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Ministry of Defense taps VCs to fund weapon development

Ministry of Defense taps VCs to fund weapon development

MoD representatives have held talks with venture capital funds regarding making joint investments in startups that are developing technology that can be used both in the defense and civilian sectors

Udi Etsion | 11:48  06.07.2021
The Ministry of Defense (MoD) is recruiting the capital market in order to assist it in the development of the IDF's future weapon systems. Ministry representatives have already held several talks with investment bodies regarding making joint investments in companies developing dual technologies that are suited both for the defense sector and the civilian market.

The initiative is being led by Daniel Gold, the Head of the Defense Research and Development Directorate (DDR&D) under the Ministry of Defense. "We are significantly accelerating the pace of our decision making, our processes, and their realization in order to take advantage of the swift changes taking place in technology and the pace of development," said Gold.
Head of Defense Research and Development Directorate under the Ministry of Defense, Daniel Gold. Photo: Ministry of Defense Head of Defense Research and Development Directorate under the Ministry of Defense, Daniel Gold. Photo: Ministry of Defense Head of Defense Research and Development Directorate under the Ministry of Defense, Daniel Gold. Photo: Ministry of Defense

"Concurrently, we are increasing our exposure to creativity and innovation in the civilian world, and are also enriching it with our knowledge. Our needs are always greater than the budget we have at our disposal, and recruiting the capital market will benefit both sides. The defense establishment will benefit from innovation, creativity, and additional income sources, while the investment bodies will receive companies we have examined, which have products we are interested in, will be supported and receive apprenticeship from DDR&D and IDF experts as well as help in quickly maturing a quality product. This will also act as a channel through which we will be able to jointly conduct R&D with other countries."

The DDR&D will not demand proprietary rights on any developments, but rather phantom options that it could use for future R&D development should the company's valuation increase. Phantom options are designed to mirror traditional share options but with the gain being paid in cash.

The MoD's annual R&D budget, managed by DDR&D, currently stands at NIS 800 million (approximately $245 million). Additional funds are allocated for projects that are at a prototype stage. The MoD plans to match any investment made by the VCs, with the MoD's total budget for these investments expected to reach tens of millions of shekels, hence it will likely mainly be investing relatively small sums in early-stage startups.

The investments are set to be made in companies active in a variety of sectors, including artificial intelligence, computerized vision, cybersecurity, quantum computing, biological engineering, robotics, and drones.

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