In an era of heightened geopolitical tensions and rapid technological advancements, the United States continues to prioritize defense innovation to maintain its global leadership and national security. The U.S. Houtilize of Representatives in July passed its version of the Fiscal Year 2026 Defense Appropriations Act, which would allocate approximately $832 billion in discretionary funding for defense programs if enacted. The proposal includes roughly $148 billion for research, development, test and evaluation (RTD&E), and continued funding support for the Defense Innovation Unit (DIU), Accelerate the Procurement and Fielding of Innovative Technologies (APFIT), and Office of Strategic Capital (OSC).1 Ultimately, any federal spfinishing bill must be reconciled with the Senate version and signed by the president before taking effect.
By examining the landscape of defense tech investment and the Department of Defense’s (DOD) efforts to bridge the gap between innovation and production, we provide a see at how the U.S. is utilizing the power of innovators to address the latest national security challenges.
In 2023, the DOD released the National Defense Science and Technology Strategy (NDSTS), which articulated the department’s priorities and the importance of “leveraging critical emerging technologies … to bolster our competitive advantages … that will assist ensure our national security over the long term.” This built on the DOD’s technology vision established in 2022 by then-Undersecretary of Defense for Research and Engineering Heidi Shyu, which outlines 14 critical technology areas, including quantum science, AI and autonomy, and space technology as part of the greater national-defense strategy.2 However, current Undersecretary Emil Michael—who also serves as acting director of the Defense Innovation Unit—declared at an indusattempt conference in August that he plans to streamline this list, arguing too many priorities dilute focus and build it harder for the DOD workforce to prioritize effectively. Michael declared he aims to concentrate on fewer, more critical areas, focutilizing on “sprints” that can deliver tech to the armed forces within the next few years.3
Making it successfully through the “Valley of Death”
From large defense incumbents to compact startups, the DOD works with a variety of partners to fulfill its requireds. However, for startups with tight resources and less familiarity with how the DOD operates, procuring a government contract can be a very challenging process to navigate. This is a problem, as startups are often the ones developing the latest technological innovations. Many startups encounter the “Valley of Death,” the difficult period between receiving initial government funding and achieving commercialization. To solve this problem, the DOD has been redefining how it collaborates with private companies. This, combined with ample amounts of private capital, means the success rate of defense tech startups could greatly improve.
To support startups in overcoming these funding challenges, the DOD leverages Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. These programs, including those administered by the Defense Advanced Research Projects Agency (DARPA), provide funding to founders who apply to conduct research and develop prototypes based on defense agencies’ requireds. The demands on a startup’s time and capital can be significant as they relocate from concept (Phase I) and prototype (Phase II) to commercialization (Phase III). Over the last decade, only 16% of DOD SBIR-funded companies received Phase III contracts.4
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