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24/7 Market News- Army targets Startups with Futures Command initiative

2019-02-26T10:51:26-04:00 Feb. 5, 2019 10:41AM EDT|

Since defense spending is one of the federal government’s biggest annual outlays, we tend to assume that the leading defense contractors, like Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC), and Raytheon (NYSE:RTN), are the most dependent on government programs.  Yet, a quick review of the landscape confirms that many important technologies are being developed and/or advanced by universities, laboratories and innovative entrepreneurs, which are even more dependent on receiving the funding that they hope to parlay into government contracts for breakthrough technologies and consumer products. 

The recently created Army Futures Command, the epicenter of the US Army Modernization Strategy, highlights the significance that the military is placing on elevating these startups and technology innovators.  Rather than set up on a military base, the Army placed a major command center near a technology hub in Austin, Texas, a very desirable high-tech metropolis that is home to the University of Texas, as well as a plethora of technology innovators, scientists, and entrepreneurs.  The belief is that, in order to more rapidly develop future combat systems and warfighting models, the Army needed to promote “a culture of innovation, discipline and accountability,” by directly engaging a wider range of potential innovators.

The Army formed eight Cross-Functional Teams (CFTs) and, by integrating representatives from program management, finance, testing, science and technology, and other critical functions, their goal is to improve new weapons systems development accountability and efficiencies, while making the American warfighter the best equipped on the planet.

This future force technology incubator model is a cultural shift for the Department of Defense, which has been driving innovation by, for example, reaching out to an internet leader, like Alphabet (NASDAQ:GOOG), when it’s time to address a cyber concern.  In addition to the direct financial reward for addressing the military need, the participants often receive further benefits, ranging from funded R&D to new commercial offerings.

The other end of the development spectrum is occupied by inventors and entrepreneurs who hear about a problem and apply unique ideas to create the optimum solution.  One such example is how Kraig Biocraft Laboratories (OTCQB:KBLB) tackled one of the highest profile, yet longest unresolved, issues; the US Army’s desire to procure mass quantities of spider silk fiber, which is believed to be the key to addressing multiple needs, ranging from the creation of the next generation lightweight anti-ballistics to numerous potential medial applications.

By creating specialized silk worms that are able to produce fibers that exceed spider silk’s performance, Kraig Labs became the leading recombinant spider silk fiber developer and has been operating under an agreement with the US Army.  On top of delivering shoot pack panels to the Army last year, which are to be anti-ballistic performance tested, Kraig Labs is currently customizing fibers for the Army.

In addition to the potential military applications, Kraig Labs is working on securing commercial agreements, as it prepares to move to the next phase of its recently launched mass production program in Vietnam.

InVision Technologies may have been the poster boy for the military/commercial blended model, as it used its research awards to “develop prototype systems to detect and track concealed weapons, to locate underground structures such as bunkers and hidden weapons emplacements, and to detect buried mines and unexploded ordnance (UXO),” for the military.

Since its passive magnetic sensor technology has been “capable of detecting the presence of metallic objects, locating their positions in three dimensions, and tracking their movements in real time,” it became a natural for airport security, which, at the time, was mostly an afterthought.

Prior to September 11, 2001, InVision Technologies’ shares were trading around the $3 mark, but, after the attacks on the World Trade Center, its revenues and share price took off, which led to a $50 General Electric (NYSE:GE) buyout.

Just as addressing NASA’s needs famously resulted in Tang, Teflon, and Velcro, many military technologies have become part of our everyday lives.  Whereas I can’t remember the last time I saw Tang in somebody’s home, just about every kitchen has a microwave oven and canned food, which are military developments.  Military travel technologies range from the Global Positioning System (GPS) and air travel to everybody’s favorite off road vehicle, the Jeep.  Other military technologies that crossed over are nuclear power, computers, zippers, armor, numerous medical breakthroughs, Nylon, and drones.

The US government’s seed-funding functions as a bridge between promising start-ups addressing key governmental needs and expanding consumer offerings, so it should be fun watching the resultant technologies that are generated by the Army Futures Command initiative.

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