As DIUx expands, it starts putting money where its mouth is

DoD's Defense Innovation Unit Experimental fell on hard times, but it could be hitting a resurgence.

Today the Defense Department opened the third campus of its tech innovation hub known as the Defense Innovation Unit Experimental (DIUx) in Austin, Texas. But as DoD continues to expand its Silicon Valley-based gamble, the question on everyone’s mind is what is coming out of it?

Austin joins Boston as the second field campus to DIUx, now giving the organization West Coast, East Coast and central locations.

“Coming here made perfect sense. The ‘Silicon Hills’ of central Texas have long been a hotbed of scientific and technological innovation — from the garage inventors and dorm room entrepreneurs who follow in Michael Dell’s footsteps, to the startups nurtured in incubators like Capital Factory, to the researchers and grad students breaking new ground on campus at [University of Texas],” Defense Secretary Ash Carter said during the Austin campus opening.

The Austin campus will work differently from its counterparts in that it will be less of an office for rubbing elbows with tech executives and more of a collaborative work environment where reservists and tech company employees can work together.

“The details are still to be determined, but I think the hope is that for reservists who are working at technology companies, rather than going and practicing drills in Kentucky, they go and work on other interesting technology projects,” said Ben FitzGerald, a senior fellow at the Center for New American Security.

Doug Beck, Apple’s vice president for North America and Northeast Asia, is heading DIUx’s reserve unit.

Carter said he hopes the Austin campus will expand DIUx’s reserve element.

“Once [the reservists] come on board, they’ll serve part-time — that is, in their regular reserve capacity — to help connect the broader DIUx enterprise with local and nearby companies that are developing promising technologies with potential customers across the Defense Department. They’ll work in close coordination with DIUx partners based in Silicon Valley and Boston. And if this model continues to succeed, we’ll look to replicate it in other innovation hubs around the country,” Carter said.

Return on investment for DIUx

With DIUx expanding many are wondering what DoD is getting out of the initiative. What’s it’s been getting seems, for now, to be a transformation from a once failed experiment to a successful startup.

Carter announced the creation of DIUx in August of last year and tasked it with building relationships with nontraditional defense companies and scouting for breakthroughs. He then sat the headquarters in the center of California’s tech Mecca and waited for results.

That didn’t end up working as planned.

“DIUx right out of the gate was really trying to get its legs under it, really trying to figure out what it was,” said Stephen Rodriguez, partner at Sinewave Ventures. “It had a tough mission because it immediately had metrics imposed upon it for success and for execution. … It was also compounded by the fact that when you engage these startups the best way to have creditability is to have your own balance sheet, your own capital fund, so people actually know you have money to invest.”

That’s not DIUx, at least it wasn’t then. But companies were excited by the idea and inundated DIUx with meetings.

But when they found out there was no money to be invested the calls dropped off, Rodriguez said.

“[DIUx] just sniffed around, they’re not an actual serious customer,” Rodriguez said.

By May 2016, DIUx had put no money on contracts.

That’s why Carter decided to revamp DIUx by completely changing the leadership and structure of the organization.

The change in the office is “taking a page straight from the Silicon Valley playbook” by iterating rapidly to make DIUx better, Carter said during a speech at DIUx headquarters in Mountain View, California.

DIUx started reporting directly to Carter.

“This is to signify the importance I attach to this mission and also the importance of speedy decision making,” Carter said. “I will work in close coordination with our Deputy Secretary of Defense, Bob Work, and the Vice Chairman of the Joint Chiefs, Air Force Gen. Paul Selva. And to maximize the rapid uptake of promising technology, I’m directing DIUx to work closely with DoD’s rapid acquisition cells and R&D community.”

DIUx also shed its government leader and took on Raj Shah, co-founder of cybersecurity company Morta Security, as managing partner.

Carter put $30 million into DIUx’s coffers too.

In just four months after the reboot DIUx has seen some significant changes.

“Raj [Shah] and his team are already bringing in game-changing technologies that will benefit America’s warfighters. They’ve closed five deals in the last three months, totaling $3.5 million. It took an average of just over 50 days after they first interacted with a company to award these funds — that’s lightspeed for the Department of Defense, and appropriately so. And they have another 22 more projects in the pipeline, for an additional $65 million — in areas like network defense, autonomous seafaring drones, and virtual war-gaming,” Carter said.

FitzGerald said the $65 million number is interesting because it’s larger than the budget of DIUx. That means DIUx is using collaborative funding especially in some drone projects that have been used to map internal spaces.

“The good sign is they have a proven ability to put dollars onto contracts and get stuff done,” FitzGerald said.

He added that DIUx is one of the few parts of DoD that is using new authorities granted to the department in prototyping and commercial buying.

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