Problem: I recently came across a Tweet that described how as early as 2013, DARPA had awarded Moderna grants to investigate mRNA vaccines, far before the COVID19 pandemic and mRNA technologies went mainstream. For those unfamiliar, DARPA (The Defense Advanced Research Projects Agency) is a research and development agency of the United States Department of Defense responsible for the development of emerging technologies for use by the military.
It got me thinking; what is the government investing in today that may potentially be an incredibly influential technology in the next decade? This post will be an investigation of some of the areas that the US government is investing to understand what the next billion-dollar industries of the future may be. As described by Freakonomics in 2018,
…DARPA, created during the Cold War to keep American technology ahead of the Soviets, has over the years produced several kinds of missiles and airplanes as well as the first computer mouse, miniature GPS receivers, HD displays, and a digital personal assistant. ARPA-E, or the Advanced Research Projects Agency for Energy, founded under George W. Bush, has funded a variety of energy projects, including battery-storage tech; the Department of Energy, starting in 1978, invested more than $130 million studying the extraction techniques that have come to be known as fracking. And the National Institutes of Health has helped fund the vast majority of all new drugs approved by the FDA.
Even Fast Company argued about the importance of government in sponsoring innovation, writing
At a time when young companies struggle to find technology sectors not dominated by Silicon Valley’s giants, most startups remain oblivious to one of the largest markets in the world, the U.S. Defense Department. The military awarded $445 billion in contracts in 2020. By comparison, last year’s global market for software-as-a-service, one of the hottest sectors for startup creation and investment, was estimated at $104 billion.
There’s a willing market here, too. The Pentagon is eager for help from the nation’s innovators. The military is clamoring for cutting-edge technologies in areas like artificial intelligence, machine learning, and autonomy. To attract interest the Defense Department is handing out unprecedented numbers of small contracts and in 2020 seeded 1,635 firms with more than $1.5 billion in early funding. Dozens of outreach programs across the military now offer quick revenue to early-stage companies. A startup could land a contract worth up to $3 million within months of entering the defense market.
This post in particular will dig into ARPA and the US Government's energy startup investments.
Subscribe here to get access to the first 500 ideas from our blog. For just one coffee a month, you can have access to more than $500 billion dollars of ideas. What's not to love?
Solution: Let’s start by listing out the biggest example of the US governments energy investment failure: Solyndra. As described by Mariana Mazzucato, “The U.S. government after the [2008] crisis decided to have a proper fiscal stimulus program of close to $800 billion. And part of that agenda was really also to direct that fiscal stimulus towards the green economy. You might remember that Obama financed some companies like Solyndra through the U.S. Department of Energy, through a guaranteed loan that was for about $500 million. And that company went bust.” While a huge problem that received national news, the upside was also quite significant.
But more concretely, at the same time that it was financing Solyndra, it [the US Government] also financed Tesla for a very similar amount of money. So the Tesla S car got a $465 million guaranteed loan…. What the U.S. government actually did with Tesla was the opposite of what they should do. They said, thinking they were quite wise, “If you fail to pay back the loan, we get three million shares in your company.” And you have to ask yourself why all these Goldman Sachs guys who were in Obama’s government didn’t actually come through when they were needed, because they should have said the opposite: “If you do pay back the loan, we get three million shares.” And the price per share, when the loan was taken out in 2009, was $9 a share. When it was paid back in 2013, it was $90 a share. That difference multiplied by three million would have more than paid back the Solyndra loss and the next round. Then the question becomes: how do you share not only the risks but also the rewards? So we don’t get what we get with the banks, which is that when things go bad the state has to bail them out, and when things go well, the banks take the profits.
Financial structuring aside, there are some other examples of companies that have already succeeded in selling to the US government in various forms. Thanks to Fast Company for a succinct digest
“Flying taxi” startup Joby Aviation aligned its electric vertical takeoff and landing aircraft with the Air Force’s stated interest in advancing the market for air mobility vehicles.
The 3D mapping company Hivemapper found traction with the Army by targeting its need to autonomously resupply field artillery units.
Recently public enterprise-AI firm C3.ai entered the defense market having already built a successful commercial business in the energy vertical.
Satellite imagery firm Orbital Insight‘s Go platform, for example, automates imagery analysis for defense analysts, investors, and agribusiness alike. Some amount of customization is inevitable given that military users often have specific mission requirements or technical constraints. However, companies that can serve military customers without fundamentally altering their existing product roadmap are likely to be most successful.
So now, let’s go specifically to ARPA-E’s blog posts and call for projects to understand some of their investment areas. I highly recommend looking at the call for projects page which includes a list of some of the best moonshot projects of the next decade.
Starting with “dirt” itself, ARPA-E’s Rhizosphere Observations Optimizing Terrestrial Sequestration (ROOTS) program seeks mitigate the effects of climate change and improve soil health. The ROOTS projects are developing advanced technologies, tools, and crop varieties that increase carbon accumulation in soil while reducing N2O emissions and increasing water productivity of plant systems themselves. ROOTS utilizes America’s vast terrestrial resources as well as advances in energy and agricultural technologies to improve the ability of crops to store carbon below ground, seeking to turn soil into a more effective option for carbon storage and improve the energy efficiency of agriculture. ROOTS teams have developed a range of technologies to help remove CO2 from the atmosphere and store it in plant root systems, including monitoring devices that can be placed on plants themselves, imaging scanners to map root systems, and modeling tools to produce crops at scale that can greatly increase carbon uptake in soil. (From an April 22, 2021 blog post)
The BREAKERS program (Building Reliable Electronics to Achieve Kilovolt Effective Ratings Safely) argues that recent advances in hardware for handling direct current (DC) electricity have created an opportunity to greatly improve the efficiency, security, and safety of the U.S. power system while supporting new industries and grid design options. There remains, however, a significant technology gap in the safety and protection mechanisms required to mitigate potentially damaging faults in these systems. BREAKERS projects will need to overcome limitations while supporting greater power and voltage ratings than traditional low voltage solutions. Ultimately, innovations in MVDC circuit breakers could enable significant efficiency improvements in the United States, transforming how electricity is delivered and managed across the entire power grid, in transportation, and other valuable parts of the economy. (From the September 12, 2018 call for innovation)
REMEDY (Reducing Emissions of Methane Every Day of the Year) is a three-year, $35 million research program to reduce methane emissions from three sources in the oil, gas, and coal value chains:
1) Exhaust from 50,000 natural gas-fired lean-burn engines. These engines are used to drive compressors, generate electricity, and increasingly repower ships.
2) The estimated 300,000 flares required for safe operation of oil and gas facilities.
3) Coal mine ventilation air methane (VAM) exhausted from 250 operating underground mines.
These sources are responsible for at least 10% of U.S. anthropogenic methane emissions. Reducing emissions of methane, which has a high greenhouse gas warming potential, will ameliorate climate change. (From the April 8, 2021 call for innovation)
Sometimes, the value of this blog is simply to surface existing ideas that already exist in the world. Hopefully this post can give you a renewed sense of approval and appreciation for solving government-sponsored solutions.
Monetization: Varies based on industry.
Contributed by: Michael Bervell (Billion Dollar Startup Ideas)