The Innovation Frontier: Navigating Trade Impacts and Defense Innovation Priorities
16 April 2025 - A Weekly Publication by New North Ventures
NEW NORTH VENTURES PRESENTS: INVESTING IN THE GLOBAL COMPETITION AND INNOVATION ERA
May 13, 2025 11:00 AM EST — VIRTUAL WEBINAR
As geopolitical tensions intensify and technological competition accelerates, strategic investors must navigate complex risks and identify mission-critical opportunities. New North Ventures invites you to join our executive briefing on investing in the Global Competition and Innovation Era, featuring expert analysis from the Executive Director of the Council on Global Competition and Innovation alongside our team's presentation on Dual-Use Venture strategy. This webinar delivers actionable intelligence on strengthening both national security and investment portfolios through principled capital allocation in frontier technologies.
NAVIGATING THE SHIFTING DUAL-USE TECHNOLOGY LANDSCAPE: STRATEGIC IMPLICATIONS FOR INNOVATION
Recent trade policy shifts have created a complex operational environment for venture-backed dual-use technology companies. With import duties reaching as high as 145% on Chinese goods, innovative firms now face immediate strategic challenges related to supply chain resilience and cost structure management. For technology developers operating with defined funding parameters, these market conditions demand heightened vigilance and adaptive planning.
The economic environment has fundamentally shifted. As market analysts at Axios AI+ observe, "in the current trade-war era, capital will move more cautiously and growth will slow or vanish." This reality requires mission-focused innovators to adjust their strategic approach while maintaining their commitment to transformative technologies.
AI-focused enterprises face particular strategic considerations as market conditions evolve. These organizations must demonstrate capability to generate revenue amid challenging economic headwinds. For hardware-dependent national security innovators, supply chain transformations present both strategic challenges and opportunities for competitive differentiation:
Companies leveraging advanced manufacturing capabilities such as additive manufacturing demonstrate enhanced resilience, with documented cases showing parts reduction of approximately 50% through strategic design optimization
Domestic manufacturing capacity constraints remain a significant strategic consideration despite coordinated reshoring initiatives
Microelectronics-focused innovators may encounter increased volatility as the semiconductor ecosystem adapts to new market realities, even as the CHIPS Act has catalyzed "approximately 100 companies pledging $450B in private investment for U.S. semiconductors," according to the Reagan Institute NSIB Report Card
The current public markets environment reflects broader strategic uncertainty. Multiple technology organizations have strategically postponed their public offerings amid market volatility. According to capital markets analysts, financial technology firm Klarna and banking technology company Chime have both adjusted their public market timeline strategies in response to changing conditions. This evolving capital markets landscape may extend exit horizon planning while creating opportunities for strategic consolidation among companies with mission-critical technologies addressing defense priorities.
Despite these complexities, increased defense investment allocation creates strategic opportunities for properly positioned innovators. With defense officials signaling "the next Pentagon budget will be a whopping $1 trillion," as reported by Colin Demarest in Axios Future of Defense, organizations aligned with national security imperatives may encounter enhanced customer demand, particularly as the United States continues strengthening its position in global technological competition.
NSIB Report Card: Tracking America's Innovation Edge
The National Security Innovation Base (NSIB) Report Card, published by the Reagan Institute's Center for Peace Through Strength, serves as an authoritative annual assessment of America's national security innovation ecosystem. Now in its third year, this comprehensive evaluation examines the health, effectiveness, and resilience of the NSIB ecosystem, which encompasses national security agencies, research centers, academia, defense contractors, commercial disruptors, venture capital, and international allies. The report card identifies trends across ten critical areas, highlighting where the U.S. is improving, regressing, or standing still in its pursuit of technological leadership.
The 2025 NSIB Report Card findings:
Defense Modernization: D - While adoption of innovative procurement approaches is increasing, the Defense Department struggles to integrate new capabilities into production, with domestic production capabilities in critical areas like shipbuilding lagging far behind strategic competitors.
Innovation Leadership: A- - The U.S. maintains global leadership in innovation, particularly in artificial intelligence research, but faces growing challenges as China and others rapidly invest to close the technological gap in emerging technologies.
Pull-Through for Broader National Priorities: B - Defense spending continues to drive economic growth with improvements in collaboration, but production scalability and acquisition strategies remain hindered by outdated models and slow transitions from legacy systems.
Customer Clarity: D+ - While progress is being made in areas like Proliferated Warfighter Space Architecture and Project Replicator, delays in appropriations, workforce constraints, and reliance on outdated acquisition models continue to impede the speed and scalability needed to address urgent threats.
Innovation Capital: B+ - Available capital pools for defense innovation remain robust, with government-backed funding growing, though return on investment could be improved by streamlining non-financial barriers.
Private Sector Innovator Base: B+ - The number of new entrants to the NSIB ecosystem is increasing, with growing defense contract awards to innovative startups, though these firms still represent a relatively small share of total contract dollars.
Public/Civil Innovation Base: C - While R&D expenditure as a percentage of GDP remains steady at around 3%, insufficient incentives and bureaucratic hurdles continue to slow the adoption of new technologies, exacerbated by sluggish public R&D funding growth.
Manufacturing Capacity and Industrial Base: D - Despite targeted improvements in production capacity through direct support for critical gaps, supply chain fragility persists, with China widening its manufacturing lead by producing twice the output of the U.S.
International Alliances and Partnerships: C - Significant strides were made in 2024 to strengthen technology linkages with international partners through expanded initiatives in the Indo-Pacific, amended ITAR regulations, and new NATO cooperation programs, though execution remains the critical challenge.
Talent Base: C- - While the defense-relevant workforce grew by 4.8% between 2022-2023, significant challenges persist, including critical trade skills shortages, an aging workforce with 29% at or near retirement age, and industry turnover rates three times the national average.
More links to explore:
Founded: 2024
Key People: CEO Rylan Hamilton
Elevator Pitch: Manufacturer of autonomous ships intended to enhance national defense and improve maritime operations. The company offers modular design systems, autonomous navigation capability, and remote operational control, enabling naval forces and defense partners to increase efficiency and adaptability.
Funding: The company raised $14 million of seed funding from Impatient Ventures, Eclipse Ventures and Riot Ventures in approximately March 2025.
In our most recent episode of the Securing Our Future Podcast, general partner Jeremy Hitchcock sits down with Paul Thompson, a 20-year Army Special Forces veteran now helping bridge critical technology gaps at Morgan 6 LLC. Together, they dive into how commercial and national security sectors collaborate to drive innovation.
