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National Security, Human Performance and U.S. Private Capital Markets.

Jeff Eggers, Managing Director - Risk and Return

16 MAY 2022

As a young Naval Officer in the 90s, one of my mentors was among the first to go “over the beach” in Iraq in the first Gulf War. At the “tip of the spear,” the team was outfitted with cutting-edge infrared optics. However, upon reaching their objective and pulling the precious sensor from its case, it wouldn’t power up. Unfortunately, the case holding the sensor had not been properly water-proofed and it leaked on their swim to the beach. The story drove home the first “truth” of special operations forces (SOF), that “humans are more important than hardware.” If penned today, the truth might read “humans are more important than software." In either case, and in the context of shifting global threats, it is worth reflecting on whether these words still ring true.

On the heels of an embarrassing failure in Afghanistan and amidst conflict in Europe that harkens back to the Cold War, there is growing chatter that America’s uni-power position of military dominance may be coming to an end. The cacophony of warnings from defense insiders is difficult to ignore. Chris Brose, for example, spent a first career working to bring attention to this problem as a staffer on the Senate Armed Services Committee. After leaving public service, he laid bare his frustrations in his book “The Kill Chain,” which suggests that America might lose a war with China.

China has made some of its gains by free-riding on America’s educational institutions and technological innovation. This could be interpreted as a reassuring sign that America is still on top. There is some truth to this, but America’s drivers of innovation are too often fire-walled from the technology driving our military. Our much-prized edge in technological innovation is not translating to the same advantage in defense capabilities.

Chris Brose is now outside government, an employee of the defense technology startup Anduril, and ironically may be in a position of greater influence to remake defense innovation. Frustrated by the renowned sluggishness of our formal defense acquisition system, smaller-scale start-up companies are fighting to get a seat at a table long dominated by behemoths contractors. While larger companies are still trusted to build the next submarine or fighter jet, smaller startups are increasingly seen as a better source of much-needed innovation. Startups can’t replace the track record of famously productive defense R&D institutions like DARPA, but their capital efficiency, agility and access to talent makes them a critical part of the innovation ecosystem.

Of course, there are challenges with a venture start-up approach to solving problems of national security. For instance, it is more difficult to manage classified information and security issues across an ecosystem of thousands of small companies. Moreover, some of these companies are foreign controlled, if not foreign owned. And it is unsettling to think about what happens with the data they’re collecting on US defense systems.

Many in this quiet revolution are focused on software, developing the machines and algorithms that will enable the defense contractor hardware and increasingly take humans out of the loop. By contrast, our philanthropic venture fund invests in technology that optimizes the humans in the system. We’re in the minority – there is still far more investment in machine learning than human learning. But in this new arms race between the autonomous “kill chain” systems being built by China and the counter-drone systems being developed by U.S. startups, a key military advantage still lies in unlocking the performance of the humans that will operate these complex systems.

American soldiers are early adopters of wearable technology that gives them human performance data, such as Whoop straps and Signos glucose monitors. But this also opens potential vulnerabilities, such as the 2017 fiasco where fitness data broadcast to the internet was pinpointing U.S. troop locations to our adversaries around the world. This highlighted the disconnect between military technology and commercial innovation, just as it suggests an area of opportunity for investment.

For instance, our firm partnered with the Atlanta-based company Spear Human Performance, who were the first to enable commercial wearable sensors to communicate with sensitive U.S. military data systems, such as electronic health records, while meeting strict Pentagon security requirements. These types of technology will allow defense health systems to improve soldier fitness and wellness by securely monitoring health across a wider array of inputs, to include the commercial wearable many soldiers are already using.

This type of investment must be made in the right way, with the right kind of company. Spear, for example, is a U.S. owned company, with U.S. source code and U.S. investors (the same is not true for some of their competitors). If the U.S. government simply contracts to the lowest bidder, and doesn’t take such factors into consideration, we may be creating new defense vulnerabilities in our quest to solve others. And if U.S. investors do not account for such issues, they’re helping foreign influence find a back door to U.S. defense systems.

While the performance of the Russian army in Ukraine appears more 20th than 21st century, it is unlikely we would see the same incompetence from China. As the U.S. spent two decades after 9/11 dulling its sharp military knife against a third-world rock, China was modernizing. Conflict in the Straits of Taiwan would look nothing like the fight for eastern Ukraine. The Pentagon has opened its eyes to the need to “pivot” back to these “near-peer” competitors. Private capital investors who care about national interests should do the same, and they’d do well to prioritize investment in humans alongside hardware (and software).

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