What’s harder than selling to hospitals? Selling to governments.

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Defense contracts typically start with a small pilot to demonstrate a particular capability; these are funded by a number of vehicles, most prolifically, through the SBIR (small business innovation research grant) program. These grants typically pay for non-recurring Research, Development, Test, and Evaluation (RDT&E) expenses. While non-dilutive financing is  a meaningful tool to fund the development of new capabilities, it is not the same as real revenue and certainly not the same as recurring revenue from an investor perspective. After a capability is demonstrated, to get the product into the hands of the frontline workers, the company needs to receive a production contract. It is also important to note that SBIR grants may be a distraction for some companies and lead them to a product path that is not the optimum commercial path.

Occasionally, small production contracts can be awarded with leftover money that was originally allocated to another project, but typically they are only awarded after specific language is passed in one or more laws, the budget, and for Department of Defense (DoD)-specific programs, the National Defense Authorization Act (NDAA) as well.

Going from pilot to production in the defense world is difficult and can take years from end to end, and most fail to make it. Within the defense industry, this process is often called “the valley of death.” The biotech sector also has a “valley of death,” so what better than to put the two together in biodefense! While programs of record are typically very large, often hundreds of millions or billions of dollars, it requires an enormous amount of capacity to influence the government to award one. The DoD and other national security agencies have procurement processes that are notoriously unfriendly to small firms; there is a dearth of small and medium-sized production contracts and the decision-making process is also notoriously risk-averse.

Despite the challenges of commercializing in defense, there is hope. Over the past five years, we’ve seen a growing number of venture-backed startups, described within this article, cross the valley of death.

National security entrepreneurs need to be clear-eyed about the challenge of going from pilot to production, and this process will likely be even more difficult for a biodefense startup. Ultimately, many of today’s defense tech companies are trying to disrupt existing defense contractors. They believe they will do so by competing against the incumbents for the same contracts and working collaboratively with the government to develop requirements for new mission sets. Biodefense differs from traditional defense in that there has never been a major corporation, like Northrop Grumman, of biodefense.

Much of the emergency spending authorized during the COVID-19 pandemic was reactive spending that was not and is not recurring. In order to build a venture-scale business, biodefense companies will need to convince congress that this capability is worth authorizing and funding, and this will necessitate a strategy that is markedly different from most tech or biotech companies.

Early-stage companies should have a comprehensive strategy to get to a production contract within a few years. This will likely include a few common steps; including a strategy of which purchasing offices to target within which branches of the defense establishment. Venture-backed startups should typically hire a lobbyist and an experienced defense business development team immediately after receiving funding, as this process can often take a number of years from end to end.

Customer wise, biodefense in the US is primarily the responsibility of the Department of Health and Human Services (HHS) and the Department of Homeland Security (DHS) but is also covered by several other departments:

• The HHS is responsible for protecting public health through the development of vaccines, drugs, and diagnostic tests to combat bioterrorism, as well as detecting and managing outbreaks of infectious diseases.
• The DHS is responsible for protecting the nation's critical infrastructure and coordinating the response to a biological attack or outbreak.
• The DoD also has a role in biodefense through the development and stockpiling of medical countermeasures, as well as the training of civilian and military personnel to respond to a biological threat.
  • The Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense (JPEO-CBRND) leads, manages, and directs the acquisition, fielding and sustainment of CBRN sensors, protective equipment, medical countermeasures, specialized equipment for U.S. Special Forces, integration and information management systems, and defense enabling biotechnologies. The organization also works closely with various government agencies that need CBRN defense equipment
  • Defense Threat Reduction Agency (DTRA) provides cross-cutting solutions to enable the DoD, the U.S. Government, and international partners to Deter, Prevent & Prevail against WMDs & emerging threats
• The Department of Agriculture (USDA) is responsible for protecting the nation's food supply from terrorist attacks and outbreaks of animal diseases.
• The Federal Bureau of Investigation (FBI) is responsible for investigating criminal acts related to bioterrorism.
• And the National Security Council (NSC) coordinates the biodefense efforts of these agencies.

Although DHS is likely to be the largest, all of these agencies are potential customers for biodefense entrepreneurs. For those interested in more ideas of what the technology stack looks like, we’d encourage you to look at the Apollo Program for Biodefense’s technology priorities, BARDA DRiVe’s portfolio, the DARPA Biological Technologies Office program portfolio, and Delay, Detect, Defend. If you’re looking for investment, you might look at Hummingbird Ventures, Vine Ventures, Bessemer, In-Q-Tel or the Global Health Investment Corporation’s $500m BARDA partnership fund.