Embracing Private Equity in the Next Era of National Security

Introduction

For decades, the United States has fielded the world’s most advanced and capable military. It has done so despite an acquisition system that is often bureaucratic, slow, and prone to cost overruns. There is now broad recognition that this model is no longer sufficient.

The competitive landscape has changed. Today’s national security challenges depend not only on technological breakthroughs but on the speed at which those breakthroughs are industrialized, scaled, and fielded. What now matters more than ever is rapidly replenishing U.S. stockpiles and fielding advanced technologies at scale to deter future aggression and prevail in strategic competitions.

One of America’s most underleveraged advantages in this competition is private capital. Private capital—from early-stage venture to private credit and buyouts—can support the national security ecosystem at different stages. Within that landscape, private equity plays a distinct role in scaling production and building durable defense‑relevant capacity. Yet across much of the national security community, its strategic value remains underappreciated.

Key Takeaways

• Venture capital investment in defense sector startups has received significant attention in recent years, but private equity funding for more established companies is playing a critical role in rapidly scaling production and accelerating the replenishment and fielding of weapon systems.
• The government can encourage private equity investment by clearly communicating capability gaps while avoiding being overly prescriptive about possible solutions and by being consistent in its approach to defense acquisitions.

A Government That Still Barely Knows Private Capital

Early-stage venture capital has earned traction in the national security conversation, thanks in part to organizations like In‑Q‑Tel and the rise of dual‑use startups. That engagement has helped surface promising technologies and new entrants.

But venture capital is only one segment of the broader private capital ecosystem. Equity capital extends well beyond startups to supporting proven companies through scaling, industrialization, and modernization. This later-stage capital—particularly private equity—is where production capacity is built, operations are professionalized, and supply chains are hardened. Having extensive experience in government and now working for a private equity firm, we see enormous potential in this space.

The United States benefits from the deepest capital markets in the world, including more than $7 trillion in private equity capital alone. In recent years, a growing share of private equity capital has flowed toward national security–relevant technologies and industrial capabilities. Even modest alignment with defense priorities could meaningfully augment the United States’ annual defense modernization funding. Realizing that potential, however, requires greater fluency in private equity across government.

The Advantages of Private Equity

Venture capital and private equity play distinct but complementary roles in the defense ecosystem. Venture capital fuels early innovation, helping surface new technologies and players. Private equity becomes decisive once capabilities must be scaled, modernized, and fielded.

If the first challenge of strategic competition is innovation, the second is execution. It is in that second phase where private equity can bring advantages the national security enterprise increasingly needs.

Speed: Measured in Months, Not Years

The United States is already inside the planning window for potential conflict with capable adversaries. Traditional budgeting and acquisition timelines are often misaligned to deliver and replenish critical capabilities at the speed required.

Private equity–backed companies can deploy capital rapidly. They can flex to expand production, invest in tooling, and build inventory without waiting for appropriations cycles or acquisition milestone gates. When demand signals are credible, capital can move in weeks and months rather than in years.

Scale: Because Prototypes Do Not Deter

Deterrence is not shaped by prototypes. It is shaped by fielded capability at scale.

Limited quantities of interceptors, uncrewed aircraft, or artificial intelligence–enabled secure communication nodes do not alter the strategic balance. What matters is sustained output and supply chain resilience.

Private equity specializes in scaling companies. It looks to enhance operations, professionalize teams, strengthen supply chains, and invest in production capacity. It turns capabilities into reliable throughput.

Flexible Capital: Unconstrained by Federal “Colors of Money”

Federal funding is segmented across research, procurement, operations, and infrastructure, each with distinct rules, timelines, and approval pathways. These divisions serve important governance purposes, but they often fragment efforts to build industrial capacity.

Private equity is not constrained in the same way. It can fund simultaneously, aligning capital across the full production stack rather than advancing one category at a time. This flexibility can accelerate capabilities well ahead of traditional timelines.

Execution: Capital Paired with Operational Discipline

Private equity’s contribution extends beyond financing alone. It brings operational discipline as well.

Defense‑relevant companies can face scaling risks that have little to do with technology itself—production bottlenecks, supplier fragility, workforce constraints, and technical risks. When capital is paired with experienced operators, engineers, industry experts, and supply chain leaders, companies are better positioned to manage those risks. In strategic competition, reliability and throughput are as important as invention.

Recommendations

For private equity to contribute meaningfully to the future defense industrial base, government practices and signaling matter. Several structural factors shape whether capital aligns with defense needs while preserving competition and integrity. The Department of War should:

1. Identify problems, not prescriptive requirements.

Overly prescriptive requirements can constrain the range of potential solutions and limit participation by nontraditional providers. When the government defines the desired outcome rather than specifying the preferred architecture, it broadens the investable landscape.

Articulating capability needs as mission problems—defending a base, denying airspace at a given cost point, or achieving a specific production throughput—invites innovation and attracts participation.

2. Provide consistency across pathways.

Capital decisions are sensitive to uncertainty. Shifting program ownership, changing requirements, abrupt cancellations, or opaque delays discourage long-term commitments.

Greater consistency and predictability across pathways can reduce execution risk and support sustained industrial engagement.

3. Communicate priorities and gaps clearly.

Clear engagement must happen at multiple levels. Strategic priorities are set by senior leadership, capability gaps are defined within program offices, and technical details are provided by subject matter experts.

Consistent communication across these layers helps participants assess feasibility, align capital, and commit resources with defense needs.

Conclusion

In this new era, strategic competition will be decided not only in laboratories or on battlefields but in factories, through supply chains, and on balance sheets.

The United States possesses the deepest and most sophisticated capital markets in the world. Private equity is not a substitute for prime contractors or government funding; rather, integrating it more strategically into the defense industrial base can serve as an extension of American strengths in mobilizing capital, talent, and industry at scale.

About the Authors

General John W. “Jay” Raymond is a senior managing director at Cerberus Capital Management and was the first chief of space operations for the U.S. Space Force.

Matt O’Kane is a managing director at Cerberus and was a member of the Senior Executive Service at the Office of Management and Budget.

About The New American Industrial Base Series

This essay series, The New American Industrial Base, features expert practitioners with experience in government, industry, and finance writing on the most pressing challenges in defense acquisition today. For more in this series, click here. The DIB series is made possible by general support to the CNAS Defense program and corporate support for the series.

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