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Venture Capital and Strategic Investment for Developing Government Mission Capabilities

Venture Capital and Strategic Investment for Developing Government Mission Capabilities

Tim Webb
Christopher Guo
Jennifer Lamping Lewis
Daniel Egel
Copyright Date: 2014
Published by: RAND Corporation
Pages: 100
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  • Book Info
    Venture Capital and Strategic Investment for Developing Government Mission Capabilities
    Book Description:

    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.

    eISBN: 978-0-8330-8603-7
    Subjects: Technology, Mathematics, Economics

Table of Contents

  1. Front Matter
    (pp. i-ii)
  2. Preface
    (pp. iii-iv)
  3. Table of Contents
    (pp. v-vi)
  4. Figures
    (pp. vii-viii)
  5. Tables
    (pp. ix-x)
  6. Summary
    (pp. xi-xiv)
  7. Acknowledgments
    (pp. xv-xvi)
  8. Abbreviations
    (pp. xvii-xviii)
  9. CHAPTER ONE Introduction
    (pp. 1-2)

    Over the past decade, the U.S. military has worked unremittingly to improve capabilities to address urgent operational needs in Iraq and Afghanistan. These include capabilities for countering enemy combatant use of improvised explosive devices (IEDs), coordinated by the Joint Improvised Explosive Device Defeat Organization (JIEDDO). A wide range of military capability improvement efforts, including those to thwart IED use, have benefited from development and procurement methods that accommodate urgent operational needs. But the decline in “overseas contingency operations” funding for military operations in South Asia has introduced planning and budgeting uncertainty into many military system acquisition initiatives, including that for...

  10. CHAPTER TWO Strategic Investment for Innovation Support
    (pp. 3-14)

    Although this analysis will ultimately focus on strategic investment initiatives, it is important to place these in the broader context of approaches to supporting innovation. To an important degree, GSI borrows from other well-known and widely adopted innovation-support methods in use by both public and private actors. In particular, GSI makes use of equity investment in selected firms (a feature of private capital), and specific-performance government contracts (a feature in broad use for government acquisition). Table 2.1 provides a summary of the types of innovation supporters. These include both public and private institutions, and both funders and performers. The table...

  11. CHAPTER THREE Case Studies of U.S. Government Strategic Investment
    (pp. 15-32)

    There have been a number of GSI initiatives over the past 20 years, some more enduring and successful than others. Table 3.1 shows the examples that the research team identified as having made or planned to make equity investments in innovative young companies—both to enhance the mission capabilities of government and to generate financial returns.¹ Each will be described briefly before narrowing consideration to three instances in which the initiative was of a scale and duration that allowed for identification of useful lessons. There is a short but important digression in the middle of the chapter to describe the...

  12. CHAPTER FOUR Economic Framework for Innovation Incentives
    (pp. 33-44)

    The case studies of Chapter Three discuss interactions among the government, the investment manager within the GSI initiative, the portfolio company, and the customer. We can identify several key features that distinguish the problem of optimal GSI as different from that of the private venture capital archetype. First, a government strategic investor cares not only about maximizing return on equity but also about generating prototypes that are specifically useful to the government. Second, the probability of a successful sale of the ensuing product will differ depending on whether the final customer is the private sector or the government, and this...

  13. CHAPTER FIVE Observations from GSI Case Studies and Economic Modeling
    (pp. 45-48)

    Across the case study and economic framework tracks described in Chapters Three and Four respectively, RAND identified a number of general observations about the ways in which government strategic investment initiatives have been organized and operated, and how they managed incentives to innovate. These observations should have value for the design and management of future such initiatives.

    Qualitative analysis of cases led to the following observations.

    1. In the three GSI cases examined, mission-oriented innovation was of equal or greater importance than generating financial return. In each instance, significant effort was devoted to creating an organizational and legal framework that...

  14. APPENDIX A Economic Model Algebraic Details
    (pp. 49-70)
  15. APPENDIX B Other Transaction (OT) Authority Reference
    (pp. 71-78)
  16. References
    (pp. 79-82)