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US military establishes Office of Strategic Capital for critical technologies

US Defense Secretary Lloyd Austin speaks during a news briefing after participating a virtual Ukraine Defense Contact Group meeting at the Pentagon in Arlington, Virginia, US, November 16, 2022. (Photo by Reuters)

The US military has established the Office of Strategic Capital (OSC) to ease investments in the production of critical technologies such as advanced materials, next-generation biotechnology, and quantum science. 

"We are in a global competition for leadership in critical technologies, and the Office of Strategic Capital will help us win that competition and build enduring national security advantages," US Secretary of Defense Lloyd J. Austin III said in an announcement released by the Department of Defense (DoD) on Thursday.

"By working with the private capital markets and by partnering with our federal colleagues, OSC will address investment gaps and add a new tool to the Department's investment toolbox," he added. 

The gap between the research stage of a new product and full-scale production is often referred to as the "Valley of Death" in industry. 

The OSC will be overseen by the Secretary of Defense and the Under Secretaries of Defense will be on its advisory board.

"America's strategic competitors are working to influence US technological innovation to their advantage," Under Secretary of Defense for Research and Engineering Heidi Shyu said. "OSC is part of a broader administration-wide effort to ‘crowd-in' private capital in areas where our efforts can boost our future security and prosperity. Our hope is that OSC will be able to strike its first deals by early next year."

OSC aims to use non-acquisition-based tools such as loans and loan guarantees, instead of grants and contracts, to supply the capital for new advanced productions used by the military in modern warfare.

Many other federal agencies in the United States make use of credit programs to participate in capital markets through loans, loan guarantees, development funds, and other tools.

These types of federal investment tools common among start-ups in the country have been vital in helping companies such as Apple, Cray Research, and Sun Microsystems in the early stages of their development.

The OSC is unique within DoD by seeking to use proven credit programs, making strategic public-private investments in supply chains, and supporting critical technology companies from early-stage to full production.

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