The Problem
Innovating for National Security
The defense industrial base has changed dramatically since the end of the Cold War. In the 1950’s, the U.S. federal government accounted for 60-70% of national spend on research and development (R&D). Since then, the source of R&D in the U.S. has fundamentally shifted to private industry which accounted for 76% of total spend as of 2022
At the same time, the defense industrial base has undergone significant consolidation as the number of major prime contractors decreased from 51 in 1993 to just five by 2001. This small group of primes has become too big, bureaucratic and risk-averse to innovate at the speed of relevance, and yet it still accounts for one-third of total Department of Defense (DoD) obligations.
During this transformation, the DoD’s buying power has also decreased. The percentage of gross domestic product allocated to defense now hovers around 3% (as compared to 5-6% in prior decades). Interest payments alone on the national debt are more than the defense budget ($950B vs. $840B), which puts downward pressure on defense spending. Ongoing domestic political tensions also create uncertainty around the timing and amount of DoD funding that will be available each year. This fiscal environment has forced the DoD to make tradeoffs and find efficiencies to deploy its resources more effectively.
Meanwhile, U.S. foreign adversaries have become increasingly antagonistic and emboldened, as they threaten U.S. interests at home and abroad. China continues to take provocative actions in the Indo-Pacific theater, Russia’s invasion of Ukraine threatens NATO allies in Europe, and conflict in the Middle East has escalated as Israel defends itself from Iran and its proxies. And the exquisite platforms that once dominated the battlefield can now be out-maneuvered, neutralized, or even destroyed by software-defined, attritable, autonomous systems. Legacy warfighting has evolved from air, land, and sea to now include cyber and space, and advanced-AI and software-defined systems will be required to dominate these domains.
For the U.S. to win on tomorrow’s battlefield, it must dominate in the field of AI, develop new platforms, and transform existing ones to be software-defined and constantly improved. The U.S. must expand the scope of the defense industrial base and fully leverage the extraordinary innovation of the commercial industry to ensure the U.S. remains preeminent and our national security is second to none.
Positive Momentum
The DoD recognizes the necessity for newer sources of innovation. It increasingly demonstrates an interest in engaging non-traditional partners to address evolving national security challenges. Within the last decade, the DoD has launched several new programs and initiatives to modernize its supply chains, accelerate its acquisition timelines, and adopt the most innovative technologies. In 2015, the Defense Innovation Unit was established to rapidly prototype and procure commercially available solutions. Since then, several new defense innovation organizations have launched including AFWERX, Army Futures Command, NavalX, the Marine Innovation Unit, and the Office of Strategic Capital.
While there is still room for improvement, these organizations are working hard to accelerate the development and delivery of innovative solutions to defense programs. Furthermore, the private sector is growing as a major player as new companies like SpaceX, Shield AI, and Anduril gain significant traction in the defense sector opening the door for other non-traditional defense vendors to participate.
Private capital markets have taken note of this momentum and are increasingly allocating funding to early-stage defense and national security companies. According to PitchBook, $135.5B was invested into aerospace and defense companies from 2016 to 2022, with $35.8B invested in 2022 alone. And despite a broader slowdown in venture capital in 2023, investment in defense-tech companies remained steady at $34.9B.
Why Red Cell Partners
Success in the defense market requires patience, strong partnerships, operational insights and understanding, and expertise in navigating defense contracting pathways -- attributes that are fundamental to Red Cell’s company building process. Although investment in defense-tech has seen a recent boom, the sector can prove frustrating to generalist investors accustomed to faster processes, decisions, and returns. As the initial hype fades, many investors will retreat, finding the complex federal procurement process and specialized knowledge requirements too demanding. But DOD acquisition is like a freight train that is slow at the start, but hard to stop once it starts moving. Importantly, the overall market is likely to remain robust as geopolitical tensions continue to increase and the Pentagon’s leaders continue to push for technological innovation. The eventual pullback will create opportunities for firms like Red Cell with deep domain expertise to fill the gap and gain a competitive advantage.
For Red Cell, national security is not just an area of investment, it is a driving force and critical component of our mission. We build national security companies around five core principles:
Enlightened Leadership
Visionary leaders from within government and industry who will support and champion the business from inside the DoD.
Aligned Founders
Founders who embody Red Cell’s core values—passion, mission-focus, collaboration, experience, and accountability.
Disruptive Innovations
Products and technologies with the potential to unlock value by disrupting, modernizing, or creating national security tools, processes, and systems.
Qualified Demand Indicators
Solutions that align to stated priorities of DoD services and program offices with access to the right funding and contract opportunities.
National Security Strike Zone
Red Cell enables startups to focus on growth by providing critical capital and leveraging a team of domain experts specialized in product, engineering, finance, legal, operations, communications, talent, branding, and marketing. We curate the most promising ideas and dramatically accelerate their time to market through our industry knowledge, strategic networks, technology expertise, and experience navigating regulated markets.
More specifically, Red Cell builds companies that leverage critical emerging technologies for defense and national security. Our sweet spot is software-defined technology that leverages artificial intelligence as its core differentiator, but we are excited by any critical emerging technology that advances these three strategic imperatives across the National Security value chain:
Industrial Resilience
The industrial base and critical infrastructure sectors must withstand, adapt to, and quickly recover from disruptions or crises to produce, deliver, and sustain essential goods and services for national security. This includes maintaining manufacturing capabilities to produce needed defense systems and components, as well as capacity and redundancy to meet surge requirements during conflicts or emergencies.
Operational Readiness
U.S. forces must be able to respond to threats, crises, and assigned missions quickly and effectively. This requires those forces to have proper training, preparedness, protection, equipment, logistical support and agility, and information necessary to meet the demands of their missions. With a civilian workforce of nearly one million, the DoD has challenges like any global organization including personnel vetting, energy costs, network security, and facility maintenance and repair. The DoD’s internal operations can be streamlined with innovative tools that modernize its business processes and practices.
Force Capability
The U.S. military must have the ability to deter, counter, and defeat adversarial threats while also achieving its strategic objectives. This requires rapidly employing new and innovative technologies to meet evolving threats and creating asymmetric advantages that enhance lethality and survivability of our warfighters. Military commands and joint forces must also be able to coordinate and direct military forces for maximum impact across multiple converging domains (e.g., cyber, space, information, electronic warfare, etc.). This requires capabilities like advanced communications and computer systems for information processing, access to intelligence, surveillance, and reconnaissance assets and other decision-support tools.
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Apply to Red Cell Go
Red Cell Go is an opportunity for entrepreneurs with deep domain expertise to partner with an established incubator to explore and validate innovative ideas that have the potential to become the next Red Cell incubation company.
We invite entrepreneurs with extensive knowledge in their fields and a game-changing idea capable of making a meaningful impact to apply.