From Startup to Warfighter: Sequencing DIU, OSC, and VC for Defense Innovation

Dual-use startups, companies building technology for both commercial and national security markets, are poised to deliver game-changing capabilities to the national security sector. Yet too often, these ventures stall in the infamous “valley of death,” the limbo between promising prototypes and actual military programs. As the Chief Technology Officer at Special Operations Command Pacific (and a former startup founder), I’ve seen how fragmented our current approach is.

We have three powerful capital engines in the ecosystem: the Defense Innovation Unit (DIU), the Office of Strategic Capital (OSC), and private venture capital (VC), but they’re not firing in sequence. This article issues a direct call to action: coordinate and sequence the efforts of DIU, OSC, and the pathway from Silicon Valley to the frontline. When properly orchestrated, these three actors can create defensible growth arcs for startups building for defense, translating innovation into real value for warfighters while protecting startup equity over time.

The Three Drivers of National Security Innovation Capital

DIU: Early Signal and Demand Validation, The Defense Innovation Unit is the Department of War’s bridge to commercial technology. Its mission is to rapidly prototype and field solutions from non-traditional vendors. DIU typically uses flexible contracts (Other Transaction Agreements) to award prototype projects to dual-use companies; if the tech proves out, those prototypes can transition into larger deployments. In this way, DIU provides an early “demand signal,” a validation that a startup’s product addresses a real military need. Crucially, DIU can serve as the connective tissue linking startups not just to Pentagon headquarters, but also to the Services and Combatant Commands in the field. 

Geographic Combatant Commands (GCCs) like INDOPACOM or EUCOM have urgent operational problems; DIU projects aligned with those needs ensure new tech is tested by actual warfighters, not just by staff in Washington. Indeed, combatant commands help define mission-critical needs and influence DoW acquisition priorities. DIU is positioned to funnel innovative solutions into those needs, acting as the gateway that connects a startup’s technology with the captain on a ship or the platoon on the ground. The call to action for DIU and its partners: double down on this connective role. Don’t just deliver prototypes to a service lab; deliver them to a deployed unit, get feedback from operators, and iterate. A well-placed early prototype can rally internal champions (think of how special operators in Afghanistan embraced Palantir’s intel software when the Army’s official tool fell short) and set the stage for broader adoption.

OSC: Strategic Capital for Scale - The Office of Strategic Capital, established in 2022, is a new DoW initiative to ensure critical national security technologies don’t languish for lack of funding. Unlike traditional R&D programs that rely on grants or small contracts, OSC uses non-dilutive financing tools (loans, loan guarantees, and public-private investment funds) to attract private capital into scaling defense tech. In plain terms, OSC can provide a growth-stage startup with the patient money needed to build factories, ramp up production, or weather the long lead times of defense procurement. This is a game-changer for hardware-heavy categories, autonomy, space, energy, advanced manufacturing, where huge up-front investment is required long before revenue starts flowing. OSC’s new loan program, for example, is offering ~$10-150 million loans to companies building dual-use capabilities like spacecraft, microelectronics, battery storage, and other critical tech. By design, this capital is non-dilutive; it doesn’t force founders to give up equity, which means a startup can finance its growth and preserve ownership for the long haul. 

The call to action for OSC and policymakers: integrate OSC support into the startup pipeline. When a DIU prototype shows promise, OSC should be ready to step in with scale-up funding (e.g., financing a pilot production line or specialized equipment) to keep momentum. This anchors the startup through the “valley of death,” that tricky phase where a technology needs further development and manufacturing to meet military standards, but private investors are wary of the timeline. By extending a strategic lifeline at this stage, OSC de-risks the path to revenue and gives promising companies a runway to reach the holy grail: a Program of Record.

Venture Capital: Market Discipline and Bold Bets - Venture capital is the third critical player, providing the equity financing and market savvy to turn small companies into enduring defense providers. In the past, the Pentagon’s byzantine acquisition system scared off many VCs; defense was “no-go land” for startups, but pioneers like Palantir, SpaceX, and Anduril broke the taboo and showed what’s possible. Now defense-tech is on the radar of major firms, with at least seven startups (including Anduril, Shield AI, and Saronic) each raising over $500M in venture cash. However, not all capital is equal. VCs must sharpen their teeth.

Rather than just betting on a company’s total addressable market or its ability to check government compliance boxes, investors should actively curate winners and insist on performance and product-market fit in defense. That means doing the due diligence to validate that a startup’s technology actually works and fulfills a mission need, and pushing founders to engage with end-users early. It means measuring success not just by quarterly growth, but by milestones like winning a pilot with a Marine unit, securing a favorable test report, or out-competing a legacy vendor in trials. Venture investors have unparalleled influence (note how firms like Founders Fund and a16z now wield clout in Washington), and they should use it to ensure the companies they back stay focused on solving real defense problems.

In practice, VC “market discipline” can help avoid the trap of chasing only SBIR grants or paper contracts; instead, it forces startups to prove out technical excellence and operational relevance, which in turn gives DoW and OSC more confidence to scale them up. The call here: VCs, don’t be passive portfolio managers in defense, be kingmakers. Pick the technologies that truly move the needle (whether it’s AI mission software, unmanned systems, or cyber defense tools) and pour fuel on those fires. Hold your companies accountable for delivering value to the warfighter, not just glossy demos. This active stance will increase the probability that the best solutions rise to the top and become enduring programs.

Sequencing the Pathway from Prototype to Program

Engaging these three capital sources in the right order and coordination is the key to unlocking sustainable growth for dual-use startups. Consider an ideal pathway: A small startup with a novel technology (say, a new autonomous drone or a data analytics AI) first connects with a military problem through DIU. DIU awards a prototype contract to rapidly test the solution against real-world requirements, providing the startup an opportunity to prove its tech and get feedback. This early win does two things: it validates demand (“the DoW actually needs what we’re building”) and it imbues the company with insider knowledge of the mission (making the team smarter about how their product must function for a warfighter). It’s essentially a signal flare to both the Pentagon and investors that this company has potential. Next, as the prototype shows success, the question becomes how to scale from a one-off demo to a reliable capability at fleet or force level. 

That’s where OSC and VC must collaboratively kick in. The startup will need significant capital to hire talent, expand production, navigate the certification and testing gauntlets, and perhaps sustain itself through a lengthy competitive downselect. OSC’s strategic financing can anchor this scale-up phase, covering the costly expansion of facilities or equipment without diluting the startup’s ownership. Meanwhile, venture capital provides growth equity for R&D, hires, and the inevitable challenges of ramping up, all while keeping the company oriented towards commercialization opportunities that ensure it isn’t solely dependent on one customer.

Done right, this sequencing results in a company that arrives at the Program of Record (PoR) stage with proven tech, capacity to deliver, and a healthy balance sheet. (A PoR is a fully funded, long-term acquisition program in the DoW budget; essentially, the endgame of defense adoption.) The startup-turned-supplier now has an entrenched revenue stream and a defensible market position (the DoW doesn’t easily rip out a system once it’s baked into operations), and the military gains a cutting-edge capability with an assured source. When this pipeline flows smoothly, everyone wins: the warfighter gets new tools faster, the startup grows without imploding or selling out early, and investors see returns from a durable business.

In contrast, if any link in this chain is weak, the whole vision falters. We’ve seen cases where startups secure early DoW interest but then wander for years without scaling, burning cash and hope, because they couldn’t cross the gap to a full program. We’ve also seen cases where VCs hype a “defense tech” venture that has never met an actual end-user or lacks any competitive edge, resulting in wasted public and private money. The solution is deliberate sequencing and tight feedback loops: DIU to kickstart, VC to nurture and pressure-test, OSC to fortify and bridge to adoption. It’s a campaign plan for innovation, rather than a scattered skirmish.

Case Studies: Palantir, Anduril, Saronic - Aligning Tech, Capital, and Mission

Real-world examples illustrate how aligning technical excellence, long-term capital, and mission-driven adoption yields success:

• Palantir: Founded in the mid-2000s, Palantir struggled for years to break into a defense market dominated by incumbents. The Army initially resisted its data fusion platform in favor of an in-house system (DCGS-A), but on the battlefields of Iraq and Afghanistan, soldiers and analysts began using Palantir’s tool because it simply worked better to predict and identify IED threats. This bottom-up demand eventually forced the Army’s hand. Palantir went from being blocked to winning a competition to modernize the Army’s intelligence system, and by 2019, it even took over key programs like the Pentagon’s Project Maven AI initiative. How did Palantir succeed? It had patient VC backing (raising well over $1B in private funding and staying private for 17 years), it relentlessly focused on the mission (embedding with troops to refine the product), and it leveraged any foothold it could get, including a lawsuit forcing the Army to consider commercial solutions, to eventually become a program of record provider. Today, Palantir has major deals across DoW and allies (a nearly $1B Navy software contract in 2024, and a $10B Army enterprise software vehicle in 2025) and, most importantly, its tools have become part of the operational DNA of how the Joint Force handles data. The Palantir story shows the importance of persistence and sequencing: early adoption by a few warfighters, legal/policy wins to open doors, continued infusions of capital to survive the long slog, and finally the big contracts that make it all worth it.
• Anduril: If Palantir were an endurance run, Anduril is more of a sprint. Founded in 2017 by technologists and defense insiders, Anduril took a different approach: develop the product on your own dime, fast, and put it in front of the customer. Anduril’s flagship was an AI-enabled surveillance and drone network (Lattice), which it initially demonstrated for border security and Special Operations. By self-funding prototypes, Anduril skipped some of the traditional early government grants and instead went straight for deployment-ready systems, a strategy that impressed both DoW users and venture investors. The company secured a notable counter-drone contract with U.S. SOCOM relatively quickly, proving its tech could protect bases from small UAV threats. It also didn’t shy away from partnering with the system; for instance, Anduril has worked with DIU and the Chief Digital and AI Office on cutting-edge autonomy programs (e.g., being selected to deliver collaborative autonomy software under the “Replicator” initiative). With substantial VC funding (valued over $7B by 2022) and a bias toward action, Anduril has rapidly become a defense prime-in-the-making. The key takeaway is how Anduril aligned itself with mission outcomes: it fielded capabilities that directly filled urgent gaps (like counter-drone and AI mission integration). This mission focus, backed by aggressive capital and a willingness to iterate with DoW, has led to growing adoption. Anduril and Palantir recently even allied to bring battlefield AI solutions by merging their strengths, a sign of the new guard teaming up to tackle big programs. Both companies illustrate that when startups truly solve a problem for the warfighter (and have the capital to sustain through DoW’s lengthy onboarding), they can rewrite the traditional playbook.
• Saronic: A newer entrant, Saronic is a naval-systems startup building autonomous unmanned vessels (“drone boats”) for surveillance and combat support. Saronic has raised an eye-popping ~$850 million in venture funding, making it one of the most capitalized defense-tech startups. Why so much? Because hardware for the Navy isn’t cheap, and the payoff, a major shipbuilding program, is huge but slow. Saronic’s strategy has been textbook dual-use startup: start with small R&D contracts and pilot projects, while aiming for the “holy grail” of a Program of Record. To date, the company has secured around $230M in various military prototyping contracts, proving the concept of its drone boats, but those are not yet enduring revenue. The real prize is getting the Navy to adopt its vessels at fleet scale. Saronic exemplifies the need for sequencing support. DIU (and sister programs like the Navy’s SBIR or experiment exercises) can get its foot in the door with prototypes; OSC could become vital if Saronic needs to finance new shipyard capacity or sustain engineering efforts while the Navy hashes out requirements. Meanwhile, its VCs must stay patient and engaged; as one defense investor noted, no startup will monopolize Navy shipbuilding overnight, so the company is also wisely pursuing commercial and allied markets (port security, foreign navies, etc.) to diversify. The Saronic case underlines that aligning technical excellence (innovative autonomous ships), long-term capital (hundreds of millions in VC, potentially OSC loans), and mission-driven adoption (Navy experiments, Ukraine conflict lessons learned) is the only way to create a sustainable new defense supplier. If successful, Saronic could give the Navy a much-needed capability boost in distributed unmanned warfare, a direct contribution to combat readiness, while establishing a healthy business that doesn’t rely solely on U.S. defense budgeting.

Innovation as a Strategic Imperative: From Joint Doctrine to Deterrence

This push to better integrate startups into defense isn’t just about helping companies; it directly supports U.S. military readiness and the nation’s strategic edge. Joint doctrine and campaign planning guidance make clear that innovation and partnership are critical to prevailing in the modern threat environment. The Department’s Counter-Small UAS Strategy, for example, explicitly calls for partnering with the National Security Innovation Base (NSIB), a term for America’s network of private sector tech innovators, to rapidly develop capabilities and expand manufacturing throughput for the military. It states that “establishing a strong partnership between the DoW and the NSIB will ensure a healthy U.S. commercial innovation base for the future” and “accelerate the development of solutions” for the Joint Force. In other words, our warfighting advantage tomorrow depends on investing in and adopting emerging technology today.

Furthermore, modern joint planning (see Joint Publication 5-0) emphasizes operating across a competition continuum, from cooperation to strategic competition below armed conflict, to full warfare, and doing so in a globally integrated manner. Injecting cutting-edge capabilities from agile startups directly supports this framework. New technologies in AI, autonomy, cyber, and space can help the U.S. deter aggression in peacetime by complicating adversaries’ calculations and demonstrating credible tech-enabled force multipliers. If deterrence fails, those same technologies, fielded at scale, give commanders options to fight smarter and win faster. We have already seen how a startup’s innovation can impact operations: Palantir’s software linked intelligence databases across agencies that were once siloed, massively improving data sharing for counterterrorism. That kind of integration is a prerequisite for “globally integrated operations.”

Likewise, autonomous systems like Saronic’s drone boats could enable distributed maritime operations across vast Pacific distances, bolstering the global integration of our naval campaigns. The bottom line from a strategic perspective is this: by forging a robust pipeline for dual-use innovators, we are directly strengthening joint force readiness and effectiveness. Every time a startup’s product makes it into the hands of a warfighter, whether it’s an AI algorithm helping plan a mission or a new drone augmenting a patrol, we are enhancing our deterrence posture and our combat capability. It’s high time we treat the defense innovation base as a critical enabler of national security (on par with carriers and battalions) and plan for it accordingly.

Conclusion: Calls to Action for Startups, Investors, and Government

To realize this vision of a synchronized defense innovation pipeline, each stakeholder must step up. Here are clear calls to action for each of you, startup founders, venture capitalists, and government leaders, to ignite this change:

• Startups: Commit to the mission and navigate the long game. If you’re a dual-use founder, engage with DIU or service innovation hubs early to find a real problem to solve; that early contract or field test is worth more than a dozen hypothetical use-cases. Plan your capital strategy to mix non-dilutive funding (SBIRs, OSC loans, etc.) with venture rounds so you can sustain through lengthy trials without giving away your company. Most importantly, stay close to your warfighter users: incorporate their feedback, prove your tech in tough environments, and build trust within the defense community. Your ultimate goal is not just a one-off sale, but a lasting capability for the nation; keep that in focus when making product and business decisions.
• Venture Capitalists: Be more than financiers, be force multipliers. Picking winners in defense tech requires more than writing a check. Do the work to identify startups with both outstanding tech and a clear military value proposition, then actively champion them. Leverage your networks to open doors at the Pentagon and on Capitol Hill; help your portfolio navigate defense procurement bureaucracy just as you would help with hiring or strategy. Push for measurable progress. Did the company secure a pilot deployment? Is the prototype actually outperforming legacy gear? And be willing to concentrate capital on those that demonstrate true breakthroughs. Defense is not a spray-and-pray investment space; it’s about conviction bets on the companies that can become the next Palantir or Anduril. By holding founders to high standards of performance and providing patient capital (even when revenue lags), you ensure the best tech doesn’t die on the vine. The United States needs savvy investors who understand that ROI in this sector is measured in both dollars and strategic advantage.
• Government (DoW, DIU, OSC, and Policymakers): Connect the dots and deliver the pathway you’ve promised. First, coordinate DIU and OSC efforts; these shouldn’t be parallel tracks but a single conveyor belt moving startups from concept to capability. For every pilot contract DIU awards, there should be a plan (and if merited, resources) for the next phase: perhaps an OSC-backed scale-up loan, a fast-tracked transition into a Program Executive Office, or inclusion in a larger exercise or experiment. Break down internal silos between the innovation folks and the acquisition folks; a startup shouldn’t have to start from zero after a successful prototype. Second, empower the Services and Combatant Commands to embrace these new players. That might mean educating program managers on alternative funding pathways, incentivizing PEOs to on-ramp non-traditional vendors, or using existing authorities (like Other Transactions and Mid-Tier Acquisition) aggressively to buy what works even if it comes from a five-year-old company. Congress and DoW leadership also have a role: provide stable funding for initiatives like OSC and DIU, expand them if they show results, and hold them accountable for scaling winners (not just churning through experiments). Finally, measure what matters, track how many DIU prototypes turn into programs, how many OSC-backed firms land contracts, and how startup tech is improving mission outcomes. By aligning policy, budget, and acquisition strategy around this coordinated pipeline, the government can send a loud signal to innovators and investors: if you build it and it works, we will field it, at speed and at scale. That confidence will pull in even more talent and capital to address our national security challenges.

Ambitious but Achievable: This coordination of DIU, OSC, and venture capital is a bold undertaking, but the pieces are in place. America boasts an unmatched innovation ecosystem and a military that, when galvanized, can adapt like no other. It’s time to fuse these strengths. By properly sequencing early demand signals, scale-up capital, and market discipline, we can forge a new pipeline that consistently turns startup technology into warfighter capability. For the startup founder dreaming of making a difference in national security, we want to clear your path. For the investor eyeing the next big defense win, we want your expertise fully engaged. For the policymaker tasked with keeping our military ahead, we offer a viable plan to harness the best of American innovation. The call to action is clear. Let’s align efforts now so that today’s innovators become tomorrow’s force multipliers on a timeline that matters. The defense of our nation demands nothing less.