Over the past year, the conflict on the European continent has redefined Western investors’ stance on dual-use technology, while the looming recession has reaffirmed the robustness of DeepTech companies. This context prompted a diverse group of panellists to explore the role of emerging technologies in geopolitics and statecraft, as well as their impact on the global markets, in a “Geopolitics of Technology” event, hosted by Baltic Sandbox Ventures last week.

The panellists, featuring high-ranking civil servants, dual-use entrepreneurs and DeepTech investors, highlighted the need for closer public-private sector cooperation via novel NATO mechanisms, streamlined procurement and a national regulatory “sandbox”, and recommended formulating a long-term national vision, dedicating resources to educate the talent needed to develop dual-use and DeepTech products.

Greta M. Tučkutė, Lithuanian Vice-Minister of Defense, noted the importance of technology in preparing for and countering geopolitical challenges: “The war in Ukraine shows that we still have conventional weapons, but technology is changing the landscape. We see new tech already tested on the battlefield – for example, drones and advanced communications systems, while even newer ones are emerging – such as supersonic weapons. Europe, understanding the ongoing Strategic competition, is actively investing in defence innovation and industry development. As democratic societies, we need to have technological resilience and develop our technological edge.”

In opening remarks, Dominykas Milašius, Investment Partner with Baltic Sandbox Ventures, argued that the benefits of DeepTech extended to statecraft: “Lithuania could become one of the most DeepTech-focused ecosystems. We should leverage its multi-pronged potential – as an engine of innovation, an antidote for recession and a strategy for geopolitical insurance, even embracing it as a battlefront. DeepTech could thus contribute to building Lithuania up as a regional economic power, help insert locally made science and engineering into global supply chains, turn geopolitical risk into a geoeconomics opportunity, and contribute to our alliances, defences and overall deterrence.”

Innovation and NATO

The panel also focused on novel models to finance and incentivise more dual-use and DeepTech innovation – including NATO Innovation Fund (NIF) and Defence Innovation Accelerator for the North Atlantic (DIANA), to be officially launched at the coming NATO Summit, to be hosted in Vilnius on 11-12 July 2023.

Inga Beiliūnienė, Deputy CEO of INVEGA, discussed the role of government in creating a supportive environment for defence innovation: “I had the honour of representing Lithuania in the negotiations over a 1B EUR NIF – the first supra-national venture capital fund in the world. The idea behind is pooling allies’ budgets to support the growth of the most promising innovations alliance-wide, with investments as large as 40M EUR per company. It will thus be a real stimulus for the dual-use and DeepTech entrepreneurs in Lithuania and other NIF contributors.”

“INVEGA is also finalising the launch of the “MilInvest” instrument – our national defence-oriented VC fund, which served as a prototype for DIANA and NIF. And we will continue encouraging the development of dual-use and DeepTech sectors in Lithuania by other instruments,” added Beiliūnienė.

Vice-Minister Tučkutė also emphasized the importance of Lithuania’s collaboration with allies: “NIF, DIANA and the European Defence Fund (EDF) are great initiatives to boost defence innovation and encourage cooperation among members. A country like Lithuania, having developed different industries than larger member states, can offer a unique value-add – our talent and the strength of our tech ecosystem – to help boost innovation in the defence sector.”

Public-Private Sector Cooperation

The panellists also debated the two-way interaction between the public and the private sector and which one needs to take initiative on dual-use innovation, noting that a balance is needed between catering to the current market needs to ensure security, and incentivising innovation to keep a technological edge in a 20 years’ time.

Sean M. Griffis, Co-Founder & COO of Scale Materials Inc., and Executive VP of Zenith Quest Corporation, described how his experience in government and military affairs informed his work in tech, advanced polymers as well as aerospace and defence industries: “The market for defence innovation is here. In order to facilitate more uptake of emerging technology, NATO and its members should think of new mechanisms to streamline procurement processes and cooperation for small and medium enterprises – who have great tech, beyond the proof-of-concept stage, and could help supply both the effort in Ukraine, and new capability building within member countries themselves.”

Darius Antanaitis, the founder of Ostara Lab, shared how his experience as a former military officer led him to an entrepreneurial journey – developing a hybrid electric autonomous vehicle for security purposes: “Defence markets are challenging to enter, as every government is trying to protect their manufacturers. Thus, the greatest help that could come from the government in defence-related innovation is not adding unnecessary bureaucratic obstacles and having a vision – identifying and working for what might be the most demanding product in 20 years. If the advanced technology startups in the defence sector don’t know what that vision from the final customer – the government – is, the startups might be wasting resources”.

“To foster the growth of the defence ecosystem, the government should also act as a customer for dual-use startups – and help provide offtake for innovative companies. If the government can help de-risk the early-stage R&D of dual-use technologies, the private investors will follow,” added Griffis.

In response to a question from the audience on the need for a simplified framework for cooperation between the two sectors, the Vice-Minister responded: “There is room for closer engagement between the public and private sectors. With colleagues from a few other ministries, we have recently discussed the need for a “sandbox”, or a platform, dedicated to regular engagement with industries and entrepreneurs interested in the defence sectors. This kind of platform could help facilitate engagement and should lead to further cooperation”.

The Role of Private Investors

Rita Sakus, EBAN and LitBAN Board Member, and angel investor, described the investors’ point of view: “Investing into dual-use tech has been looked at as a taboo for a while, given the ESG standards. But today’s realities are encouraging business angels to reconsider the dual-use sector. Additionally, if you look at the history of DARPA – a “gold standard” for dual-use innovation with a 3B USD annual budget – you see a lot of civilian use applications that came out of defence R&D, things billions worldwide use everyday, from sensors to GPS and, of course, to the internet (once known as ARPANET). For these reasons, we count plenty of business angels among our members who are ready, willing and able to invest in smart local talent and pre-seed DeepTech projects, alongside NIF or DIANA, INVEGA, the Co-Invest fund and other partners.”

Rita Sakus also highlighted the need for investors to take a long-term perspective and support companies with a strong mission: “One of DARPA’s strengths is that it looks at visionary projects that may have an impact in 20 or 30 years. That’s an enormous timeline for an individual angel, but a major incentive for a visionary entrepreneur, which might result in an interesting dual-application opportunity for the angel investor down the line.”

“The Geopolitics of Technology is a critical topic for today’s world, and we were thrilled to bring together such a distinguished group of panellists from different sectors to share their expertise. We are a VC fund with a mandate to support entrepreneurs developing DeepTech – a sector closely intertwined with Dual-Use technologies. We thus look forward to supporting the development of the emerging and disruptive technology ecosystem in the region and beyond, and will do our best in supporting NIF’s and DIANA’s activities in Lithuania,” said Sandra Golbreich, General Partner, Baltic Sandbox Ventures.