In a keynote address at the 11th GCV Symposium, Phillip Lockwood, head of innovation at transnational military alliance Nato, laid out how the organisation is pursuing innovation initiatives now that innovative technology is no longer dominated by government research and development efforts.
Nato is also planning to launch a €1bn vehicle early next year, called the Nato Innovation Fund, that is trying to counteract four main problems. These include the undercapitalised nature of emerging and disruptive technologies and deep tech and the unbalanced distribution of risk capital across Nato member nations. The capital being deployed into deep tech by Nato’s adversaries and competitors are also a driving factor behind the fund, as is the gap in commercial innovation between the security apparatus and civilian innovators.
The defence sector is a difficult one for civilian innovators to get involved in, Lockwood explained, because it is seen as a black box in which it is unclear where to go or how to navigate the clearance process. Combined with ethical concerns, this tends to make civilian actors ignore or delay their entry into the defence and security markets.
What an organisation like Nato can bring to the table is a much larger market than those available within individual member nations, patient capital that comes from not having the same political or stakeholder management constraints as individual governments or companies, as well as expanded avenues for technology diligence that include millions of end-users among armed forces and a wide network of scientists to de-risk investments.
With a 15-year horizon and the potential to turn evergreen, the fund will be looking for commercially successful ventures – that do not rely on government grants – from pre-seed to series A-stages. It will favour hardware innovation over software and include deep tech fund-of-fund investments.
Nato’s other major innovation initiative is the Defence Innovation Accelerator for the North Atlantic (Diana), which aims to source its investments widely, pick them early and use a merit-based system. It will comprise a trans-Atlantic accelerator network in Europe and North America as well as a network of technology test centres, such as the Niels Bohr Institute in Denmark, that will help co-develop, test and evaluate new technology.
Immediately following the keynote address, in a panel that also included Nat Puffer, managing director at Central Intelligence Agency’s venturing arm In-Q-Tel, Lockwood went on to describe how government bodies’ appetite for VC risk had waned after unsuccessful attempts by departments like Nasa and the US army. In recent years, however, political and diplomatic leaders have realised that something like this is necessary.
He also stressed that the Nato innovation fund will not be based on defence technology, but on broadly available civilian technology that can have security or defence applications, the opposite of a technology like the global positioning system, which was developed as military technology that ended up having civilian applications.
Puffer described how relatively small cheques – which is what In-Q-Tel tends to invest in – can have an outsized effect in deep tech markets. It is not about the size of the initial amount, but how it is applied, he explained.
Good relationships with co-investors, he explained, have come from a strong reputation that in turn has come from strong due diligence practices over the better part of a decade.
