On January 13, 2021, the Department of Defense (DoD) announced the launch of its Trusted Capital Digital Marketplace (TCDM) to support qualified small and medium sized businesses (“Domestic Companies”) that make up the defense industrial base (DIB). The TCDM establishes a forum to provide selected innovative domestic companies with access to “vetted” sources of private capital in the form of loans, loan guarantees, incentives, and investments to enhance the capability of the DIB to serve our defense and national security needs.
The TCDM has been in development for several years, and is comprised of military stakeholders, trusted capital providers, and capability providers.
The military stakeholders participate in this forum by employing rapid acquisitions contracting vehicles to identify innovative capability providers deemed critical to their supply chains. Such “down-selected” providers of defense-critical and dual-use solutions are candidates for the TCDM.
The trusted capital providers are “trusted financial institutions and qualifying companies” that invest in the twenty-seven key technological areas that are important and relevant to the DoD, including hypersonics, directed energy, space, autonomy, cyber, quantum science, microelectronics, biotechnology, artificial intelligence and machine learning (AI/ML), and fully-networked command, control, and communication (“Key Technologies”). These trusted capital providers are ready and willing to invest in dual use technology. They can also invest across various stages of the funding cycle, including “Seed to Direct loans” to facilitate funding gaps in government funding programs like Small Business Innovation Research Funding, Small Business Administration development programs, and others. Trusted capital providers apply to the TCDM program through the online application available at the TCDM website. An annual recertification requirement is required for approved trusted capital providers.
The capability providers are domestic businesses previously selected by the military stakeholders that specialize in providing and/or developing products and services related to the Key Technologies. The capability providers can submit a white paper to begin the process.
Under Secretary of Defense for Acquisition and Sustainment, Ellen M. Lord, explained that certain Domestic Companies in the DIB “are vulnerable to adversarial capital, [s]o we need to make sure [these] companies can stay in business without losing their intellectual property — the foundation of so many critical technologies.” Examples of the predatory investment tactics used by our Nation’s adversaries’ include the “use [of] front companies, joint ventures, mergers and acquisitions, foreign direct investment, and talent recruitment programs to gain access to and exploit U.S. technology and intellectual property.” Ms. Lord further noted that the Domestic Companies are even more vulnerable now due to the ongoing COVID-19 pandemic. For example, from January to April 2020, China announced 57 outbound mergers and acquisitions worth $9.9 billion and 145 outbound investments worth $4.5 billion in the United States and allied nations.
Ms. Lord further remarked that the US economic and national security can be undermined by the acquisition of Domestic Companies in the defense and commercial sectors that develop Key Technologies, by organizations that are U.S.-based but are actually owned or controlled by hostile foreign entities.
It is unclear at this time whether the incoming Biden Administration will carry forward the TCDM, but if it does, the TCDM will be led by Chief Information Security Officer for Acquisition and Sustainment (CISO(A&S)) Katie Arrington and Trusted Capital Director Colin Supko.
The TCDM is important because it provides Domestic Companies (including startups) in the DIB with capital providers who do not pose a security risk; and a foreign company otherwise compliant with the requirements of CFIUS, and that wishes to acquire, merge with or otherwise strategically invest in a US-based startup company focused on the Key Technologies, with a framework to demonstrate to the US Government that it should be construed as a “trusted investor.”