Enabling Startup Innovation in Defense and NASA

For SpaceDotBiz this week, I interviewed Ellen Chang, Vice President of Ventures at BMNT. BMNT is a global advisory and consulting firm that seeks to use startup methods to introduce innovation into government organizations. BMNT’s customers include NASA, the US Department of Defense (including the Navy, Air Force, and Space Force), the UK Royal Navy, and others. Ellen lives in many ways at the intersection of frontier technology, the defense department, and civilian government. Her primary technology area of focus is aerospace and her professional experiences span time in the military, at startups, and in prime defense contractors.

After attending college at the University of Pennsylvania, Ellen started a 30-year career as a Naval officer, including 8 years of active duty and 22 years as a reservist, retiring in 2018 from the Navy with the rank of Captain. After 8 years of active duty in Naval intelligence, Ellen went back to school for an MBA at The Wharton School at The University of Pennsylvania. She then spent two years in banking at JP Morgan and then over 12 years at Northrop Grumman as a Director of Advanced Systems. In 2015, she left Northrop and has since been working to facilitate the adoption of innovative technology within government in her role at BMNT.

Some of the programs that she supports in an advisory role are the AFWERX (Air Force) and SpaceWERX (Space Force) Small Business Innovation Research (SBIR) programs, the NASA Ignite SBIR program, the SpaceWERX Orbital Prime program, the Hacking 4 Defense university curriculum, and others. This interview will cover topics like how the relationship between DoD and startups is shifting, the role the SBIR programs have in transitioning technology, other acquisition structures Ellen’s excited about, and much more.

Now let’s dive in!

You started your career in the Navy including much of that time in Naval intelligence, is that what first brought you to the space industry?

Yes, that time first got me intrigued by space because we were using space-based assets for many things, primarily satellite imagery. I don't know that I necessarily saw a future in the space industry at the time. Everything in the Navy was so new to me. I didn't even know that I was going to be in the Navy until college when I got the scholarship. I grew up overseas as an American abroad and came to the States and needed to pay for school. I was looking for a scholarship and the Navy ROTC program presented an opportunity. I didn’t know anything about ships. I didn’t know ships were gray, didn’t know boats were different from ships. But suffice it to say once I got in, I was hooked.

Where I really got involved in space was later in my career at Northrop Grumman. I was working on advanced programs in the aerospace sector. I mostly worked on autonomous systems, so mostly the drone side. But one of the programs that I led combined space and air. That's when I started to get involved in concept development around futuristic visions.

You spent 12 years at Northrop Grumman, with your last role as Director of Advanced Systems in the Unmanned Systems Division. What were some of the major themes or takeaways from your time in that role? How would it eventually shape your perspective on startup tech development in aerospace and defense?

That’s a complex question. The program I was on was the Global Hawk. The Global Hawk itself was probably 80% commercial products. It used circuit boards that would essentially be out-of-date in five years because the computing industry was moving so quickly. We were innovating around a variety of newer technologies including composites and autonomy. It was really exciting to be in that program.

The frustrating piece was the government's way of managing the program. Even though we wanted to switch out a circuit board in the aircraft, we had to do a “Mother may I?” to the government, which would take months, and then they would say “No”. Then we would go back to the drawing board and almost have to redevelop everything. That would add two or three years and probably $20 million or $30 million cost to the system, just because we had to follow these, not even laws, but policies that were in place.

Once we got into the 2014, 2015 timeframe, the commercial drone industry began to open up. I had personally worked at a startup before Northrop Grumman during the dotcom era. I had founded a company that revolved around the internet business of purchasing aircraft parts. So I had a flavor of the startup world and so I saw the startup drone world as a new opportunity. That's what got me involved with the startup side, bringing along my experience and addressing how to fit commercial companies into a challenging government structure. I did not know that all that experience would combine to be relevant today, where you see several commercially available startups looking to work with the government and government groups trying to leverage startups. That's how it all kind of came together.

Can you talk about the role that you and BMNT play in your work with NASA and the DoD?

Absolutely. BMNT stands for Before Morning Nautical Twilight. It’s a navigation term that stands for the time of day when ground forces are most vulnerable. Pete Newell, who came out of the Army Rapid Equipping Force, started the company and named it BMNT. It was founded about 10 years ago to support governments looking to introduce innovation. He had learned a lot about using commercial technology to support forces in Afghanistan and he wanted to bring that practice into defense. That's still the heritage of the company.

One of our most successful programs is Hacking 4 Defense, which is now sponsored by the Office of the Secretary of Defense and is organized under the National Security Innovation Network. That program’s vision is workforce transformation. It engages non-military oriented college students who want to solve really hard challenges and seeks to link them with problem sponsors inside the DoD. That core is still what BMNT is about.

We now have several projects with different innovation arms within DoD. NavalX is a customer, we’ve worked with AFWERX and now SpaceWERX as well. So in that way, BMNT is an enterprise services group that directly interfaces with the government. We also operate H4X Labs which includes a handful of innovation programs that are more focused on startups and supporting their integration with government. We’re now working with SpaceWERX and supporting the companies in their Orbital Prime portfolio as well.

So there are two sides to BMNT, one that is facing larger government or corporate entities and one that is facing the startups by doing tech scouting and helping startups de-risk their efforts to introduce a capability to the government.

How are you seeing NASA and the Space Force change in the way that they engage with early-stage space companies? How about in how they acquire services or products from those companies?

In the broad scheme of all DoD and NASA acquisitions, I have a very narrow soda straw view. What I do see is both groups looking to tap into commercial innovation by bringing in funding, typically by leveraging their Small Business Innovation Research (SBIR) program, and encouraging companies to supplement that funding by seeking commercial revenue or venture funding.

A couple of other structural changes have occurred with the NASA program in particular. For example, NASA has received feedback around the gap in time between completing a Phase I SBIR and starting a Phase II. They’ve used that to change the process for their Ignite SBIR program so that the phases are more tightly coupled together. They realize that they don't want companies to get to the end of the Phase I and then propose for the Phase II and six months later get access to that Phase 2 funding. They realize that the gap sometimes causes startups to lose talent.

NASA and SpaceWERX look to play a role in funding this innovation, but they encourage companies to go raise money if they feel it is appropriate. I want to emphasize that companies should only raise venture financing if they feel it is suitable for them, because the government is not in the business of encouraging companies to give away their equity. But the government does know that venture financing is an option for companies to go faster.

How are you seeing the way investors and private capital markets are changing their approach to the defense sector?

Great question. Three or four years ago, I would not have thought there would be so many investors as there are now looking at national security or dual-use startups. I would say that the number of top-tier firms looking at what we would call, “deep tech” with some national security overlay has probably doubled or tripled. There are a few reasons for that. For one, supply chain issues during Covid have shown us that we have seeded our ability to manufacture overseas. We couldn’t manufacture our own ventilators domestically when we needed to.

We started to see how our supply chains were so interwoven and that felt pretty risky. Even before then though, the Defense Innovation Unit was out looking to court commercially available startups. What I'm getting at is we have a whole class of investors that are realizing that there's potential in commercial technology making a difference in national security. Those commercial entities may or may not already be government contractors. The spectrum of how “dual-use” a company can be is quite broad. That spans anywhere from a company should only look at the DoD as a customer all the way to a company that has an entirely commercial customer base. The typically recommended path is to first figure out a commercial market and then later figure out how to tap into and adapt your technology to the DoD.

The reason for that is because the DoD is not a good customer. It's slow, with multi-year sales cycles. Congress cuts budgets and plans are changed very suddenly. We're in a current period where budgets are rising, but that could change. The process is cyclical and budget trends swing back and forth like a pendulum. When I started my accelerator in 2015, I came from Northrop Grumman and a world of government contracting. I was teaching companies how to leverage funding strategically, not as a revenue source. You use it as a way to move along your technology roadmap. At the same time you are figuring out your market and customers.

Another differentiation that I believe is important to understand is the distiction in where private funding is going. I think there was a TechCrunch article recently saying the billions that went into dual-use startups in 2022. I kind of don't believe that. I'm pretty sure most of that would have gone into two companies, SpaceX and Blue Origin.

Historically the Small Business Innovation Research (SBIR) program has been a way for NASA and the Air Force to mature innovative technology but has struggled to see capabilities through full operational maturity. Why do you think that has been the case?

One primary reason is that they're not designed to transition everything. That's not their intent. Their intent is to seed and generate options. What I think needs to happen a little bit further is that the SBIR programs need to market to the services what is coming out of their portfolios, so the services are more aware of the technologies being developed.

There's also a timing element that is a challenge. Meaning, as technologies mature, are programs ready to receive and incorporate them? However, that timing problem may never go away, so with respect to their purpose of creating options, I think they actually do fairly well.

I’m involved in supporting the space technology portfolio for SpaceWERX, but I’m also supporting efforts in energy for government customers and I’m looking closely at those technologies. In that tech area, there’s been real success. The number of battery technology startups that have been seeded by SBIR programs from the Army, Air Force, and Navy are vast. That gives us a lot of options for services to tap into, but not all are intended to be matured to a program. If you're one of the companies, that’s challenging right? Because you're like, “I'm competing against all these teams and I need to go find my next set of funding.”

My philosophy, and how I like to work with folks, is that I recommend they think about their technology roadmap first and figure out all the customers that could help with that. Don’t become a project-based company, be very careful to keep your eye on that commercial market.

How are you seeing NASA and DoD changing the SBIR program to ultimately bridge the traditional “Valley of Death” and getting them on a program of record?

For AFWERX and the Air Force specifically, they’ve recently in 2018 initiated the STRATFI and TACFI programs, which is intended to provide larger dollar amounts in order to support companies getting beyond the prototyping stage. If you think about it, Phase I and Phase II SBIR contracts with the DoD generally are about doing some research and development. Then by the end of Phase II, you should have a prototype. That's generally how the DoD thinks about it. So how do you get from prototype to some product that is fairly mature enough to then get adopted? That's what STRATFI and TACFI are for. Some of the other program agencies inside the DoD are starting to have their own versions of those programs.

Other organizations are looking at how to provide greater dollar amounts to companies that compete well and prove themselves. The Navy in particular, has an interesting open topic focus for their SBIR which is targeted at commercially available technology at a later TRL level of closer to 5, 6, or 7. They will pay for customer discovery in Phase I, and then in Phase II they pay for the adaptation of the technology to a DoD need. That adaptation dollar amount for the Phase II can actually vary depending on the system's needs. That customer then will continue to seed as so long as whatever company continues to make progress. That's my understanding of their program.

NASA is another organization with its own path. They don't have a STRATFI, but what they do have is three different types of matching programs. So if you are able to get through their Phase II and you start to show Letters of Intent or even purchase orders, you'll then compete for dollar-to-dollar matching of any revenues and/or private funding. You can be eligible for up to $6 million of that matching.

Are there any other efforts by the DoD or NASA that we haven’t discussed yet that you’re particularly interested in at this time?

Well to me, the Department of Energy’s ARPA-E program is fascinating. It’s a larger scaling opportunity, targeted at the types of companies that require a tremendous amount of capital to scale up manufacturing. So the ARPA-E program can involve tens of millions or hundreds of millions of dollars. Those programs have their own challenges around signaling risk. If ARPA-E invests in a company, then all the investors come swarming and they don’t want to be deciding a winner.

What advice do you have for startups looking to get their foot in the door in working with the DoD

What I emphasize to companies is “Partner! Partner! Partner!” Federal government contracting is very complex. You should partner to find sources of information. If you're a technology startup and you’re developing products over time, understand your value chain and understand all the stakeholders that are in there. This industry, especially in the aerospace side, is very much a “competimate/frenemy” industry. At Northrop Grumman, I was always either competing with Raytheon or all of a sudden we were tied at the hip. And the talent moves between these companies all the time.

What are you most excited about in the space industry?

I think there's quite a bit of potential in manufacturing certain types of items in space. I understand silicon actually manifests a lot better in microgravity in terms of higher yield like 80, 90% versus maybe 40% here on Earth. So I'm excited for that kind of potential.

What really gets me going about space are the people that are in it to solve hard challenges. That's what really keeps me excited about being part of the community and wanting to support it. I'm no longer an engineer. I'm not gonna be at that level designing things, but I think I offer a unique perspective having done systems engineering and now focusing on questions like “How do we do product development within this sector?” or “How can we tap into private capital to pursue this market”. That's what's kept me going for this extended amount of time.

That wraps up part two. If you enjoyed this interview, subscribe to SpaceDotBiz to get more insights like these straight to your inbox!