Pentagon officials today released more details on a revamped, digital version of the Trusted Capital Marketplace, highlighting how the program will stave off "adversarial capital" by linking vetted sources of finance with defense companies requiring investment.
Ellen Lord, in what she said would likely be her last press conference as Pentagon acquisition chief, said the new website for the initiative went live in December. The Pentagon has been working on the trusted capital concept since 2019, but it had previously focused on hosting in-person events.
The initiative is intended to prevent U.S. defense suppliers from being captured by potentially nefarious foreign investors. Between January and April 2020, China announced 145 outbound investments worth $4.5 billion in the United States and other key allies, according to Lord.
“Many small and midsize companies in the [defense industrial base] are vulnerable to adversarial capital, so we need to make sure companies can stay in business without losing their intellectual property, the foundation of so many critical technologies,” Lord said. “Economic security can be undermined by the acquisition of companies in the defense and dual-use sectors by entities that are U.S.-based, but are actually owned or controlled by adversarial foreign entities.”
The new digital marketplace will ensure the trusted capital initiative is “enduring,” she said. Both “capital providers” -- investment firms -- and “capability providers” -- the companies that need investment -- can apply to join the program through the website.
The Pentagon has identified 20 “sector areas” the program is focused on, including advanced computing, artificial intelligence, biotechnologies and space technologies.
In addition to securing trusted sources of capital for important defense businesses, Lord said the program will also help the Pentagon identify potential new entrants to the defense industrial base.
“We’re really hoping to diversify our defense industrial base to bring on a lot of nontraditional companies to work with us,” Lord said. “This is a fantastic way for those companies not only to identify themselves to the Department of Defense, but really almost get into a speed dating app with all kinds of capital providers that are very interested in finding those innovation providers for the department’s critical technologies.”
Incentives for capital providers to invest in the companies DOD identifies through the program include preferential tax treatment for “private investment in companies working on technology critical to national security under certain conditions,” according to Lord.
Kate Arrington, the chief information security officer in the Pentagon acquisition directorate, will oversee the trusted capital program. She said 128 companies are signed up as capability providers, while about 30 investment firms are signed up to provide capital.
Officials did not say whether DOD has shepherded any investments through the trusted capital program.
Applicants to the program will be expected to undergo “a rigorous national security and supply chain due diligence process,” according to a DOD fact sheet released today.
Arrington said DOD is using “supply chain illumination tools” to evaluate participants in the program, including the “DDIQ” platform provided by Exiger, a New York-based risk management firm. She said the tool identifies factors like who sits on the company’s board and whether any source of financing is tied to legal issues.
The Pentagon also has its own team that evaluates potential trusted capital participants, Arrington said. It takes about a week for DOD to process an application to the program.
“We're trying to make that as expedited as possible,” she said.