About five years ago, the North American Treaty Organization decided it needed a new mechanism to identify and invest in defense startups. It tapped three women in Boston for help designing and launching it.
NATO recently announced its first cohort of 44 startups, focused on areas such as secure data sharing and undersea surveillance, to participate in a new accelerator program. But it was the culmination of years of work, said Fiona E. Murray, associate dean of innovation and inclusion at MIT’s Sloan School of Management.
The alliance’s 31 member countries are facing “lots of new strategic problems,” Murray said, and found that relying only on established defense contractors and tech companies — “the military-industrial complex” — wouldn’t be sufficient to solve those problems.
In the US, several initiatives have been launched to help the armed services connect and contract with startups working on promising technologies. But, Murray explained, ”If only the US does this, are the other allies going to be left behind? Can we level up the rest of NATO?”
In laying the groundwork for the new NATO programs, Murray said, NATO officials visited organizations around the world that were set up to support startups, including MassChallenge, a startup competition based in Boston, MIT’s The Engine venture capital fund and startup incubator, and an Air Force backed startup accelerator program, AFWERX, which operated in Boston for several years. They also spoke with investors at IQT, a venture capital fund affiliated with the CIA, which has a Waltham office.
NATO, headquartered in Brussels, likes acronyms. So, its startup scouting and funding activities have introduced two new ones: DIANA, the Defense Innovation Accelerator for the North Atlantic, and NIF, the NATO Innovation Fund. Both will hunt for startups developing so-called “dual use” technologies — those that may have applications in both business and the world of government and military entities.
The DIANA accelerator posts challenges to attract startups with a specific focus; among the initial challenges was one focused on “energy resilience,” which includes ways to supply power that would not be disrupted by natural disasters or cyber attacks. (About 1,300 startups applied for the first round this year, Murray said.)
The startups chosen for the accelerator each receive a grant of 100,000 Euros — about $108,000 — access to testing centers located in NATO member countries, and six months of mentorship and training as they develop their products. Some of that activity will take place at five accelerator programs in NATO countries. One of those is MassChallenge
MassChallenge CEO Cait Brumme said the NATO startup founders will be able to choose which of the five sites they feel will be most helpful. The program will run from January through June of next year, after which the startups will be eligible for a second round of grant funding. (Participating entrepreneurs don’t have to give up any equity in their company in either of the first two rounds.)
MassChallenge worked with MIT and Starburst, an aerospace-focused accelerator program, to develop a curriculum for the startups that will be used at all five of the sites, Brumme said. The curriculum focuses on topics such as “understanding what dual-use is, how you work within the NATO context, and how you navigate Department of Defense entities,” she said.
Another Bostonian, Bernadette Johnson, spent 2023 in London helping DIANA sort through the 1,300 applications and choose the 44 winners. Johnson is a longtime executive at MIT’s Lincoln Laboratory in Lexington, which develops technology for national security.
The NATO Innovation Fund is set up separately from DIANA, although it may in the future invest in startups that participate in the accelerator program. Murray, a dual citizen of the US and United Kingdom, serves as vice chair of that fund.
Its first pool of capital, one billion Euros, came from 23 NATO member countries — not including the US. The three biggest contributors were the UK, Germany, and Italy.
While any startup based in a NATO country is eligible for the Diana program, the NIF will only invest in startups located in the 23 countries that put money into the fund.
The US did not contribute to the first NIF fund fund, but may invest in subsequent funds, said Murray, the associate dean at MIT. The NIF will invest in the early years of a startup’s life — what is called “seed” or “Series A” investing — and will look for investment opportunities “not just in well-established ecosystems like London and Amsterdam.”
The NIF is an effort to “take the traditional VC model and adapt it to this extremely important mission and purpose — supporting defense, security, and the resilience agenda — in today’s very complex geopolitical world,” Murray said.
Among the NIF investors is Patrick Schneider-Sikorsky, who is based in London. In terms of areas where NIF is hunting for potential investments, he said, “one major trend that we see is the use of drones in recent conflicts, and more specifically, in Russia’s war against Ukraine.” The fund is also interested in approaches to defend against biological threats and cryptography that will be able to keep data secure once powerful quantum computers are deployed to break codes.
The fund hasn’t yet made its first investment, Schneider-Sikorsky said, but that should happen “imminently.”
NATO was created in 1949 to counter the threat to European democracies from the Soviet Union. As the organization approaches its 75th birthday next year, NIF and Diana are two experiments in sourcing technology and supporting startups that will be worth watching.