Nouvelles

By: Aaron Mehta WASHINGTON — In American's technology marketplace, venture capital funds are crucial for pumping capital into small companies in need of cash infusions to keep operating. Part of the venture capital model is acknowledging that many of those businesses will fail, but if a few are successful, venture capitalists can make huge returns on their investments. At a time when the Pentagon is working hard to entice small technology companies to work on defense projects, venture capital, or VC, funding could further mature technology and give entrepreneurs a chance to keep projects going. And yet, investors seem wary of putting forth cash to support companies with a defense focus. Why? In the wake of the very public fight inside Google over working with the Pentagon — which ended with the company pulling the plug on its Project Maven participation — there was a consensus from the defense establishment that there may be a culture gap that is simply too large to overcome. But according to a trio of venture capitalists who spoke to Defense News in December, the reasons are simpler. Katherine Boyle, with VC firm General Catalyst, said the culture issue is overblown for the VC community. The reluctance to work on defense programs comes down to a mix of “math and history," she said. "The math is the reason why investors are hesitant to put a third of their fund into these types of technologies because history shows us that they haven't worked out well,” Boyle explained. She said the math can be broken down into three factors: mergers, margins and interest rates. On the first, she pointed to the fact that the defense sector has seen thousands of firms exit the market, sometimes because of acquisitions by primes. But, she argued, where mergers and acquisitions tend to occur in other parts of the world to acquire new technology or capability, in the defense realm it's all about contracting value. That makes it “very difficult for new technologies to enter the market and ultimately be acquired at the valuations that venture investors would need to see in order to have a return for their fund.” In terms of margins, Boyle pointed out that defense firms are very focused on hardware, which requires a lot of investment upfront. That makes it “very difficult to invest in for venture capital firms because software has 80 percent margins, and it's much easier to build a company that can scale very quickly if it's software-based versus needing a lot of capital,” she said. The third factor, interest rates, ties into the last two. For decades interest rates have allowed VC firms to expand dramatically — something that requires a constant flow of return from investments in order to turn around funds and quickly invest in another opportunity. In the world of defense, investors with $3 billion to $5 billion under management by the VC community will find it difficult to get the kind of returns investors are accustomed to from other markets. All three of those factors come together in a mix that means there are very few chances for VC firms to invest in defense-related companies that match up with what a VC traditionally wants to see, said John Tenet, a partner with investment firm 8VC and vice chairman of the defense company Epirus. “VC investors invest based on speed and scale and probability of a 10 to 20 times return. And so I think that's where you've seen a little bit of apprehension, at least in [Silicon] Valley,” Tenet said. “The exits haven't been that fast, and you sort of have these five big players on one side [that] sort of monopolize the market.” From a pure numbers standpoint, a good benchmark for performance is to look at the S&P 500, according to Trae Stephens, co-founder and chairman of Anduril Industries and partner at Founders Fund. Over a 10-year period, an investor in the S&P can expect to get roughly 3 times their investment back. VC firms want to be able to beat that for an investment to be worth it. To highlight the challenge of attracting VC funding to defense firms with potentially limited return, Stephens pointed to the case of Blackbird Technologies. A venture-backed player in specialized communications tech aimed at the defense market, Blackbird was bought in 2014 by Raytheon for about $420 million. That looks good on paper, but the reality is the churn isn't strong enough for a big, Silicon Valley-based venture capital group. “A lot of times in the government, people say: ‘Oh, Blackbird is this, like, great example of a success story that was like a boost for venture.' It's actually not. It's not a venture scale of return for most funds,” he said. “There are some funds where the economics of [an exit that size] is really good, but for large, Silicon Valley tier-one funds, it doesn't move the needle. And so you have to have these multibillion-dollar opportunities in order for it to really make economic sense.” Another issue raised by Stephens will be familiar to defense primes as well: concerns over sharing intellectual property with the Defense Department. The department is essentially saying “you are the right product for us, now turn over your source code,” Stephens said. “It's crazy. We're literally doing to our companies in America what we're criticizing the Chinese for doing to their companies and to our companies when we enter that market. And so there has to be a better commercial practice for enabling companies to retain their IP and do business with the government without having to fight a legal battle every time they go through a contract.” ‘Knock down the doors' Despite those concerns, all three venture capitalists that spoke to Defense News are involved in investments in defense-focused firms. So why are they spending their money in the sector? Mission is part of it — the belief that, as Americans, a stronger Defense Department benefits their firms. But that only goes so far if dollars don't follow. Once again, it comes down to math. Investing in a company focused on defense technologies, which may have to wait years to secure a contract with the Pentagon, isn't a great strategy for a VC firm looking for quick returns. But if a company is able to get government funding early on, the business suddenly becomes more worthy of investment, said Boyle. “If the government is allocating capital in the right way, it will get VC dollars immediately. Like, it will follow so quickly,” Boyle said. “I see so many people come in to our office and they have an OTA [other transaction authority contract], and they're excited. It's a small, $1 million contract, and that is great for a seed company. But if that same company came in 18 months later and said, ‘Oh, by the way, the OTA has turned into a $10 million contract,' that would meet every milestone that I usually see to series A.” (An OTA is a type of contract that enables rapid prototyping; series A financing is the investment that follows growth from initial seed capital used to launch operations.) “$10 million to the US government is nothing, but to [a] startup — $10 million is the best startup I've seen all year, if they're an 18-month-old startup and they're getting that kind of capital early on,” she said. Added Stephens: “It means they're doing something right.” That creates a chicken and egg scenario: Venture capitalists only want to invest in companies that already have a Pentagon contract, but small firms often can't keep the doors open long enough without external funding while waiting for the department's contracting processes to progress. While groups such as the Defense Innovation Unit — the Pentagon's technology hub — are helping speed along that process, it remains a problem with no easy solution, at a time when the Pentagon needs the nondefense technology community in ways it hasn't for decades. Boyle believes there is a “growing group” of investors who see the strong success of a handful of companies like goTenna, Anduril or Shield AI that have managed to break through and become successful defense-focused investment vehicles. That means the next few years are going to be critical for everyone involved. “None of us would be here if we weren't optimistic,” she said. “I actually think this is an incredible time to be investing in deep tech, particularly deep-tech companies that are selling to the Department of Defense because if it doesn't happen now, it never will.” https://www.defensenews.com/smr/cultural-clash/2020/01/30/the-math-doesnt-make-sense-why-venture-capital-firms-are-wary-of-defense-focused-investments/

By: Charles Romine Artificial Intelligence (AI) promises to grow the economy and improve our lives, but with these benefits, it also brings new risks that society is grappling with. How can we be sure this new technology is not just innovative and helpful, but also trustworthy, unbiased, and resilient in the face of attack? We sat down with NIST Information Technology Lab Director Chuck Romine to learn how measurement science can help provide answers. How would you define artificial intelligence? How is it different from regular computing? One of the challenges with defining artificial intelligence is that if you put 10 people in a room, you get 11 different definitions. It's a moving target. We haven't converged yet on exactly what the definition is, but I think NIST can play an important role here. What we can't do, and what we never do, is go off in a room and think deep thoughts and say we have the definition. We engage the community. That said, we're using a narrow working definition specifically for the satisfaction of the Executive Order on Maintaining American Leadership in Artificial Intelligence, which makes us responsible for providing guidance to the federal government on how it should engage in the standards arena for AI. We acknowledge that there are multiple definitions out there, but from our perspective, an AI system is one that exhibits reasoning and performs some sort of automated decision-making without the interference of a human. There's a lot of talk at NIST about “trustworthy” AI. What is trustworthy AI? Why do we need AI systems to be trustworthy? AI systems will need to exhibit characteristics like resilience, security and privacy if they're going to be useful and people can adopt them without fear. That's what we mean by trustworthy. Our aim is to help ensure these desirable characteristics. We want systems that are capable of either combating cybersecurity attacks, or, perhaps more importantly, at least recognizing when they are being attacked. We need to protect people's privacy. If systems are going to operate in life-or-death type of environments, whether it's in medicine or transportation, people need to be able to trust AI will make the right decisions and not jeopardize their health or well-being. Resilience is important. An artificial intelligence system needs to be able to fail gracefully. For example, let's say you train an artificial intelligence system to operate in a certain environment. Well, what if the system is taken out of its comfort zone, so to speak? One very real possibility is catastrophic failure. That's clearly not desirable, especially if you have the AI deployed in systems that operate critical infrastructure or our transportation systems. So, if the AI is outside of the boundaries of its nominal operating environment, can it fail in such a way that it doesn't cause a disaster, and can it recover from that in a way that allows it to continue to operate? These are the characteristics that we're looking for in a trustworthy artificial intelligence system. NIST is supposed to be helping industry before they even know they needed us to. What are we thinking about in this area that is beyond the present state of development of AI? Industry has a remarkable ability to innovate and to provide new capabilities that people don't even realize that they need or want. And they're doing that now in the AI consumer space. What they don't often do is to combine that push to market with deep thought about how to measure characteristics that are going to be important in the future. And we're talking about, again, privacy, security and resilience ... trustworthiness. Those things are critically important, but many companies that are developing and marketing new AI capabilities and products may not have taken those characteristics into consideration. Ultimately, I think there's a risk of a consumer backlash where people may start saying these things are too easy to compromise and they're betraying too much of my personal information, so get them out of my house. What we can do to help, and the reason that we've prioritized trustworthy AI, is we can provide that foundational work that people in the consumer space need to manage those risks overall. And I think that the drumbeat for that will get increasingly louder as AI systems begin to be marketed for more than entertainment. Especially at the point when they start to operate critical infrastructure, we're going to need a little more assurance. That's where NIST can come together with industry to think about those things, and we've already had some conversations with industry about what trustworthy AI means and how we can get there. I'm often asked, how is it even possible to influence a trillion-dollar, multitrillion-dollar industry on a budget of $150 million? And the answer is, if we were sitting in our offices doing our own work independent of industry, we would never be able to. But that's not what we do. We can work in partnership with industry, and we do that routinely. And they trust us, they're thrilled when we show up, and they're eager to work with us. AI is a scary idea for some people. They've seen “I, Robot,” or “The Matrix,” or “The Terminator.” What would you say to help them allay these fears? I think some of this has been overhyped. At the same time, I think it's important to acknowledge that risks are there, and that they can be pretty high if they're not managed ahead of time. For the foreseeable future, however, these systems are going to be too fragile and too dependent on us to worry about them taking over. I think the biggest revolution is not AI taking over, but AI augmenting human intelligence. We're seeing examples of that now, for instance, in the area of face recognition. The algorithms for face recognition have improved at an astonishing rate over the last seven years. We're now at the point where, under controlled circumstances, the best artificial intelligence algorithms perform on par with the best human face recognizers. A fascinating thing we learned recently, and published in a report, is that if you take two trained human face recognizers and put them together, the dual system doesn't perform appreciably better than either one of them alone. If you take two top-performing algorithms, the combination of the two doesn't really perform much better than either one of them alone. But if you put the best algorithm together with a trained recognizer, that system performs substantially better than either one of them alone. So, I think, human augmentation by AI is going to be the revolution. What's next? I think one of the things that is going to be necessary for us is pulling out the desirable characteristics like usability, interoperability, resilience, security, privacy and all the things that will require a certain amount of care to build into the systems, and get innovators to start incorporating them. Guidance and standards can help to do that. Last year, we published our plan for how the federal government should engage in the AI standards development process. I think there's general agreement that guidance will be needed for interoperability, security, reliability, robustness, these characteristics that we want AI systems to exhibit if they're going to be trusted. https://www.nist.gov/blogs/taking-measure/trustworthy-ai-conversation-nists-chuck-romine

by Chris Thatcher; Skies Magazine Posted on December 24, 2019 When the Aerospace Industries Association of Canada in June released its blueprint for the next five years, Vision 2025: Charting a New Course, support for small- and medium-sized enterprises (SMEs) was one of its core themes. Small companies make up over 90 per cent of the sector and the report argued for greater government support to help them scale up, generate more jobs, and enhance their global competitiveness. That could include new funding to pursue digital business transformation, a reduction in the complexity of government contracting, and greater priority in the value propositions of prime contractors chasing defence procurements. “If our small- and mid-sized companies are left at risk, the negative impacts will be felt across Canada's aerospace industry as a whole,” according to the report, prepared by Jean Charest, a former premier of Quebec and deputy prime minister of Canada. Small companies are viewed as the prime creators of aerospace jobs and, in a sector buffeted by changing technology and new players, many may be more agile and better able to adapt than larger counterparts that must answer to corporate headquarters outside of Canada. But support from original equipment manufacturers (OEMs) and governments is essential to their survival, according to a panel of SMEs at the Canadian Aerospace Summit in November. There is no one-size-fits-all to helping SMEs scale up. Companies at different stages of growth require different types of support, they noted. But help with skilled labour shortages and easier access to government programs are common challenges for all. A solid position on a major platform is critical to initial success, but long-term growth requires diversification, observed Barney Bangs, chief executive officer of Tulmar Safety Systems. Located between Ottawa and Montreal in the small community of Hawkesbury, Ont., the company manufactures protective and safety equipment, associated components and in-flight training products. Traditionally, its focus has been 80 per cent defence — Tulmar has been a supplier to a military platform for over 25 years and benefitted from a strong aftermarket. In recent years, though, the company has sought a better balance between military and commercial customers. “As of last year, we were 65 per cent defence and 35 per cent (civilian) aerospace,” he said. Tulmar has also become more of what he called “a solution provider,” integrating components from other suppliers to provide an OEM with a final, certified piece of equipment such as an aircraft seat rather than just the safety harness or seatbelt. “We are doing more in-house and saving customer-costs for the OEM,” said Bangs. Diversification has also been a priority for Apex Industries, a machining, components, subassembly and structures manufacturer in Moncton, N.B. Twelve years ago, its aerospace business was five per cent defence and 95 per cent civil, much of it geared to Bell Helicopter and Bombardier. “We made a conscious effort to diversify into the military side a lot more,” said vice-president Keith Donaldson. “We are very conscious of not allowing our sales to go too high on one platform or with one customer.” Challenged by cost-savings pressures in commercial aviation contracts, military platforms offer a company like APEX “good visibility,” he said. However, militaries have long been trading quantity for technological superiority, meaning fewer platforms and a relatively short production cycle. And ramping up quickly with people and equipment to meet tight delivery schedules is a challenge for small businesses that need other options to justify and sustain the investment when the contract ends. “It is very tough for a SME like ourselves to invest.” However, defence procurement and government programs can go a long way to supporting the scale-up of SMEs, said Patrick Mann, president of Patlon Aircraft & Industries, a technical sales force for global manufacturers of custom components and systems. The scale-up program must be run by single entity within government committed to the Canadian SME community that would be “funded, independent and have the authority to make decisions.” Mann suggested coping what has worked well in other jurisdictions, noting the success of the United States Small Business Administration's set-aside program. “Within that, there is a small business innovation research program which has been highly successful in scaling up SMEs,” he said. The Vision 2025 report called for a federal scale-up program to “provide advice, coaching, networking, value proposition development and consortium-building support to incentivize growth and build capacity–helping firms expand their global footprints and giving them the means and maturity to support OEMs effectively.” The report recommended the Office of Small and Medium Enterprises (OSME) within Public Services and Procurement Canada shoulder that responsibility. “Having OSME at the table as a contributor to the development of government procurement strategies and as a champion of small and medium-sized business interests will help ensure government policies and programs recognize the unique characteristics of small firms,” it stated. “We are a pretty good example of a scale-up of an SME using competitive bid government procurement as a mechanism,” said Mann. However, developments over the past 10 years such as single point of accountability and bundling, where multiple small contracts are combined in one larger procurement that is awarded to one contractor, have been “devasting” to smaller suppliers. “It has been a real issue for us. Again, it is an issue where (OSME) can play a role.” OEMs can bolster government programs by mentoring small companies within their supplier base on management and production processes, especially around digitization, added Donaldson. “OEMs have a lot of that knowledge ... [but] I don't think [they] do enough of that.” He and Bangs both cautioned that the ability to scale up will be contingent on resolving talent shortages. Developing and attracting skilled labour is a chronic problem affecting the entire sector, but it is particularly acute for SMEs in more remote locations that don't have the resources to recruit as widely or navigate the immigration system. “Before we launch a scale-up program with support for financing and working capital, we have to make sure we have our skills done first,” said Donaldson. However the Liberal government opts to respond to the Vision 2025 report, the value of investing in SMEs should be clear. Viking Air, KF Aerospace or IMP Aerospace & Defence were once small companies and are “now thriving global participants,” said Mann. “That is the reason why todays SMEs are an important part of our industry.”

The Army is looking for new technology that can be in the hands of Soldiers by 2023. So we're inviting companies to share their ideas for the chance to "pitch" us during Innovation Days in Austin and earn a new Army contract. To be considered, submit your concept through our online portal, which guides you through the required information in a Turbo Tax® style. You can find more information on what to include in this quick overview or via the announcement. You may not know all of the answers, and that's ok. The more technical details, visuals, and vision you can share to illustrate your technology, the better we'll be able to assess it against the Army's needs. The deadline to submit concepts for this event is 4:00pm ET on December 20, 2019. We can't wait to see what you've got! https://aal.army/innovationdays/