?” What offices are they working with, like Deloitte or Booz Allen?
The same is true for AI startups looking to work with the government.
The key mindset is to be strategic and tactical, says Gevalt, noting that startups should look at the government’s comprehensive AI strategy documents and then strategically search for such offices. who are actively leveraging AI technologies;
“You have a lot of people who have been in government for a very long time, and so they conceptually know what AI is, but a lot of the data architecture that they have is actually using the AI product. I’m not going to facilitate whatever datasets they’re working on anyway,” Gevalt said. “So … tactically, you can see that the Biden administration wants to leverage AI in this way right now. But tactically, how are the agencies actually doing it? … How are they buying it? Are they using it in any way? Buying through a partner?”
Credit : techcrunch.com
