Capitalizing on Critical Technologies: DoD's Office of Strategic Capital and its Plan to Secure America’s Strategic Edge

OSC's 2025 Investment Plan; Missile Sales to Japan; Sullivan's Capstone Trip to India

Jan 06, 2025

Hub Story: DoD’s Office of Strategic Capital Releases 2025 Investment Strategy
Spoke Story: US Announces $3.6 Billion Sale of Air-to-Air Missiles to Japan
Spoke Story: NSA Jake Sullivan’s Final Trip to India
Alliance Insights: Key Articles This Week

Hub Story: DoD’s Office of Strategic Capital Releases 2025 Investment Strategy

The Department of Defense’s Office of Strategic Capital (OSC) is one of DoD’s newer shops. Announced by Secretary Lloyd Austin in December, 2022, OSC is tasked with investing in private sector businesses working on technologies critical to national security. This week OSC released its Fiscal Year 2025 Investment Strategy.

Congress authorized OSC in the National Defense Authorization Act for 2024 and defined OSC’s core duties as:

To develop, integrate, and implement capital investment strategies proven in the commercial sector
To identify and prioritize promising critical technologies and assets that require capital assistance and have the potential to benefit the Department of Defense
To make investments in such technologies and assets

The real strength of OSC investment lies in its ability to signal demand. While OSC has nearly $1 billion to invest in 2025, this is still relatively small in the rapidly growing technology investment sector. For comparison, the CHIPS and Science Act provides a much larger $53 billion for semiconductor manufacturing. However, like the CHIPS and Science Act, OSC investments are designed to catalyze private investment. For example, a $100 million public loan could generate $500 million in private loans. If properly aligned with executive branch stakeholders and Congress, OSC can send demand signals to private investors about the technologies the Department of Defense will prioritize in the coming years.

In 2024, OSC focused on its first initiative, the Small Business Investment Company Critical Technology Initiative (SBICCT Initiative), a partnership with the Small Business Administration (SBA) to provide credit to funds investing in the Department’s fourteen Critical Technology Areas. Under the SBICCTI, OSC and SBA (using SBA authorities and funding) extend loan guarantees to licensed investment funds for early-stage investments, supporting the commercialization of critical component technologies.

The FY2025 Investment Strategy introduces a new credit program to extend loans or loan guarantees (using NDAA authorities and funding) to companies or financial institutions for the scaled production of critical component technologies. While FY2024 focused on early-stage R&D, FY2025 will center on production. As defined by its mission, all investments must support national security objectives. OSC defines national security impact as "those that provide the United States and/or its allies and partners with a robust competitive advantage over its strategic competitors."

OSC’s investment focus is centered on the following industry segments:

OSC’s investment time horizon is more nuanced:

Near-term control over chokepoints in economic networks
Medium-term leadership within key industries
Long-term development of critical technologies

Near-Term (0-3 years): Capturing Chokepoints in Economic Networks:

Globalization has created strong economic ties across borders, impacting national security. Competitors can exploit these connections to disrupt access to key resources like financing, materials, and technology, weakening a nation's capabilities. To protect US national security, it’s crucial to address these vulnerabilities. OSC’s financial products can help by diversifying sources of supply, capital, technology, and expertise, reducing dependencies and preventing chokepoints.

Medium-Term (2-7 years): Dominating Key Industries:

When a competitor controls an industry critical to national security—beyond just controlling an economic chokepoint—they gain a significant competitive advantage. Some competitors try to dominate these industries using illegal or secretive tactics that are unfamiliar to the US and the international rules-based system. OSC’s financial products can help by supporting domestic and allied production through investment programs that reduce the cost of capital for companies.

Long-Term (5-15+ years): Winning Critical Tech Races:

In the long run, developing next-generation critical technologies is key to maintaining a lasting competitive advantage. Success in this area requires not just creating new technologies, but also turning them into successful, sustainable businesses. Falling behind in this race could leave the US technologically outdated, with competitors surpassing the Department of Defense's capabilities. OSC’s financial products can help by accelerating the growth of emerging industries through targeted investment programs, like the SBICCT Initiative, which reduce the cost of capital for investing in technology sectors that need long-term funding.

Ultimately, the success of OSC will depend on its ability to attract private investment for national security needs. However, OSC’s success also hinges on factors beyond its control, with Congress and the new administration playing a much more significant role in determining its outcome.

Spoke Story: US Announces $3.6 Billion Sale of Air-to-Air Missiles to Japan

The US State Department has approved a potential $3.64 billion sale of up to 1,200 Advanced Medium-Range Air-To-Air Missiles (AMRAAMs) made by RTX to Japan. This sale aims to enhance Japan’s defense capabilities, supporting both US foreign policy and national security objectives by strengthening a key ally in the Indo-Pacific. The deal is expected to help Japan defend its homeland and US personnel stationed there, with no difficulties anticipated in integrating the missiles into Japan’s armed forces. However, the final details are subject to change.

AMRAAMs are in high demand. In addition to Japan, the United States plans to provide AMRAAMs to Bahrain, Bulgaria, Canada, Finland, Germany, Hungary, Italy, Norway, Switzerland, Ukraine, and the UK. Last year, the Pentagon placed its largest-ever order for AMRAAMs from RTX. However, the current production rate of 1,200 missiles per year is at full capacity, and the Arizona factory lacks the ability to expand.

To support production goals, the US and Japan began a feasibility study in October to assess whether Japan can co-produce AMRAAMs domestically. Japan currently co-produces Patriot missiles but has only produced around 10, with plans to scale up to 100. The announcement of the AMRAAM sale suggests that the feasibility study is progressing well and that Japan will likely be able to co-produce some of the missiles it is purchasing.

Spoke Story: NSA Jake Sullivan’s Final Trip to India

National Security Advisor Jake Sullivan is concluding his final trip abroad, with India as his destination. The National Security Council has led US efforts to strengthen relations with India, with Kurt Campbell bringing particular energy to the relationship during his time at the NSC. Sullivan has continued to prioritize this partnership, with the Initiative on Critical and Emerging Technologies (iCET) being a key program resulting from these efforts. Since iCET is managed by the White House, it is unclear whether a potential Trump Administration would continue or abandon this Biden-era initiative. Nevertheless, Sullivan's trip to New Delhi sends a strong message that India is a critical partner for the United States.

To mark the trip, the US is reforming regulations to enable greater civil nuclear cooperation between the two countries, a goal first pursued during President George W. Bush's administration in the early 2000s. As part of this cooperation, the US has taken steps to delist Indian nuclear companies.

Space cooperation remains another major area of US-India collaboration.

The White House: FACT SHEET: The United States and India Committed to Strengthening Strategic Technology Partnership:

Announcing the first-ever joint effort between American and Indian astronauts at the International Space Station with the launch of Axiom-4 scheduled to take place this spring, which will mark a significant milestone in the U.S.-India human spaceflight partnership and space exploration;
Reducing barriers to collaboration around commercial space technology following the U.S. government’s recent conclusion of updates to Missile Technology Control Regime export policy, which will open the door to additional technology licensing and co-development opportunities in support of the U.S.-India space partnership;
Working toward the launch of a new bilateral space accelerator to promote commercial space cooperation, including around lunar exploration, human spaceflight, geospatial data and services, and the co-development of technology;
Celebrating the conclusion of a Strategic Framework for Human Spaceflight Cooperation to deepen interoperability in space and working toward the imminent completion of additional agreements to commence advanced training for ISRO astronauts and ground personnel at the NASA Johnson Space Center and for joint experiments at the International Space Station;
Preparing for the launch of the NASA-ISRO Synthetic Aperture Radar, a jointly developed satellite that will map the entirety of the Earth’s surface twice every 12 days as the United States and India work together to combat climate change and other global challenges, this spring;
Deciding to hold the first bilateral experts’ exchange on space situational awareness and space traffic coordination in the first half of this year. This exchange builds upon the two nations’ shared commitment to pursue opportunities for deeper collaboration to ensure safe and sustainable space operations;
Exploring additional avenues for cooperation in space exploration technologies, including docking and interoperability demonstration missions, as well as India’s participation in the United States Traffic Coordination System for Space program.

Alliance Insights: Key Articles This Week

Japan:

South Korea:

Taiwan:

India:

Other:

USNI: Carrier USS Carl Vinson Back in the South China Sea, French Carrier in Indian Ocean

Hub-and-Spokes

Discussion about this post