Investing In National Security Innovation

In-Q-Tel's CEO Steve Bowsher, Canaan Partners' General Partner Rich Boyle, and Costanoa Ventures' Managing Partner Greg Sands are interviewed by Ernestine Fu Mak. They share their perspectives as VCs investing in deeptech and national security.

Topics covered include hardware versus software sales dynamics, dual-use versus defense-only strategies, founder evaluation criteria emphasizing domain expertise and customer access, and the treacherous “valley of death.”

Key Takeaways

• Domain Expertise and Customer Access Are Non-Negotiable

  Unlike commercial startups, where founders can build products from Palo Alto offices, defense tech requires co-founders with military or intelligence backgrounds who can access real end users for customer discovery. Ultimately, the learning rate matters more than initial expertise, because requirements writers, buyers, and end users are often three separate entities requiring complex orchestration.

• The Valley of Death Timeline Mismatch

  Defense-tech startups typically have only 6–12 months of runway, while Pentagon budget cycles take 2-3 years to execute—creating a fatal funding gap that kills promising technologies before government contracts arrive. Founders consistently underestimate timelines by an order of magnitude compared to commercial markets, requiring either creative commercial revenue bridges, patient capital from nontraditional investors, or faster government mechanisms such as DIU and SBIR to accelerate cash flow.

• Supply Chain Americanization as Investment Opportunity

  Beyond traditional defense-tech categories, the “Americanization of the supply chain” represents a massive opportunity, as the government shifts billions of dollars from overseas suppliers to domestic companies across mineral extraction, robotics-enabled manufacturing, and assembly. This is a form of global security investing broader than defense tech alone, driven by administration policies regardless of tariff strategies.

• Hardware Wrapped in Software

  The DoD procurement system remains more comfortable buying hardware than software, forcing software-first companies to initially “wrap their software in metal” before migrating back to software over a decade. While the shift toward software-defined warfare is real, government buying habits lag the vision, requiring founders to navigate this transition strategically.