The strategy that Shah is helping steer leans on militaries adopting privately developed tech to compete with the advancement of adversaries like Russia, China and Iran.
“The way that liberal Western democracies prevail over a centrally commanded nation is by doubling down on what made our countries strong, which is the free flow of talent and capital,” he said. “And so we don't win by the civil-military fusion, by forcing companies to do things, but rather by investing, supporting and allowing free enterprise to succeed.” It sounds good in theory, but in practice the idea has hit hurdles in both the U.S. and in Europe — in part because the private sector moves quickly and takes big risks, while the military is a lumbering bureaucracy that makes it challenging for all but the biggest defense contractors to break through. “You have this great pipeline and most of it falls on the floor,” said Steve Blank, co-founder of the Gordian Knot Center for National Security Innovation at Stanford University. “While we have all these legacy acquisition processes, our adversaries don’t.” In September, House Armed Services Chair Mike Rogers held a field hearing in Silicon Valley with executives from startups Palantir, Skydio, Shield AI, Applied Intuition and Saildrone. The hearing focused on how to push the Pentagon to stay competitive, and came shortly after an essay Shah co-wrote about how the U.S. military was not ready for AI warfare. In the case of Ukraine, Defense Secretary Lloyd Austin has cautioned U.S. emerging technology did not move at “the speed of war.” Heightening the challenge for NATO, European pensions and banks have shied away from defense investments. By contrast, in the U.S. venture capital is pumping into defense, including via Shah’s defense-focused fund Shield Capital. In one recent illustration, when the German-founded company Helsing AI raised nearly $500 million this summer, it was the U.S. fund General Catalyst that led the round. That means if NATO wants to encourage startups, it also needs to encourage their funders. But it’s not all headwinds. After former President Donald Trump threatened many times to withdraw from NATO, its members promised they’d spend more on defense — and innovation is a top priority. Shah said it’s still early days, and he said the history of the U.S. effort to modernize the military — despite its bureaucratic friction — could still offer useful lessons. “If you look at the Defense Innovation Unit here in the U.S., for example, 10 years ago, we had a budget of less than $20 million,” he said. “Now, Congress gave it a billion dollars in the last appropriation. So it had to earn the right to prove that it could execute.” Shah pointed out that U.S. private investment in companies “with some national security focus” defense tech amounted to more than $100 billion over the past three years — what he termed “a total sea change from ten years ago.” He said the Ukraine war on the continent might trigger a similar shift in Europe. Ultimately, Shah said the hope was to grow companies that could take on some of that risk, and reap the rewards. Ten years ago, Palantir was struggling to get its software to U.S. soldiers, while SpaceX sued the DOD to get contracts. Today both are powerhouses. “The best companies are tenacious,” Shah said. “They find avenues to show the value of their solution.” Subscribe to POLITICO Tech on Apple, Spotify , Audible or your preferred podcast player.
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