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Welcome to the 61st edition of Deep Tech Catalyst, the channel by The Scenarionist where science meets venture!
Today, we’re thrilled to welcome Drew Busbee, Chief Operations Officer at DTI!
In this episode, we break down the critical strategies for building a successful dual-use startup—from securing venture capital and government funding to navigating customer discovery in both defense and commercial markets.
Whether you're a startup founder, investor, or Deep Tech operator, this conversation provides a clear framework for balancing VC expectations with government contracts, understanding the DoD procurement process, and positioning your company for long-term success.
✅ Key Questions Answered
How to Position Your Product in the Dual-Use Ecosystem?
How to Navigate Government Procurement?
How to Leverage Non-Dilutive Funding?
How to Balance Defense and Commercial Markets?
How to Align VC Expectations with Government Funding Cycles?
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🛰️ Dual-Use 101: Space Technology as a Case Study
The space economy is growing at an incredible pace, yet startups entering the sector face a complex landscape—especially those working on dual-use technologies, which serve both commercial and government markets.
Balancing these two sides isn’t just about having a great product; it requires a deep understanding of how to position your business, navigate procurement processes, and secure funding across different sectors.
But where exactly should early-stage space startups focus their efforts? While there’s no single guaranteed path to success, certain areas of innovation and market demand are emerging as critical.
Key Innovation Areas for Startups
One of the most exciting shifts happening in the industry is the move toward on-orbit operations. Historically, space missions have been centered around launching satellites, gathering data, or sending payloads into orbit. But now, the focus is shifting toward staying in space and maintaining assets over time.
Technologies that support rendezvous and proximity operations (RPO), active debris removal, and on-orbit servicing and manufacturing (OSAM/ISAM) are becoming essential.
For startups, this means there is a huge opportunity in developing logistics, servicing, and sustainability solutions that allow assets in space to be repaired, refueled, or repurposed—rather than simply replaced. This shift opens up entirely new business models and revenue streams, from space-based refueling depots to in-space construction of infrastructure.
Of course, the growing role of space in national security also means there are significant defense applications for many of these technologies. This is where dual-use innovation comes into play.
What Does Dual-Use Really Mean?
When we talk about dual-use technology, many founders assume that it means their business must serve both commercial and military markets equally. But that’s not necessarily the case.
Dual-use doesn’t require a 50-50 split between commercial and defense applications. Instead, startups need to find the right balance for their technology—where they can benefit from both markets while staying aligned with their long-term business strategy.
It’s a shift from how space innovation worked in the past. Decades ago, government agencies were the primary drivers of technological advancement in aerospace—funding everything from the Wright brothers’ early aviation experiments to the first rocket programs.
Today, however, commercial space companies are outpacing government agencies in speed and innovation. The challenge now is that federal agencies are adapting their acquisition strategies to keep up with these fast-moving private sector advancements.
This means that startups need to carefully evaluate their positioning. If you’re developing space technology within a university or research lab, the big question is: Is this actually a viable business? And if so, who is going to be your first customer?
3 Key Questions Every Founder Should Ask When Considering Dual-Use
Taking space startups as an example, founders need to think beyond the technology itself. Three critical questions must be answered:
Is it technically feasible? Can the technology actually be built and deployed? This might seem obvious, but many proposals stretch beyond the laws of physics—something investors and defense customers will scrutinize carefully.
Does it have a real use case in defense or government? If you're targeting military or federal applications, you need to articulate exactly how your technology fits into existing government missions and priorities.
Is it a venture-backable business? Having groundbreaking technology isn’t enough—you need to prove that there is a scalable market opportunity and a clear path to revenue.
Where Do You Fit in the Broader Space Ecosystem?
Another major factor that space startups need to consider is where they fit within the larger supply chain. Are you building a component, a subsystem, or an end-to-end system?
This is an important distinction because the Department of Defense (DoD) and other government agencies typically procure complete systems, not individual parts.
If your startup is focused on a subsystem or component, you need a strategy for transitioning into a long-term program or integrating into a prime contractor’s supply chain.
A common mistake that founders make is assuming they can become the prime contractor themselves—when in reality, they may be better suited to partnering with a major defense or aerospace firm that already has the necessary contracts and infrastructure in place.
🎯 Proving Market Fit
Once a startup has validated its technology, the next challenge is proving it has a real market opportunity. For dual-use startups, this means navigating two parallel paths—one within the Department of Defense (DoD) or federal agencies and the other in commercial markets.
But how do you approach the DoD as an early-stage startup? What are the right steps to take when trying to determine if your technology has a defense use case, and how do you prove traction before revenue? These are the critical questions that will shape your path forward.
Step Zero: Getting Registered
Before anything else, startups must handle the administrative groundwork. This step might not be glamorous, but without it, securing defense contracts is impossible.
A startup looking to work with the DoD must be:
✅ A for-profit entity
✅ Registered on SAM.gov—this is where government contracts are listed.
✅ In possession of a Unique Entity Identifier (UEI), which has replaced the DUNS number.
✅ Assigned a CAGE Code, a key requirement for bidding on defense contracts.
Many startups underestimate how long these registrations take, so handling them early in the process prevents delays when real opportunities arise.
Customer Discovery vs. Business Development
A common mistake founders make when entering the defense sector is jumping straight into business development—pitching their solution to government stakeholders before fully understanding the real problem they are solving.
Instead, what’s needed first is customer discovery. This means talking to stakeholders to validate pain points and understand how decisions are made inside the defense ecosystem.
Who Makes the Buying Decision? Understanding the DoD Sales Process
Selling to the government is not like selling to commercial enterprises. In most cases, the person evaluating your technology is not the person approving the purchase.
Startups need to identify 2 key players:
The User – The person actually using the technology (e.g., a soldier, analyst, or operator).
The Customer – The decision-maker who allocates the budget and signs the contract.
Understanding both roles is critical. If a startup only focuses on the decision-maker, it risks developing something that isn’t practical for the end user. On the other hand, if they only listen to the user, they may end up with a great product but no clear path to procurement.
The Best Way to Secure Early Funding: SBIR & STTR Grants
or startups looking to break into the defense sector, Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs provide a strong entry point. These programs offer non-dilutive funding to help startups validate and develop their technology while building relationships with defense stakeholders.
The primary difference between the two programs is that STTR requires a partnership with a nonprofit or university, which must perform at least 30% of the work, while SBIR does not have this requirement.
Why Grants Matter
Beyond funding, grants offer startups a valuable opportunity to engage with defense stakeholders early on. E.g. being an SBIR Phase 1 awardee provides a strong reason to connect with potential government customers, gather feedback, and refine the product based on real-world defense needs.
Scaling in Defense
Once a startup secures early funding, the next step is positioning for procurement contracts. Programs like StratFi and TACFI help startups transition from prototypes to full-scale adoption by requiring government agencies to contribute their own budgets, facilitating a smoother path to long-term defense contracts.
Quick Recap 🧵
For dual-use startups looking to work with the DoD, the key steps are:
✔ Registering early to avoid delays in contract eligibility.
✔ Focusing on customer discovery before business development.
✔ Understanding the difference between users and decision-makers in defense procurement.
✔ Leveraging SBIR/STTR grants.
✔ Planning for long-term procurement pathways from the start.
🔎 Customer Discovery 101 for Dual-Use Startup Founders
Defense First or Commercial First? It Depends.
When building a dual-use startup, one of the biggest strategic questions is: Should you focus on military applications first, or should you build for commercial markets and then explore defense opportunities?
There’s no one-size-fits-all answer—it depends on your long-term strategy. Some companies use government contracts as a stepping stone to build commercially viable technology, while others start in defense and later spin-off commercial applications. Understanding which path is right for you is critical when planning funding, product development, and go-to-market strategy.
2 Common Approaches for Dual-Use Startups
Some startups begin with a strong commercial focus and use government funding as a way to de-risk their R&D, while others are military-first and only later adapt their technology for civilian use. Let’s explore both models.
1️⃣ Commercial-First with Defense as an R&D Enabler
For startups looking to dominate commercial markets, government funding can serve as a non-dilutive way to finance early R&D. Many companies leverage SBIR/STTR grants to advance their technology while keeping their primary focus on scalable commercial applications.
📌 Example: A Hyperspectral Imaging Startup
The startup’s primary market was oil & gas, where hyperspectral imaging helped detect mineral compositions and environmental hazards.
They secured SBIR/STTR grants to develop the core technology—funding that allowed them to refine and validate their sensors without giving up equity.
Over time, they expanded into defense contracts, using their existing tech for military surveillance and reconnaissance applications.
This approach allows a startup to stay commercial-first while keeping doors open for defense opportunities.
2️⃣ Defense-First with Commercial Expansion Later
Some technologies are so defense-specific that a startup must begin within the DoD before considering commercial markets. If a company is developing a next-generation battle tank, for example, its first and primary customer will be the military.
📌 Example: Military-Grade Vehicles & EV Technology
A company building an electric-powered tank might start with a DoD contract, as that’s the only viable early customer.
Over time, they might realize that their battery or drivetrain technology could be used in commercial electric trucks—creating a new market opportunity.
This model works best when a company is developing core technologies that could have future commercial applications, even if their initial market is military.
The iRobot Case Study: From Defense R&D to Consumer Success
A great example of a defense-first company pivoting into commercial is iRobot, the company behind the Roomba vacuum.
📌 How iRobot Transitioned from Military to Consumer Markets
Originally, iRobot was developing throwable robots for mine detection under DARPA and Army SBIR contracts.
During a technology demonstration, engineers added a vacuum to test an algorithm.
They quickly realized the commercial potential and pivoted to create Roomba.
Eventually, iRobot sold off its defense division and became a consumer-focused robotics company.
📌 What Founders Can Learn from This
✅ Government R&D funding can lead to unexpected commercial breakthroughs.
✅ Being dual-use means staying open to pivots based on market demand.
✅ Your technology’s primary application today may not be the same in five years.
Why It’s Important to Think Long-Term
The key takeaway for founders is that commercial demand and defense needs change over time. A technology that seems defense-only today might have a massive commercial market in the future—or vice versa.
The best approach? Stay flexible and understand how both markets evolve. If you plan your funding, go-to-market strategy, and R&D efforts wisely, you can position your startup for success in both worlds.
🧐 What Do VCs Look for in Dual-Use Startups?
Once a startup has identified a strong defense use case and a potential commercial market, the next challenge is proving it can deliver exponential returns—the golden metric for venture capital investors.
For dual-use startups, this balancing act is even trickier. Unlike pure commercial companies, they must navigate government contracts, non-dilutive funding, and long defense procurement cycles while still demonstrating scalability and rapid growth potential to VCs. So, what makes a dual-use startup venture-backable, and what are the red flags that turn investors away?
Why Market Size is Everything
One of the first things investors will scrutinize is market size. The Department of Defense (DoD) is massive, with billions allocated across different sectors, but startups must dig deeper to understand where their technology fits within that funding landscape.
📌 Where to Start?
Look at DoD budgets—The National Defense Authorization Act (NDAA) and other reports outline key areas of defense spending.
Identify funding lines—It’s not enough to say “The DoD is a $800B market.” Founders must pinpoint which part of that budget applies to their tech.
Analyze commercial traction—For dual-use startups, investors want proof that the commercial market is real, scalable, and complementary to the defense side.
Many VCs hesitate to invest in companies that rely entirely on government contracts because procurement cycles are slow, funding sources are complex, and contracts can be unpredictable. If a startup claims to be dual-use, it needs to prove real traction on the commercial side, even if that’s through early pilots, partnerships, or LOIs.
The Right Team Can Make or Break a Deal
For investors evaluating a startup, team composition is as important as the technology itself. While strong technical talent is a given, defense startups require a unique mix of expertise to navigate both venture capital expectations and government contracting challenges.
📌 The Must-Have Roles in a Dual-Use Startup
Technical Experts – A strong engineering team that can actually build and scale the technology.
Go-to-Market & BD Leaders – Founders who understand how to sell into both commercial and defense markets.
Defense & Procurement Experience – Someone with insider knowledge of how government acquisitions work.
Why Defense & Procurement Knowledge is Crucial
The DoD operates very differently from traditional enterprise sales. Government buyers change roles, meaning relationships built today may not exist tomorrow. Having veterans, former DoD personnel, or long-term defense contractors on the team can dramatically improve a startup’s ability to navigate shifting leadership and regulatory requirements.
For example, in defense-focused startups, having a former acquisitions officer or procurement specialist can help smooth the process of securing contracts and staying compliant with regulatory hurdles.
Red Flags for Investors
Even if a startup has a great product and team, there are specific red flags that will raise concerns among VCs:
🚩 Lack of Commercial Viability
🚩 Over-Reliance on Government R&D Funding
🚩 Regulatory & Compliance Uncertainty
🚩 Lack of Understanding of DoD Sales Cycles
💰 Manage Capital in Dual-Use: The ‘Colors of Money’
Balancing Venture Capital and Government Funding
For dual-use startups, managing capital is more than just raising funds—it’s about understanding how different types of money work together.
Early-stage founders must balance venture capital expectations, government funding cycles, and non-dilutive contracts, all while ensuring their company stays financially healthy and scalable.
This is where the concept of “Colors of Money” becomes critical. If founders don’t understand how different types of funding are allocated, they risk mismanaging cash flow, miscommunicating financials to investors, or missing out on procurement opportunities.
So, how should startups synchronize their VC funding, government contracts, and non-dilutive capital to maximize growth?
Key Types of Defense Funding
In government funding, not all money is the same. The "Colors of Money" refer to different categories of funds, each with specific rules on how they can be spent. Understanding this distinction is essential for startups working with defense agencies.
Research & Development (R&D) Funding – Used for early-stage technology development. Examples:
SBIR/STTR grants
DARPA programs
Technology maturation funds
Operations & Maintenance (O&M) Funding – Supports upgrades, repairs, and sustainment of existing defense systems.
Procurement & Sustainment Funding – The end goal for most startups—this is when the DoD actually buys your product at scale. Examples:
Phase 3 SBIR contracts
Long-term sustainment programs
📌 Why This Matters
Founders often make the mistake of confusing R&D contracts with revenue. While SBIR/STTR funding is essential for early-stage companies, it’s not true commercial revenue—it’s money allocated for developing and de-risking technology, not selling a final product.
This distinction is critical when pitching to VCs. If a startup tells an investor, “We have revenue from the DoD,” but that money is actually an R&D contract, it creates a misleading picture of growth and scalability. Investors want to see a path toward procurement contracts, not just grants.
Sync Government and Venture Capital Funding
For founders, the real challenge is aligning VC expectations with government funding cycles. Unlike traditional startups that rely purely on venture capital, dual-use companies need to blend non-dilutive funding and private investment strategically.
Quick Recap:
✅ Strategic Funding & Growth Planning
Leverage SBIR/STTR to De-Risk Early Development – These non-dilutive funding sources provide essential capital for R&D without sacrificing equity.
Plan for Procurement from Day One – Grants are a great starting point, but a startup’s long-term success depends on transitioning from government-funded R&D to actual product sales.
Show VCs a Clear Defense Sales Roadmap – Investors need confidence that your business isn’t grant-dependent. Demonstrating a path from R&D contracts to procurement deals is crucial for securing venture capital.
🚨 Common Pitfalls to Avoid
Thinking All DoD Money is the Same – When a government agency says, “We don’t have money,” it often means they lack the right type of funding, not that the budget doesn’t exist.
Over-Reliance on R&D Grants – SBIR/STTR funding is a great start, but it’s not a sustainable business model. Founders must plan their transition into procurement and commercial sales.
Misaligning Funding Strategy with Growth – Investors back scalable businesses, not ones dependent on indefinite grants. A strong funding strategy should combine government contracts, venture capital, and commercial sales to maintain momentum.
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