Following the official launch of our Defense Tech practice, we sat down with the team’s Dan Gwak, Chris Morales, and Ryan Solís, plus Deep Tech lead and Managing Partner Sri Chandrasekar to talk about their experience in the space, why they think now is an exciting time for Defense Tech, and how they intend to apply their expertise in areas like Deep Tech and AI to help address the critical needs of founders and end users in the Defense Tech space:
To start, can you give us a high-level overview of what Defense Tech is and what it encompasses?
Dan Gwak: A new generation of tech startups is emerging whose mission is to strengthen the national security of the U.S. and its allies. These startups are building products powered by emergent technologies that we believe can shift the global superpower balance as we know it today. Together, they comprise the Defense Tech category.
How does Defense Tech fit into Point72 Ventures’ wider portfolio?
Dan: Point72 Ventures is a global venture capital firm built on a foundation of domain expertise. We invest in areas where we believe that domain expertise matters, and we hire teams with deep experience to pursue those opportunities.
Our efforts in Defense Tech are a classic example of that formula. Defense Tech requires very specific domain expertise because almost everything about investing in Defense Tech is different from generalist SaaS investing. Guiding product development, assessing product/market fit and designing a scalable go-to-market strategy all require the specific experience that we think is reflected in Point72 Ventures Defense Tech team.
Tell me more about the Defense Tech team at Point72 Ventures. Who is on it and how did each person build their expertise?
Dan: Our team is comprised of people who have spent their careers in the defense tech industry, both from inside the government as users and from the outside as investors. Sri Chandrasekar and I met a decade ago while working at In-Q-Tel, the strategic VC arm of the U.S. Intelligence Community. Before that, Sri spent nearly a decade building communications equipment for the military, and I used that equipment as a Marine infantryman.
Chris Morales and Ryan Solís also come from military backgrounds, in addition to having deep tech and investing pedigrees. Chris served as an F/A-18 Weapons Systems Officer in the Navy and was a tech investment banker. Ryan spent time as an intelligence officer in the Marines and worked at the Department of Defense’s (DoD) Defense Innovation Unit.
Everyone on this team is deeply passionate about the mission we invest in, and we benefit from an “in the trenches” understanding of user needs.
Do you think serving in the military helped you become a better investor? Why?
Chris Morales: I had the benefit of working with and for great leaders when I served in the Navy. They were mission-driven, clear eyed, charismatic, empathetic, and had high standards. I look for those same qualities in the founders we back.
Also, I can’t help but remember how hard it was for the military to buy or maintain some of the simplest things – from modern computers and software to functioning toilets on aircraft carriers. Understanding how the DoD gets some of the basics wrong allows me to empathize and support our founders as they navigate those challenging dynamics.
Ryan Solís: My time in the Marine Corps left me with a sense of urgency, a feeling that things need to change quickly and meaningfully, which informs my perspective every day at Point72 Ventures. When I was on active duty, I saw firsthand the problems with the way we equip our service members. Back then, I knew there were better tools out there, but I couldn’t change what we had, certainly not on a meaningful scale. Now I have that opportunity and I bring a deep sense of empathy for the end-users, the men and women in uniform, whom we ask daily to do exceptionally hard work. There are real costs to not getting the best available technology into the right hands and it would be hard to fully grasp that reality without my time in the Marine Corps.
What are some of the unique regulatory and national security challenges that come with building a Defense Tech company?
Ryan: Winning the DoD as a customer is the central goal and one of the tallest hurdles. The main challenges to building a Defense Tech company include navigating strict procurement processes, long contracting cycles, a sea of innovation units with varying track records, and limited access to end users.
Chris: DoD’s spending priorities typically take 3-4 years to be reflected in the budget, meanwhile officers rotate every 2-3 years. This means that commanders rarely get to execute on his or her own funded priorities – they’re usually executing on their predecessor’s. It gives them less flexibility and motivation to buy what they really want when they actually need it.
This rotation can also present a problem for startups trying to sell into the DoD, as it often takes a strong champion inside the unit to cut through the red tape and get a sale done. And if that champion rotates, the startup must start from scratch with someone new who may not be as motivated or have as much clout within the organization.
How do you help your portfolio companies navigate those challenges?
Chris: We aim to help our founders overcome these challenges just as we would with a commercial startup. We guide them through their product and go-to-market strategies – these are just aimed at different users and customers. We help them build their teams by connecting them with talent and advisors who we think can help them navigate the ecosystem. If we know a potential end-user from our time on active duty or broader network who could benefit from the company’s technology, we’ll make that connection as well.
But more importantly, we try to be a sounding board as they’re navigating a path fewer founders have before. Which programs and customers should they target? When should they think about security clearances? How do you stand up a government relations strategy? These are the types of questions we try to help our founders answer.
What qualities and characteristics do you look for in founders of Defense Tech startups, and do they differ from other types of startups?
Chris: Every startup needs passionate, talented, and smart founders who are willing to run through walls to get their company to where it needs to be. For this sector, founders need those same qualities, but they also need someone on their team who is familiar with how the national security establishment works.
Ryan: I’m most excited when I find a founder who understands the problem they’re working on so deeply that they can articulate not only why the status quo is failing, but also how their vision of an alternate future fits into DoD operations broadly, nests within operational units’ practices, and ultimately enables service members to do their jobs more effectively. That ability to go from top-level macro to the most micro view is critical and to me it’s the hallmark of a strong team.
With the current geopolitical climate and increased focus on national security, what makes now a unique and opportune time to invest in Defense Tech companies?
Ryan: COVID exposed supply chain vulnerabilities, the conflict in Europe is challenging post-WWII territorial norms, and U.S.-China competition is actively taking place in the economic, military, tech, and diplomatic realms. Together, we believe these global trends are fundamentally altering the consensus view of national security, to now involve a healthy industrial base, tech sharing, secure supply chains, and near/onshoring critical tech manufacturing. This new understanding, and the U.S. government’s increased willingness to partner with new technology providers, makes now a critical moment to make meaningful change in national security.
How do you see artificial intelligence and machine learning shaping the future of the Defense Tech industry, and what specific applications do you believe will be most impactful?
Sri Chandrasekar: I believe that AI and machine learning can do for people in information professions what the steam engine did for manufacturing over a century ago. If you look at the current defense and intelligence missions – they are largely information professions. It’s intelligence analysts researching our adversaries and documenting what they find to guide our policy makers. From cyber professionals defending our virtual borders to top-of-their-game engineers who are building the future of autonomy, we believe all of them can massively benefit from these technologies.
How do you address concerns around the potential for unintended consequences or the misuse of these emerging technologies?
Dan: I think that the power and potential of AI in Defense Tech is to reduce unintended consequences while increasing the intended consequences of combat. The key to achieving this outcome is to more accurately surveil and understand the enemy, and to act as precisely as possible. Technology offers a step-change in our ability to do that.
One of the clearest historic examples of this is the introduction of guided munitions, which have largely eliminated the truly horrific carpet-bombing campaigns that pre-dated them.
Defense Tech should make the world a safer place. Our ability to respond to a belligerent threat swiftly and accurately should make our enemies think harder about waging war while simultaneously protecting innocents from collateral damage when conflict is unavoidable.
Given the increased focus on national security and Defense Tech innovation, how do you see the role of venture capital evolving in the Defense Tech industry, and what impact do you believe that will have on the broader landscape of innovation and investment?
Ryan: I think Venture is already playing a role in helping startups navigate the uncertainties of working with the DoD, through financing, network support, and business guidance. But there’s more to it and our role is growing every day. I’ve been encouraged by the eagerness of key stakeholders to engage with our team to learn what trends we’re seeing from startups in the space, to brainstorm ideas for overcoming well-known hurdles for founders, and serve as thought partners as we try to make the entire system better. My hope is that venture can act as competitive pressure in the Defense Tech space. New entrants should have a real shot at unseating legacy players if their tech is better.