How to Cash in on the Burgeoning Military-Technology Complex

Former director of worldwide operations for the CIA remarks this is just the ‘tip of the iceberg’

A US made Reaper drone. DOMINIQUE FAGET/AFP/Getty Images

One of the most celebrated political zingers in recent years was former President Barack Obama’s rebuke of Mitt Romney’s suggestion that the U.S. Navy was the smallest it has been since the early 20th century during the 2012 election.

“You mentioned the Navy, for example, and that we have fewer ships than we did in 1916,” Obama said in a pointed riposte aimed at his GOP rival. “Well, Governor, we also have fewer horses and bayonets because the nature of our military’s changed.”

Obama’s clever quip was meant to convey an important point about the nature of modern warfare: The military doesn’t require the type of equipment that it did in the past. It’s no longer a matter of bigger but of smarter.

Currently, Americans in Congress and in boardrooms across the defense sector are discussing President Donald Trump’s announcement that he is seeking an additional allocation in the defense budget of $54 billion. Clearly, Trump wants to spend on updating a “depleted military.”

This budget realignment focusing on defense presents a unique opportunity for start-ups and young businesses in the technology space.

Modern war is not only fought with men and women on the ground, in the air, and across the seven seas; it’s increasingly fought in cyberspace and with remote controlled machines that seek to keep military causalities to a minimum. The battlefield, like so many other aspects of modern life, is now driven by technology. Tech companies, software developers and entrepreneurs should watch the budget debate with an eye towards how they can tap into these veins of funding.

Let’s dive into the emerging trends in “DefTech”—the Defense Technology Industry—to better understand what the opportunities for tech firms who want to use this budget windfall to gain traction and scale.

For some context on the role of technology in modern warfare and intelligence, we turned to Jack Devine, former Director of Worldwide Operations for the Central Intelligence Agency (CIA), who remarked, “For the foreseeable future, traditional military hardware will remain a major part of our arsenal, keeping in check North Korea and Iran. Likewise, Special Forces, along with the CIA, will be needed to operate below the radar in the fight against terrorism. However, in the last thirty years, technology has exponentially increased the sophistication of weaponry and intelligence collection (i.e. “Big Data”) as well as our capacity to disrupt public and private communications and tech infrastructure.”

Devine, a decorated operative whose career in the CIA spans four decades, sees the present-day challenges of cyber warfare as paradigm shifting. “We are now only seeing the tip of the iceberg with regard to North Korean, Chinese and Russian hacking efforts looking to disrupt our commercial and political entities,” said Devine. “What we haven’t seen yet, fortunately, is the enormous capacity of these technologies to shut down the entire infrastructure of a country, which most assuredly already exists on all sides, kept at bay by a new ‘mutually assured destruction.’ The creative and entrepreneurial nature of our private sector will give us a leg up in this new world and enable us to hold the high ground.”

We are in the midst of an arms-race for cyber warfare capabilities, intelligence technologies and sophisticated weaponry. The potential for American tech start-ups is significant. For entrepreneurs in the tech world, the secret to gaining traction might mean tweaking their business models or product offerings to address the needs of the military and national intelligence agencies. Bloomberg has referred to this burgeoning multi-billion dollar industry as the “Military-Technology Complex.”

There are three main areas where smaller tech companies can tap into national DefTech contracts:

  1. Drones and Unmanned Aerial Vehicles (UAVs). UAVs have been used for military operations ever since the mid 19th century when Austria deployed bomb-filled hot-air balloons to attack its enemies. Today, they have a breadth of surveillance, weaponry, communications and operational functions, which often put them at the sharp end of the spear of US combat missions. The next generation of drones will be smaller, cheaper and more elusive. For example, consider a swarm of insect-sized drones descending on a battlefield beaming back 3D video and other data to military commanders before putting even one soldier in harm’s way. There are myriad opportunities for tech companies that deal with digital imagery, avionics and nanotechnology. 
  1. Robotics and Artificial Intelligence (AI). Deputy Secretary of Defense Robert Work has gone on the record saying, “Our intelligence suggests our adversaries are already investing heavily in robotics and autonomy and the Russian Chief of General Staff Gerasimov recently said that the Russian military is preparing to fight on a robotized battlefield… In the near future it is possible a fully robotized unit will be created, capable of independently conducting military operations.” The next generation robots will have mobility that surpasses humans and be able to have precision reflexes. The field medic of the future may be very well be Frankenstein. Companies in this space would be smart to look to military and intelligence applications of their products and services as source of R&D funding. 
  1. Cyber-Defense and Internet of Things (IoT) Security. Hackers recently took down Amazon, from an easy-to-use program that allows even unskilled hackers to take over online devices and use them to launch attacks. They did this by first infecting a home computer network through Internet of Things connected devices, then spreading it to everything it connects to (DVRs, cable set-top boxes, routers and even Internet-connected cameras used by stores and businesses for surveillance.) The Internet of Things is real (cameras in microwaves notwithstanding) and traditional data security companies need to develop not only protective capabilities in this arena, but sleuthing products for law enforcement and intelligence agencies.

“The Amazon attack was the perfect storm, where millions of unprotected cameras, such as the type used to watch your kids and for home security, got infected,” said Calvn Chu, former venture capitalist and current executive at Red Balloon, an anti-virus company that focuses on IoT security. “The hackers not only got intimate access to everyday lives, they also went ahead and directed the traffic from those devices in sophisticated attacks against our national infrastructure. It’s a massive violation of privacy, trust and security. It also represents immense opportunity to build the technologies to combat these threats.”

According to Kris Beevers, CEO of NS1, a provider of mission critical DNS and traffic management services, “The foundational infrastructure of the internet is increasingly a target. The disruptive potential of attacks against core internet routing protocols, such as DNS, will continue to test our protective capabilities and must remain an area of concerted focus.”

Although Trump’s budget does not breakdown direct cyber-defense spending across all agencies, it appears billions of new funding will be headed to cyber warfare and cyber security.

“The emphasis by the Trump administration on technology as it relates to Homeland Security and Defense reflects the reality that emerging and evolving technological advances in drones and robotics will provide significant advantages,” said Robert Liscouski, CEO of Adsient, an advisory firm specializing in security risk management and former Assistant Secretary for Homeland Security. “It will undoubtedly become a game-changing competitive advantage to those companies that are agile enough to consider breaking from the traditional security models and reliance on primarily government funding. Startups backed by venture capital can and will disrupt the military industrial complex.”

Finding funding for R&D as well as clients for new and untested technologies has always proved troublesome to tech start-ups. The boon in funding in military and national security could provide the dollars that many smaller players in the tech space need to scale their businesses. Its incumbent upon tech CEOs to carefully assess their capabilities to determine how to evolve their companies and cash in on the Trump Administrations focus on military spending.

Richard Hecker is the CEO of Traction + Scale, an investment holding company that builds companies transform their industries. He is also the co-founder of SeedingX.org. You can follow him on twitter @RichieBlueEyes

Arick Wierson is a former political and communications adviser to New York City Mayor Michael Bloomberg and currently advises US companies on growing their businesses overseas in emerging markets. You can follow him on Twitter @ArickWierson

How to Cash in on the Burgeoning Military-Technology Complex