To address urgent operational needs in a changing threat environment, this report examines one type of government acquisition method, called government strategic investment (GSI). Through a combination of case studies and economic modeling, this research will help government acquisition managers judge the suitability of strategic investment methods for motivating future government mission–oriented innovation by private firms.

Venture Capital and Strategic Investment for Developing Government Mission Capabilities

Timothy Webb, Christopher Guo, Jennifer Lamping Lewis, Daniel Egel

ResearchPublished Mar 24, 2014

A wide range of military capability improvement efforts have benefited from development and procurement methods that accommodate urgent operational needs. Changes in the threat environment suggest a need for a fresh examination of the adequacy and suitability of acquisition methods for the coming decade. This report examines one class of acquisition method, known as government venture capital (GVC), or government strategic investment (GSI). The research extracts general observations from previous cases and from a partial economic model of the GSI type of initiative. Taken together, these analyses will help government acquisition managers to judge more thoroughly the suitability of strategic investment methods for motivating future government mission–oriented innovation by private firms.

The report does not explicitly compare GSIs and alternatives for their efficacy in advancing government mission objectives. If it had, it is likely that the main advantage of GSI would be improved access to information about alternative approaches available in the commercial market, resulting from the close relationships the GSI structure engenders between government and business.

Key Findings

Qualitative analysis of cases led to the following observations.

  • In the three government strategic investment (GSI) cases examined, mission-oriented innovation was of equal or greater importance than generating financial return.
  • GSI participation in venture capital investments has provided government with additional information about technology-focused market sectors and companies.
  • GSI initiatives rely on the operational flexibility afforded by Other Transaction authority.
  • GSI initiatives rely in a significant way on a government-to-private sector "interface" function.
  • The GSI's responsibility to government customers adds significant difficulty to the task of investment management.
  • GSI initiatives need staff with private market capabilities to serve investment management functions.

Economic modeling analysis led to the following observations.

  • It is possible to systematically assess selected incentives to which private firms will respond.
  • The desired balance of GSI financial support between equity investment and contractual support depends on likelihood of sale in government and commercial markets.
  • The GSI initiatives in the case studies illustrate a range in the balance between equity investment and contractual support.

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  • Copyright: RAND Corporation
  • Availability: Available
  • Year: 2014
  • Print Format: Paperback
  • Paperback Pages: 100
  • Paperback Price: $29.95
  • Paperback ISBN/EAN: 978-0-8330-8213-8
  • Document Number: RR-176-OSD

Citation

RAND Style Manual
Webb, Timothy, Christopher Guo, Jennifer Lamping Lewis, and Daniel Egel, Venture Capital and Strategic Investment for Developing Government Mission Capabilities, RAND Corporation, RR-176-OSD, 2014. As of October 10, 2024: https://www.rand.org/pubs/research_reports/RR176.html
Chicago Manual of Style
Webb, Timothy, Christopher Guo, Jennifer Lamping Lewis, and Daniel Egel, Venture Capital and Strategic Investment for Developing Government Mission Capabilities. Santa Monica, CA: RAND Corporation, 2014. https://www.rand.org/pubs/research_reports/RR176.html. Also available in print form.
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The research described in this report was prepared for the Office of the Secretary of Defense (OSD). The research was conducted within the RAND National Defense Research Institute, a federally funded research and development center sponsored by OSD, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

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