Leveraging the Defense Innovation Ecosystem for Maximum Effect

Introduction

At a moment when the resilience of the wartime acquisition system is a national priority, start-ups, primes, investors, and the U.S. government must align to turn abundant investment and attention into durable operational capability. A resilient defense industrial base (DIB) depends on the deliberate interaction between mission-driven development and market-driven investment, each providing unique and complementary capabilities. As people who sit at the intersection of these relative strengths and weaknesses, running the venture capital arm of a traditional defense prime contractor, we fully appreciate the complementarity of these varied forms of funding and the need for both.

Key Takeaways

• Players in the DIB ecosystem have complementary roles that can enhance resilience, rather than crowd each other out. Start-ups innovate and iterate fast; primes integrate, scale, and sustain. The government sets priorities, standards, and feedback.
• Strategic partnerships between start-ups, primes, corporate venture teams, and mission-driven investors create durable pathways to scale and operationalization.
• Deliberate alignment—cultural, contractual, and institutional—reduces risk and unlocks capability at operational speed.

Venture Capital: A Diffuse Infusion

The recent influx of risk capital into the DIB is welcome and brings with it several advantages. First, venture-backed start-ups enjoy flexibility in research and development (R&D) spending that enables experimental approaches without the near-term scrutiny that comes with being a publicly traded company. Second, they outcompete primes and the government for software and artificial intelligence (AI) talent. Third, investors have absorbed early technical risk in areas without stable requirements—AI, low-cost autonomous systems and attritables, and smaller-scale advanced manufacturing fueled by AI.

However, start-ups often lack the manufacturing expertise, resources, and integration support needed to scale prototypes into mission systems. Flashy demos may succeed in pilots but often falter when confronted with capital-intensive realities like designing for certification, manufacturing scale‑up, and rigorous test and evaluation. In addition, rising costs, compliance with federal acquisition policy, and manufacturing timelines can quickly test investor patience.

Independent R&D Investments Enable Next-Generation Exquisite Weapon Systems

Venture capital is also not a panacea. In some cases, the anticipated return on investment may not justify venture capital investments in the development and maturation of enabling technologies for exquisite weapon systems. This is due to longer timelines for bringing products to a market dominated by a single buyer—the Pentagon—and the required capital expenditure investments in manufacturing facilities and capabilities. Congress recognized these challenges and provided the authority for independent research and development (IR&D) dollars in the 1980s to incentivize private investment in defense technologies.

Primes and subsystem suppliers invest IR&D dollars in developing new materials and coatings, advanced aircraft structures, and advanced propulsion technologies. These IR&D investments are coupled with significant capital expenditures in advanced manufacturing facilities and capabilities ahead of—and without certainty for—contract award. These types of investments provide the patient capital needed to meet the scale and timelines required to build new programs of record.

Primes are also uniquely suited to design for manufacturability, reliability, and maintainability and manage system-of-systems integration and certification. As private capital becomes more embedded across the value chain, primes can serve as the bridge from prototype to deployable capability. This is where traditional funding mechanisms such as IR&D remain critical—providing traditional contractors with flexibility to continue managing complex technology development efforts as a national security imperative, without private capital return expectations.

Strategic Partnerships

The highest-probability path to operational impact is intentional collaboration across the DIB ecosystem that leverages start-ups’ strengths and closes the “valley of death” between prototype and deployment. Through strategic partnerships, private capital and IR&D work in tandem instead of competing. The government, in turn, gets the benefits of the talent, tools, and funding from a diverse ecosystem to address capability gaps, derisk emerging technologies, and thereby enhance resilience in the DIB.

Vital players in the ecosystem are the corporate venture capital teams and enlightened capital partners that align incentives across the defense innovation ecosystem by identifying business unit gaps and channeling capital to economically viable solutions. Our experience shows how early engagement lets ventures shape product roadmaps toward enterprise fit, turning investments into enduring partnerships that provide start-ups with engineering and customer expertise, institutional credibility, and a clear path to scale.

The Government’s Role: Shape, Standardize, Support

With IR&D and private and corporate venture capital in the mix, the government is no longer solely responsible for funding R&D directly under contracts. Instead, it can focus on its unique role in shaping the problem: define mission priorities, establish integration standards, and provide actionable feedback.

Historically, governance structures, incentives, and processes were optimized for hardware-centric platforms with multidecade lifecycles, which fail to benefit from the pace of software-driven, iterative innovation. Addressing this mismatch requires evolving how capabilities are developed, integrated, and scaled across the industrial base.

The following examples illustrate how clear priorities, standards, and early enterprise validation convert innovation into producible capability.

Alignment in Action

In aviation, the valley of death can extend to a great canyon. The challenges of designing, engineering, manufacturing, and certifying reliable systems—let alone at scale—can squelch the tenacity and innovative edge start-ups bring to the industrial base. At Boeing, we are currently working on two projects with novel approaches to overcome these obstacles.

Boeing’s work with Salient Motion, a start-up developing modular, software-enabled actuation systems, offers a model for responsible integration of emerging hardware into certified platforms. The partnership is currently focused on certifying actuators for utility and auxiliary applications, with the goal of compressing multiyear certification cycles into months by reusing certified software across hardware configurations. Lessons learned on non–flight critical systems are deployed incrementally to higher-assurance applications. The collaboration reflects a broader dynamic across the defense industrial base: Start-ups bring speed and software-first innovation, while primes provide a disciplined engineering environment, access to certification data, and a credible path from prototype to production.

A second instructive example is our collaboration with Blank Slate, an early-stage technology company focused on training and workforce enablement. A pilot project is currently underway with Boeing Commercial Airplanes to evaluate the platform’s ability to improve knowledge retention and reduce error risk among maintenance technicians. This project utilizes a deliberate, evidence-based approach with structured cohorts, rigorous measurement, and subject matter expert reviews at every stage. If results confirm the hypothesis, it will unlock opportunities for scaled deployment across all three of Boeing’s business units. For Blank Slate, the relationship with Boeing offers tangible strategic value—providing the operational environment, institutional rigor, and demand signal that can transform a compelling technology into a proven, deployable solution.

These partnerships enable each business to focus on core competencies and amplify its respective strengths. Start-ups that build software-enabled capabilities enhance a lead system integrators’ ability to deliver higher-quality, safer, and more affordable systems at scale

Recommendations

Primes should invest in the connective tissue, not just the capital. Writing a check is the easy part. The harder work is building the internal bridges—designated liaisons, structured pilots, clear handoffs—that make partnership with a start-up operationally viable.

Venture-backed start-ups should approach traditional enterprise alignment as a growth strategy, not a constraint. Start-ups that engage early and commit to real integration are not compromising their edge—they are building a defensible position that purely financial investors cannot replicate.

Policymakers can encourage and incentivize collaboration between defense primes and start-ups—and build more supply chain resilience—by maintaining flexible R&D investment mechanisms, streamlining acquisition processes for all DIB participants, and establishing programs with appropriated funds to qualify alternative sources of supply in legacy systems.

Conclusion

Deliberate partnerships that harness the strengths of each stakeholder—as well as fair and open competition—are the most reliable routes to a resilient, mission‑ready defense industrial base.

About the Authors

Aaron Peterman is the managing director for Boeing Ventures, where he identifies and helps to scale technologies and teams that can move from innovative prototypes to mission‑ready systems by combining commercial speed with aerospace discipline.

Sohaila Mali is a strategy analyst for Boeing Phantom Works, which integrates across multiple technology areas to bring innovation and speed to capability development.

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.

About the Center for a New American Security

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