Welcome to Fault Lines, a special series live at the Reagan National Defense Forum. My name is Jessica Jones, NSI Senior Fellow, and I'm joined today by my guest favorite founder and executive director, Jamil Jaffer. As you guys know, we're recording here at Reagan National Defense Forum, and we've got a new series titled Modern Defense: Allies, Innovation, and the Future of Defense. We're building on R&DF's overarching theme of restoring deterrence with peace through strength, and we're talking to the coolest founders, technologists, investors, and policy makers. So, we're really excited. On this special episode, we're sitting down with Mina Fes, the founder and chief investment officer of Washington Harbor Partners. He's held numerous positions in the investment field, bringing almost 25 years of experience to the conversation today. We're going to dig a little more into that, but for the first time ever from R&DF, we actually have two guests. We have also our favorite, Dmitri Alperovitch, chairman of Silverado Policy Accelerator, a geopolitics think tank in DC, co-founder and former chief technology officer at CrowdStrike, and our favorite NSI advisory board member joining us as well.
Favorite and most important NSI advisory board member. We like it. Pipe in whenever you want to. We're going to have a fun one. We're post lunch here at R&DF, so I think our sugar is running high, so it should be a good conversation.
No falling asleep. No falling asleep.
Okay. So for the first question, kind of an easy one. So our audience, you know, we get a lot of policy makers, we get technologists, some founders. We don't get as many investors, in particular not even in the defense tech space. So you're kind of one of our first major voices. So I'd love to hear about your move and pivot into defense tech investment. What brought you here? Like how has the experience been?
Fantastic. So thanks for having me today. So there's been actually no move or pivot. I actually learned defense 25 years ago as a mergers and acquisitions analyst at JP Morgan like in the late 1990s and during that period I did mergers and acquisitions in not only the commercial software space but the commercial services space and the government services space. So that's when I originally learned defense. What I've observed for the last 25 years is that the Fortune 500 has bought and has access to the most modern automated commercial, you know, top-notch technologies and typically the US government and the taxpayer gets it on an 8 to 10 year lag. That's a tragedy and that's almost like insulting to the balance sheet of the US taxpayer. So, I've taken it upon as my mission to bring the best technologies to the US government customer to close that 10-year gap as quickly as possible.
What do you think the gap's down now to?
Oh, that's really hard to say. I think it depends on the sector and it depends on the capability. But we're trying to close gaps across cyber, across space, across electronic warfare, across digital modernization and AI, manufacturing, nuclear technologies. There are a lot of gaps.
So Mina, tell us about how you see the current market, right? Defense tech has gotten super hot recently. Got a ton of new investors coming in. JP Morgan just committed, your former employer committed $1.5 trillion over 10 years, at least 10 billion in venture type funding. Why is Defense Tech so hot now? I mean, you've been in it for 25 years. Why is it hot now? Is this thing real? Will the returns come or is it a fad? Is the bubble going to pop?
You know, I don't think of it in terms of like hot or not hot. I think that we're like at a massive turning point right now. The way that the US government bought technology for the last 20 or 30 years is over. The government used to buy large, exquisite, expensive, vulnerable, customized, non-interoperable, non-scalable technologies and solutions. And frankly, they bought them from a very limited number of prime contractors and systems integrators that weren't incentivized to bring them like modern and fast and the best. Today the government has now focused on buying commercial, scalable, interoperable, automated, modern technologies and by buying also buying them from more players, modern players, next generation players and those folks have really leapfrogged the primes. So, it's a very exciting time to be an investor, especially with the tailwinds of acquisition reform, a large budget, bipartisan support for buying modern technologies that are good for our country.
So, I love this and I believe it and I want to believe, but what about the argument that it's not really real, right? That acquisition reform has been tried five times before. It hasn't been successful before. The bureaucracy ultimately wins. There are those who say even in Secretary Hegseth, Secretary Ward's hedge memo, his second memo, that it was basically the bureaucracy winning again and that he's telling a good story, but in reality all the same entities are still there. All the people at the next level down below the PEOS or at the PO, whatever we're calling now, PAE, are just going to keep their feet in the mud and wait this thing out.
So I can't speak to like the politics and the narrative. I can tell you that we are with the US government customer 5 days a week and never in 25 years have I seen a super majority of military leaders and civilian leaders that really are driving for change. And it's the first time in a long time that folks want to engage and listen to audacious ideas and commercial ideas. They might not always agree with them. They want help and they want partnership from government, commercial industry, the investment community, the legacy contractors, but also like the new players. It's very, I'm very optimistic.
I love it. Okay, Dmitri, we're going to turn to you now. We can't leave you silent. So, you run Silverado, you help run Silverado. What do you know, Silverado works in issues like energy security, you know, critical minerals, like things that are now acquisition reform, semiconductor. Okay. Okay, everything, all these things, how have you seen, you know, private sector engagement or leadership change since you've, you know, since started? These are also critical areas where government support and focus is also really needed. How have you seen that also change?
Well, I've really seen everyone catch up. You know, when we founded Silverado in 2020 we said initially we're going to focus on chips and critical minerals and no one was talking about that issue. A year later everyone started sort of saying wait a second these chips things we've got to, you know, post-COVID supply chain issue. A year or so ago, it was critical minerals might be an issue, right? We've got a dashboard for that. So, we feel like we've been out front on this early on. But coming back to the defense issue which we actually were not early on but this year we saw momentum in this administration really driving it and we said can we do a lot of work in the space, talked to a lot of people at the contract officers, lawyers, others, people involved in procurement to really try to understand where the issue is. And what I found is several things. One, it's mostly an incentive issue. Like most human problems, you change the incentives, human behavior changes. Mina knows this well, investment field, sales, whatever. And we tend, the reason it failed five times is because we try to have Congress pass more authorities, pass more capabilities. I was literally at dinner last night with a very senior three-star general, he said we don't need any more authorities, we've got more authorities than we can use and that we do use because what's happening is that these contract officers inside Department of War but also other places are not incentivized for speed, they're not incentivized for using commercial solutions. They're not incentivized for delivering capability that would actually meet the program office requirements. And what they're mostly incentivized for is avoiding protests and making sure that they've got 5,000 pages of documentation that if there is a protest, they can go fight it. And it's risk aversion. It's complete risk aversion. And what that results in is not just delays, but actually us often times buying the wrong thing. Because you know I was talking to one particular organization that had an enormous contract that they were working on for 3 years, still not done. Technology of course in the meantime has changed, you now have AI coming to the field but they're so scared of changing the original RFP because it would yet add more years to the contract that they're literally afraid we're going to buy the wrong thing with taxpayer dollars after waiting three years, right? So we're literally ending up with solutions that we may not even need at this point or don't fill the need because of how long it takes. So what I believe passionately, I just wrote a piece in the Washington Post on this, is that we need to change the promotion structure and even potentially bonuses for these contract officers, procurement officers to incentivize speed, to incentivize satisfaction of the program office, and three, to actually negotiate. That's a crazy idea, right? Mina and I know this in the private sector. You know this, J. You go to a company and you say, 'I'm going to give you a huge contract. I'm going to give it to you next month within your quarter cycle. But you know what I'm going to do? I'm going to ask you for a 20% discount.' Every major company will do it in a heartbeat. The government doesn't do it. We'll repay. Or we select the lowest bid vendor versus saying, 'You know what, this other vendor is actually better. I'm going to go to them and say, you're going to lose this contract. I'm going to go with the other guy unless you match the price.' We don't do that either. It's insanity, right? So change the incentives, change the promotion structures, and you're going to achieve a lot. And by the way, one more thing on this. I think the biggest reason why you're seeing these folks like Andrew and other kind of new players in this field succeeding and the biggest difference between them and the big primes is, you know what the primes use government dollars for research. The primes use Mina's dollar, I mean the new tech uses Mina's dollars for research, right? So it's actually better risk-reward benefit to the taxpayer. In fact, you know, I was just in a session with General Kaine where he said, 'We need to do more risk sharing from the government to the private sector.' Well, this is how you do it. You put Mina's dollars and his investors' dollars at risk for potentially huge returns and Paladins and others and mine. I'm co-invested in a few projects with Mina. And you know, you get to move faster, you deliver new capabilities, you're not as risk-averse, right? You know why are the big primes risk-averse? Well, because they're delivering what the government exactly wants and they don't want failure because that then you end up on the front pages of New York Times saying you wasted billions of dollars on a research project that didn't pan out. No one's going to write a story about a startup research project that didn't end up going the right way because they just lost investors' money.
See, I was going to ask how do we incentivize risk, but you just answered it and I need to do a plug for advisory board member. Check out his latest op-ed in the Washington Post then. Well, so let's talk about this whole risk-taking kind of culture, right? The ideas you've come up with and you've sort of pushed for I think make a lot of sense, but from what I hear, the department's actually not going to do that. They're going to say you have to buy X amount from a non-prime contractor, right? That almost feels like a quota and creates the wrong incentives, right? I feel like the things you've talked about are the right way to do it. How much of those ideas you think are going to get into the department, are actually going to make it happen there?
Well, I'm trying. But look, the quota thing, I get where people would be concerned about it, but you got to start moving the system. You got to reallocate dollars. Don't get me wrong, I want them to buy from more new starters. And if you have these contract officers doing a deal with some of these new tech companies and seeing that the sky is not falling, that they might actually get good publicity from it because it's working better, the war fighter is more satisfied, is going to actually help drive some of those incentives. So, you got to kickstart this ecosystem with that. I hope they go beyond that and start creating these promotion structural incentives. I'm trying to work within the government, on the hill and the executive branch to try to push those ideas. It's not that hard to do and you don't need new legislation for it which is really great. You just need to change how you set up the promotions for these folks.
Well, Mina, what about this whole question of the idea of fail fast, fail often, right? The thing that startups always want to do and that investors want them to do because they want them to get to the better product that has real product market fit and then scale that thing and not scale the thing that's going to fail. Why can't the government do that? I mean, we've done it before, right? Everyone always cites the space program as an example, right? But we've also seen, you know, small units, CIA, right, build really awesome capability by failing fast, failing often, and then it goes to big DoD or whatever, you know, NRO and they build out the big constellation. Why can't we do that or can we do that? And are these new reforms a way of getting there?
I actually don't have a view on that.
Yeah. And in terms of the startups you're investing in, what is the sector you're most interested in? You think is the hottest right now?
Look, again, I don't know about hottest, but the sectors where the demand signals are super strong, where there's big administration priorities that intersect with big mission needs and gaps where the legacy incumbents aren't delivering what we need for modern war fighting. Those would include space, those would include cyber, those would include electronic warfare, and certainly that would include manufacturing. So those sectors are key focuses for us today.
Can I just add one thing? I have to correct myself. This op-ed in the Washington Post I co-wrote with a great guy Matt Cronin of Andreessen Horowitz and former China Committee members get in trouble. So you're right, with Matt Cronin and not me. What is happening right now? I don't even understand what we're doing here. We'll do more together, but he contributed a lot of amazing ideas to the piece. So, I want to make sure it's not just my piece and that's recognized.
You guys might not see this. We're going to see like a blood contract signed in front of this camera soon between Dmitri and J. Going back a little more to the space investments, you know, what do you see, to you and the firm, you know, why is that a core part of national security investing? What are some of the opportunities and challenges in that specific sector?
Sure. So we see the space domain as where the first conflict will be or the next conflict will be either deterred or it'll be begun or it'll be won. And so we are just obsessed with answering the question who is going to build the modern solutions and technologies that are going to enable the US to sense what's happening, analyze what's happening and then react faster than everybody else. Today more than ever it's a really hot and important topic. Every mission that the US executes is literally connected to space and enabled by space. It is a very hotly contested war fighting domain and as I was explaining earlier the technology and the satellites and the infrastructure of the last 20 or 30 years weren't built for conflict. So we need new technology and new infrastructure and a modern space architecture that's ready for conflict and that needs to be able to understand what's happening in space and what's friendly or foe and what are they doing and why are they doing it and what could happen next. Then you need faster decision loops. So you need automation of the space mission combined with humans in the loop so we can make decisions. And then we need a really modern, strong, resilient, ubiquitous ground station infrastructure because if you can't control what's in space, it's useless. So these are the areas where we're focused and we're deploying very deliberately and trying to help build the new modern space architecture in partnership with the US government and other commercial partners.
So there's a big debate on the space architecture about whether we should be building it sort of with an offensive capability to push back, right, to deter, a defensive capability to protect our satellites or just make it super resilient, you know, operationally responsive satellites, operationally responsive launch. What's in your mind? Is it all the above or is it really sort of the OS construct, just get more birds up there, if they come down send more up fast, rapid refresh?
