As Pentagon Dawdles, Silicon Valley Sells Its Newest Tech Abroad

Here's a story about three Silicon Valley startups that are making just the sorts of products that Pentagon says it wants.

Liquid Robotics sells seagoing robots that can carry sub-hunting sensors on long patrols. Savonix is beta-testing a mobile app whose cognitive assessments can improve how people do their jobs and interact with machines. Hytrust improves security for cloud computing. But the innovators running these outfits, and others like them, have begun turning their sales efforts toward foreign militaries because doing business with the Pentagon is just too hard.

At an Atlantic Council event on Tuesday, Liquid Robotics CEO Gary Gysin described a recent interview at the Pentagon. He said it took four months to set up, even though his company receives funding from In-Q-Tel and the Office of Naval Research. His product, the Wave Glider SV3, is “the world’s first hybrid wave and solar propelled unmanned ocean robot,” the company website says. You can outfit it with sensor packs to do advanced sub-hunting, a major concern for the Pentagon, especially given Russia's efforts to bolster its submarine fleet.

Liquid Robotics does do business with the U.S. military, through prime contractors. But Gysin fears a growing gap. “We’re in almost every country in Asia. And they make decisions, rapid decisions. And we’re in selling our platform. And if we’re in selling our platform and we’re not selling it to our government at the same pace, that worries me,” he said.

He’s not alone. At the same event, the heads of Savonix and Hytrust also said that they were seeing interest from foreign militaries. Liquid Robotics in fact has already sold units to governments of Spain, South Africa, Germany, Norway, the United Kingdom, Japan, and Australia as well as to NATO.

Savonix founder Mylea Charvat said potential Pentagon sales are just 1 percent of the total market for apps that measure cognitive performance. But she wants to help her country’s troops. “We really do care," she said. "There’s a concern among educated entrepreneurs in Silicon Valley" about getting advanced tech "into the hands of our warfighters and optimizing their performance using the best tools that we have available.”

But the CEOs said the sluggish pace of Pentagon contracting is preventing commercial tech firms from responding to the entreaties of Defense Secretary Ash Carter and other DoD players. Prime contracting processes can take a decade, far longer than Silicon Valley investors are willing to wait for a return on their investment.

“They don’t want a sale cycle that’s [even as long as] nine to 18 months,” Charvat said. “So just think of that in the context of the prime contract process with the United States government that can take a decade. A decade from now they [the investors] expect us to have exited this company. They expect an acquisition or an IPO. They expect to no longer be primary shareholders in my company.”

But a company can’t just find a military outfit that needs its product and ring up a sale. Such a transaction requires a no-bid, or “sole source,” contract. And those come with a lot of unattractive demands.  

“In order to justify a sole-source contract you have to write down why what you do...is so unique," Charvat said. "And they want you to go into the kind of detail that would make a patent officer blush. That’s a huge IP [intellectual property] concern because what they also want to do is show this to all these other companies and see if they can do it too. Well, no, no, no.”

She said she walked away from a recent sale when military buyers wanted her to put too much proprietary information in a white paper.

Silicon Valley Skepticism

All three CEOs said a lot of Silicon Valley people are interested in working on DOD problems, yet highly skeptical about doing business with the Pentagon.

Last year, Carter established the Defense Innovation Unit Experimental, or DIUx, at Santa Clara’s Moffett Field, precisely to address those concerns. He’s poured his own time and attention into the effort, visiting three times since September.

At a recent National Industrial Association event in Tampa, Col. Steven Butow — who leads DIUx’s National Guard liaison effort — said that most of the five business outreach events he’s held in Silicon Valley were standing room only.

“We have not had one company out there shut the door,” he said.

Butow said the events works best when a soldier can bring his or her problem directly to folks who might be able to solve it.

“What this is doing is putting non-traditional thinkers into our problem set,” he said. “We did a little experiment. We can have anybody not in uniform come out and try to tell the people we work with in the Valley what the problem is, and they listen attentively, but it doesn’t go very far because the people who normally do that are detached from the person who really has the problem.”

But, he said, “When we take a person in uniform and put them in the same room, you know what happens? We get 15 to 20 people who get really into ‘What’s the nature of the problem? What’s the environmental conditions?’ They’re looking at it from, ‘How do we apply what we’re doing to national security and defense?’”

Butow said DIUx can help move ideas between two radically different cultures: a meritocracy where a 22-year-old can get $2 million in funding in 40 days to pursue a good idea, and a slow-moving institution resistant to change.

The entrepreneurs at the Atlantic Council event gave DIUx high marks for intentions, and offered this advice to Carter: Enable the Pentagon to acquire goods from already commercialized companies (so IP is not an issue) a lot faster.

“I’m looking for a meeting with a decision at the end. We had a meeting — you want it, you don’t want it. Let’s move on,” said Charvarat.

Meanwhile, DIUx, which recently began moving to fund its first round of contracts, has its doubters in Congress.

The House Armed Services Committee’s subcommittee on threats and capabilities listed a few of those concerns in the 2017 National Defense Authorization bill. One is “the pinpoint focus on one geographic region, as well as the dedication of significant funding at such a nascent period in the development of this organization and the concept on which it was founded.” Another: “that outreach is proceeding without sufficient attention being paid to breaking down the barriers that have traditionally prevented nontraditional contractors from supporting defense needs, like lengthy contracting processes and the inability to transition technologies.”

Time will tell how easily those barriers are broken. But time is not something startups have much of.