The space industry used to be dominated by a single player: the U.S. government, which contracted out services to a handful of very large aerospace primes and put their tech to use in long-term, centrally managed programs. Things have rapidly evolved since. Due to an explosive technological acceleration and, in part, venture capital and private equity, the U.S. government is one customer among many – but it doesn’t intend on being left behind.
To that end, the U.S. Space Force’s (USSF) SpaceWERX office has entered into a partnership with the eleven-month-old venture capital firm Embedded Ventures that’s aimed at building out research and development opportunities that can both grow the domestic space economy and can be used to defend the country’s interests.
This is the first time the USSF has entered into this kind of R&D agreement, called a Cooperative Research and Development Agreement (CRADA), with a VC firm. It’s also yet another sign that the U.S. government is looking to benefit from the practices and funding model of venture capital.
CRADA’s are traditionally used between the U.S. Department of Defense and startups looking to collaborate with the government. But after a few phone calls between Embedded Ventures and government officials, like Lieutenant Colonel Walter McMillan, “the rest is history,” Embedded’s co-founder Jenna Bryant said in a recent interview with TechCrunch.
There’s a lot of missed opportunity, on both the side of venture capital and the DOD, that this five-year partnership could help alleviate, Embedded co-founder Jordan Noone told TechCrunch. For one, venture capital can move much more quickly than the public entities can. VCs also have their ears to the ground on new and emerging technologies that defense interests could stand to benefit from.
Startups could benefit from the partnership as well. For many young companies, working with the U.S. government is a complicated, intimidating process, one characterized by long contractual timelines or highly regulated processes. Much of it comes down to education: startups making strategic decisions that will set them up to be eligible for a government contract, and it’s there that a VC firm could help.
“There’s not a lot of positive pressures from the venture capital community to encourage these dual-use tech opportunities,” Noone said. But such opportunities can be lucrative, for those companies willing to overcome the barriers to applying for a contract.
For Embedded’s part, they’re far more likely to take a risk on a company if there’s a probability that there’s a huge customer – the U.S. government – on the other side. Plus, the space technologies that could play a major role, say, twenty years from now will likely be ones that need a public-private partnership, Noone said, similar to how SpaceX was seeded in part by investments from NASA.
“How did we end up in an ecosystem in the venture community where Silicon Valley was birthed making technologies during the Cold War, and now they solely make consumer apps?” Noone said. “What happened in between and how do you steer the ship back where there is a national security relevance to Silicon Valley?”
Embedded and the USSF will meet regularly to talk progress and to set benchmarks along the way. As this is a new type of partnership under the CRADA program, involving no financial exchange between either entity, part of the goal is actually defining what a successful partnership looks like, so it could be replicated in the future. While there’s no requirement that the two entities co-invest, it may be one result of the collaboration, an Embedded spokesperson said.
“People in industry are always talking about, ‘how we can all work together, move at venture pace,’ but no one’s actually doing it,” Bryant added. “It matters to me that we do something right now.”