The Air Force’s industry storefront and innovation organization AFWERX has released information on 1,354 companies that have entered its pipeline. The data provides insight into technology areas and contracting mechanisms not previously available to the public.
More than 90 percent of AFEWRX contracts have come through open topics, meaning companies come to pitch their ideas rather than respond to a specific requirement. The remaining awards went to topics led by 13 Air Force customers representing missions like cybersecurity, space, battlefield operations and training.
In terms of classification, the Air Force identified companies with one or more standard technology areas. Information technology was the most common, representing roughly one-quarter of all companies. Within IT, 63 companies delivered cybersecurity solutions, 28 cloud, 21 DevSecOps and 15 for the Internet of Things.
The second most common category was artificial intelligence, with 290 companies. Just half of those companies were AI-focused. The other half included AI keywords in their technology offerings, particularly in the areas of data and analytics; intelligence, surveillance and reconnaissance; autonomous systems; augmented reality; and training.
Perhaps unexpectedly, the third most common area was human systems, health care and biotech, which comprised 10 percent of the total. These companies spanned the gambit from biometrics to physical training to suicide prevention. Also healthily represented were companies in autonomy, additive manufacturing, space, augmented reality/virtual reality, and energy, each comprising roughly 5 percent of the total.
Underrepresented areas included battle management, weapon systems and robotics at 1 percent each as well as electronics at 3 percent. Only three companies mentioned 5G technologies, 17 mentioned quantum, 18 mentioned blockchain, 19 mentioned hypersonics and two mentioned nuclear.
A recent Government Accountability Office report criticized the defense industry’s lack of alignment between its independent R&D and defense modernization priorities. Compared to traditional defense primes, AFWERX invested more heavily in AI, autonomy and biotech. However, AFWERX was relatively underweight in space technologies.
For nearly half of all companies listed, the Air Force provided private funding data amounting to $7.7 billion. Nineteen companies took in more than $100 million in cumulative private funding, 10 of which are based around Silicon Valley. By far the largest recipient of private funding was Joby Aviation, with $721 million after a monster $590 million Series C round that included Toyota. The company is developing electric vertical-takeoff-and-landing air vehicles, and received its first and only government contract for $49,980 from AFWERX in 2019.
A novel contracting mechanism that AFWERX has leveraged is commercial solutions openings. As Victor Deal, who devised the CSO tool when he was in government, explained: “A CSO-type general solicitation advances two core concepts: modular contracting and merit-based decision-making.” Roughly 46 percent of AFWERX awards used the CSO procedure.
AFWERX’s funding toolbox involves Small Business Technology Transfer, or STTR, programs, which are often $150,000 awards to startups that were spun out of academic research.
Much more prevalent are Small Business Innovation Research awards, which make up more than 90 percent of awards by number. Of all SBIR awards, roughly three-quarters are classified as Phase I and worth up to $50,000. The remainder are classified as Phase II and worth up to $3 million, but in most cases range between $750,000 and $1.5 million.
A recent innovation is the Strategic Financing program, which aims to increase the caps on SBIR Phase II awards. In March 2020, AFWERX provided $100 million to 21 companies, matched with $100 million in program office funding and another $350 million in private dollars. The intention is to provide a sizable bridge for the very best companies, while program office partners line up dedicated funding to scale the technology. Less than 2 percent of companies have received STRATFI program awards, posturing them to scale in defense, though more are expected.
While the AFWERX data does not track contract obligations, expected contract sizes indicate that AFWERX obligated roughly $250 million in 2019 topics and $100 million in the first of three 2020 topic stages. AFWERX is on pace to increase total awards in 2020 by perhaps 20 percent or more. The data are incomplete, however, with only nine of 21 STRATFI winners currently disclosed.
While the jury is still out over whether AFWERX and its AF Ventures program will be able to move companies across the valley of death and into recurring defense revenues, it has already lowered barriers to entry. Researchers Amanda Bresler and Alex Bresler recently found that roughly 13 percent of SBIR/STTR Phase I awards went to new entrants in the defense business between 2011 and 2018. In 2019, that figure jumped to 30 percent. The Air Force led the way, introducing 345 new companies into defense compared to just 63 for the rest of the Department of Defense combined.
For access to the AFWERX datasets, download an early version here and the official version here. The spreadsheet used for this report, including additional organization, tagging and analysis, is available at Acquisition Talk.
Eric Lofgren is a research fellow at the Center for Government Contracting at George Mason University. He manages a blog and podcast on weapon systems acquisition. He previously served as a senior analyst at Technomics Inc., supporting the U.S. Defense Department’s Cost Assessment and Program Evaluation office.