Will record levels of dry powder trigger a delayed explosion of startup investment?

After the challenging year that was 2022, one might think that the coming months are not looking great for VCs or founders.

But, “dry powder” — money raised by VCs that hasn’t yet been deployed — has risen to record levels. Venture capital investors in the United States, for instance, are sitting on a $290 billion powder keg that’s ready to ignite a new wave of tech startups.1 Investors are understandably cautious. But if handled wisely, the payoff could be big, especially because valuations have normalized drastically.

But why has this happened and what does it mean for the tech industry? And why does the current market environment offer an unprecedented opportunity for investors?

Tech stocks are seeing significant valuation corrections

Tech stocks have been through a storm this past year.

The Nasdaq composite index has seen losses of 32% since last January. For instance, Meta, Amazon, Netflix and Google have seen their shares plummet by 63%, 45%, 48% and 34% since the start of 2022, respectively. For only these four stocks, such a decline has meant a decline of $2.3 trillion in market value — that is 1.4 times the cumulative market capitalization of all 40 companies in the TecDAX, Germany’s largest stock market index.2

A freeze in funds, skyrocketing layoffs, inflation and a recession have led some pundits to label the tough climate as the “startup apocalypse.”

Such declines were driven by a correction in valuation metrics. In 2021, the average enterprise value for listed cloud software companies was, at times, as high as 20x NTM revenues. Since the valuation correction in early 2022, multiples have normalized and are now at around 5x to 10x NTM revenues.3

But last year’s downturn also affected private-market startups. The average valuation of Series C rounds fell by about a third to $336 million in Q2 2022 from $500 million in Q4 2021.4

The lack of funding, skyrocketing layoffs, inflation and a recession have led some pundits to label the tough climate as the “startup apocalypse.” But despite these challenging circumstances, tech trends show signs of hope.

The tech sector has remained resilient

Strong growth in cloud and AI have kept key tech trends steady, largely in part due to huge shifts in the way we work. Spurred by the need to ensure they’re prepared for the future, organizations have poured money into upgrading their digital infrastructure and processes.

Will record levels of dry powder trigger a delayed explosion of startup investment? by Richard Dal Porto originally published on TechCrunch

Beyond volatility: How semiconductor companies can thrive with a focused sector strategy

Semiconductors are critical to the economy of almost every country in the world. However, the industry is facing significant challenges.

Even with fabs operating at full capacity, companies have struggled to keep pace with demand, pushing lead times to six months or longer. Moreover, the impact of the pandemic, a talent crunch and spiraling design complexity mean an industry that should be riding high is under increasing pressure.

Amid soaring demand, semiconductor markets have boomed, with sales growing by more than 20% to around $600 billion in 2021. However, global chip shortages have caused manufacturing slowdowns in industries from autos to agriculture, and led to debates over the reliability of an industry that is vital to the global economy.

In the U.S., the federal government has responded with a swath of legislation, including the CHIPS for America Act, which authorizes $52 billion in funding for the expansion of the domestic semiconductor industry. The new rules aim to protect industries against supply shortages and reduce their reliance on fabrication plants in Asia. Companies including Intel, Samsung, Texas Instruments and GlobalFoundries are planning on adding more capacity in the U.S., and Europe is also seeing significant investment.

The recent ramp up in productive capacity reflects the consensus that, notwithstanding the current environment, the longer-term outlook for the semiconductor industry remains positive. From domestic kitchens to the most advanced manufacturing plants, semiconductors are embedded in modern economies. Combine that with the rise in home working, and it’s not difficult to predict the industry’s direction of travel.

We estimate 6% to 8% growth per year up to 2030, amid expanding demand for digital services, the growth of artificial intelligence and machine learning (AI/ML), and mass migration to electric mobility. On that trajectory, we predict a trillion-dollar industry by the end of the decade.

Image Credits: McKinsey & Company

Dear Sophie: Should co-founders on OPT, STEM OPT pursue H-1Bs?

​​Here’s another edition of “Dear Sophie,” the advice column that answers immigration-related questions about working at technology companies.

“Your questions are vital to the spread of knowledge that allows people all over the world to rise above borders and pursue their dreams,” says Sophie Alcorn, a Silicon Valley immigration attorney. “Whether you’re in people ops, a founder or seeking a job in Silicon Valley, I would love to answer your questions in my next column.”

TechCrunch+ members receive access to weekly “Dear Sophie” columns; use promo code ALCORN to purchase a one- or two-year subscription for 50% off.


Dear Sophie,

My two co-founders and I are on OPT and STEM OPT. We’re all from India and are considering the H-1B lottery.

How can we structure our immigration compliance? Any advice for planning?

— Tenacious Trio

A composite image of immigration law attorney Sophie Alcorn in front of a background with a TechCrunch logo.

Image Credits: Joanna Buniak / Sophie Alcorn (opens in a new window)

Dear Tenacious,

Thanks for reaching out to me with your questions. Before I dive into them — and for a bit of context — here is some background on the annual H-1B lottery.

 

H-1B lottery 101

In 2020, U.S. Citizenship and Immigration Services (USCIS) implemented a new electronic registration process for the H-1B. That began a new process in which employers register each H-1B candidate online and pay a $10 registration fee. Before 2020, employers were required to submit a completed H-1B petition for each candidate — a very costly and time-consuming process.

The easier and less costly electronic H-1B lottery process is wonderful but resulted in a dramatic rise in the number of lottery registrants. This year, USCIS received 483,927 registrations, a 57% increase from 2021. Every year, 85,000 H-1B visas are available in the lottery — 20,000 for individuals with a master’s degree or higher and 65,000 for those with a bachelor’s degree. Given that Congress has not increased the number of H-1B visas available in the lottery, the chances of being selected in the lottery dropped to about 23% in 2022 from about 32% in 2019.

Long term angel investing: Understanding capital requirements and how to find quality investments

Why angel invest? There are three primary benefits to angel investing if you work in the technology industry: financial, educational and professional. Which benefits are most important to you will dramatically shape your approach as an investor.

Everyone dreams of being a seed investor in companies like Google or Facebook, but the reality is that these companies are few and far between. Still, angel investing does offer the potential for returns that can greatly exceed public markets. Over the last 11 years, I have invested in 120 private companies, mostly at seed stage. Financially, the results have been far above expectations. My first “fund,” the 23 companies that I invested in from 2012 to 2014, had a value of 21.2x total cash invested, and an IRR of 48.6% as of May 31, 2022.

However, it is important to go into angel investing with realistic expectations for financial results. Most professional venture capitalists are considered top quartile if they have returns that exceed a return of 3x invested capital over 10 years, and a 5x return would put you in the top 10%. It takes significant hubris to assume that you, as a new investor, would match those returns given the advantages professional investors have.

Financial returns are not the only benefits of angel investing. Being an investor can also offer educational opportunities not available through any other means. First, angel investing gives you a front-row seat to not only company formation but also the legal and financial process around private markets. For many operators who have only held technical positions, taking on the role of an investor can be an eye-opening experience.

Second, most people stick to products and businesses that they understand well for the professional roles, but this can be very limiting. As an angel investor, you get access to seeing the execution of strategies, products and businesses that you might personally be unqualified to lead directly.

The root cause of failure for most aspiring angel investors is not thinking clearly about how much money it will take to be successful in the long term.

Third, there can be significant career benefits to angel investing, particularly if you work within the technology industry. As an angel investor, you have the opportunity to build new relationships, not only with the founders, but also with the other investors and employees of the company. Every investment is a chance to build a new network, and networks of weak connections often open up surprisingly valuable new opportunities. These benefits compound over time, as one investment often leads to others, and these new networks begin to overlap and strengthen each other.

More importantly, as an operator, seeing how other founders and teams represent their vision and execute against it can help you improve your own capabilities. Most of us have limited experience from the roles and companies we have worked for directly. As an angel investor, you can increase that exposure by 10x to 100x.

How much can you afford to invest?

Unfortunately, the root cause of failure for most aspiring angel investors is not thinking clearly about how much money it will take to be successful in the long term. More often than not, the fundamental issue people fail to take into account is the lack of liquidity in private market investments.

The US needs a tech doctrine

The TechCrunch Global Affairs Project started with a simple premise: that technology is increasingly intertwined with global affairs and that we ought to examine what that means for both. From crypto to climate, international development to defense procurement, I hope we’ve done just that.

Reflecting on the nearly 40 pieces we’ve published over the last few months, I can’t help but see a few common threads emerge: Tech industrial policy is increasingly in favor. Emerging tech is top of mind. And where China isn’t setting the pace, it isn’t far behind.

While the U.S. has made remarkable strides in meeting these challenges (see my piece on the State Department’s new cyber bureau), it still lags on perhaps the most important one: navigating the increasing fusion of geopolitics and technology. If the U.S. is to succeed in the contest for the 21st century, it needs more than new agencies or investments in infrastructure (however large they may be). Even an industrial strategy is insufficient.

What America needs is a geopolitical technology doctrine.
Read more from the TechCrunch Global Affairs Project

What do I mean by a doctrine? Well for the most part, technology policy can be seen in two ways. The first is as a new security domain. The public and private sectors have spent billions of dollars improving our cyber capabilities to both protect our civil and military networks and acquire the ability to strike our adversaries. While many of our networks are still woefully vulnerable, we generally know the challenges and are making strides to shore up our defenses.

The second follows the thesis that the future will be won by whichever country controls (and integrates into its economy) the most advanced technologies. Thus tech policy becomes a function of broader economic competition. This is the ground on which much of our current debate is held — are we on the right track on emerging tech like 5G, quantum or artificial intelligence? Are our supply chains secure? What regulatory edge can we give American tech companies? How can we work with allies to jump-start those efforts?

These two facets of technology policy are incredibly important — and well worth the attention paid to them in this series and elsewhere. Look only to Russia, which has found itself cut off from Western tech supply chains and software updates as a result of its invasion of Ukraine.

But they shortchange a significant element of tech’s role in geopolitics that I hope we’ve raised here as well. That yes, tech is an asset. But like other economic resources (ahem, the U.S. dollar), tech can also be a leverage point that gives policymakers clever ways to further broader foreign policy interests. Yet for the most part, we have not thought systematically about how to wield this power — or protect it.

Our rivals aren’t so diffident. As with many asymmetric capabilities, it’s the authoritarian regimes, unconcerned by scruples over such things as human rights or the rule of law, that have pioneered creative and effective — if odious and unethical — geopolitical tech strategies.

Early in our series, Scott Carpenter warned about the baleful trend of dictators simply shutting down the internet to deprive their citizens of information. Matthew Hedges and Ali Al-Ahmed wrote about how regimes have deployed spyware to hunt down dissidents — and how countries like Israel have exported this technology to lubricate their own diplomacy. Jessica Brandt explored how Russia and China use social media to spread disinformation that discredits the West. And Samantha Hoffman wrote about how China uses data its firms collect to acquire intelligence around the world.

Obviously these are not practices democracies should emulate, and even if they wanted to, law, custom and democratic accountability would mostly preclude it. And the U.S. and its allies can’t make tech companies arms of the state. But they do raise important questions about where technology fits in American statecraft.

For the last two decades, American tech companies have dominated the landscape with a simple strategy: growth at all costs. And the U.S. government, equating tech’s success with America’s, has let tech — especially Big Tech — do just that, essentially ceding the regulatory space until quite recently.

But the world is too sophisticated, and “growth” too blunt a tool, for that to remain the goal moving forward. Should tech supremacy be pursued for its own sake as an expression of American soft power? For economic position? As a means to best our rivals? Or because it is something that can be weaponized?

The answer can’t just be “yes” and “more.” We need a new framework that reconciles what tech can do with what it should do — and with what we as a nation need it to do.


Even if we can agree that U.S. interests are served by technological dominance, that still leaves a crucial question unanswered: How should tech be wielded geopolitically?

Western technology export controls on Russia in response to its invasion of Ukraine are an encouraging use of geotechnological hard power. But Washington can be even more creative; it might use an emerging technology like crypto to bolster U.S. dollar dominance, like Connor Spelliscy suggested or deploy technology to enforce treaties we value, as Thomas McInerney described.

But America is most effective when it plays to its strengths, building upon alliances, networks and the rule of law. That might entail using technology as a tool to expand democracy, per Vera Zakem; stepping in, as Australia did, to build a cable to Pacific islands in lieu of China; or working with Apple and Google to protect dissidents. The U.S. should also take lessons from Ukraine’s creative information campaign against Russia to deploy in future conflicts.

Rather than fruitlessly trying to dictate outcomes, a better strategy would be to encode liberal values in emerging technologies. China has recognized that growing its tech sector is not enough if it doesn’t also set the rules of the road. That’s why it has become very successful at dominating the global fora that set new technology standards. And it’s not just a question of writing rules that benefit Chinese companies (i.e., Huawei in 5G); if authoritarian regimes are able to encode their repressive values in the rules and norms around critical emerging technology like AI, autonomous weapons or biotechnology, it could pose a serious threat to freedom and human rights everywhere. The U.S. and its allies must do the hard work to push back by attending to the patient, technical diplomacy that they have too often overlooked.

Above all, a proper geopolitical tech doctrine would, like all good strategic concepts, recognize limits. The U.S. is no longer Colossus bestriding the world, and it would be folly to think it can impose its will, even on its allies. Americans can’t achieve internet freedom just by wishing it so — and should accept that not every country’s internet needs to be identical for a free and open internet to succeed. If Apple, with a single policy decision, can cut Facebook’s market capitalization by a quarter, there’s no reason why (democratic) governments shouldn’t be able to have reasonably different regulatory regimes in their own jurisdictions.


Americans (and American tech companies) have grown used to having it all. But as technological supremacy becomes increasingly central to geopolitics, tech policy will no longer be made in a vacuum. Politics is the art of making choices, and Silicon Valley doesn’t have to like all of Washington’s. Perhaps, from Washington’s point of view, the global ambitions of American tech firms are no longer tenable if they clash with our values and interests.

What might that mean? Western tech firms have just shown that they can choose sides, voluntarily leaving Russia to either show solidarity with Ukraine or to not violate their principles by censoring their content. Meta and Elon Musk are now heroes in Ukraine; the former for permitting users to call for the death of Putin and Russians; the latter for deploying his StarLink platform to ensure Ukraine stays online.

But harder trade-offs beckon: Should Apple and Tesla give up their Chinese factories? Should America force Chinese tech firms like TikTok from its shores? Having set the precedent in Russia, these are realistic scenarios that Washington might consider — and that Silicon Valley must plan for.

Zooming out, what happens when American tech priorities conflict with broader diplomatic agendas? Should the U.S. government ally with Brussels on antitrust, or stand up on behalf of U.S. tech companies? What happens when the interests of the tech sector conflict with stability in Taiwan or progress on climate change? These are essential questions that are as yet unanswered.

Meanwhile, national security planners must consider that we are once again in an era of great power war. The Ukraine conflict has surprised many with its conventionality — but it has also proven a testing ground for new tech like drones. We are also seeing a war play out in a fully online society for the first time — don’t discount the immense soft power Ukraine has yielded through social media. Would Western support be so strong without Kiev’s polished online presence (or propaganda, as one might call it)?

A year ago, I asked how tech factored into U.S. foreign policy. America is surely in a better place than it was then. Technology is rightly taking center stage in its foreign affairs and national security agendas.

But if the U.S. is to maintain its leading global role – much less avoid falling behind its rivals — it must do more than foster innovation and develop new capabilities with little more justification than “for innovation’s sake.” It must develop a doctrine that comprehensively considers how all aspects of technological statecraft — cyber, antitrust, regulatory, supply chains, basic science, standards, not to mention the role of tech companies themselves — can best serve U.S. foreign policy objectives. Failing to do so doesn’t just risk strategic muddle, but wasting perhaps America’s greatest assets: its entrepreneurial and scientific excellence. Nothing less than American power, prestige and prosperity are at stake.
Read more from the TechCrunch Global Affairs Project

Disinformation demands a collective defense

The TechCrunch Global Affairs Project examines the increasingly intertwined relationship between the tech sector and global politics.

When the term disinformation went mainstream after the 2016 election, it was largely in reference to state actors targeting political campaigns. Despite vigilance and much effort by government, the nature of the threat continues to shift faster than democracies can adapt. State actors, financially motivated disinformation-for-hire outfits and ideologically driven individuals are spreading disinformation that targets businesses, individuals and governments alike.

Now well into a U.S. election year and with tumultuous shifts in the geopolitical landscape underway, we anticipate an increase in disinformation campaigns targeting democratic institutions and private sector entities. With regulation stalled and limited protection from government, companies need to take on today’s threat themselves if they are to protect their ability to operate tomorrow.

In just the last two years, disinformation campaigns have caused significant damage to brand, reputation and value. In 2020, the online retailer Wayfair experienced an attempt by QAnon conspiracy theorists — who gained notoriety for targeting politicians with baseless accusations of corruption and abuse — to convince consumers that the company was trafficking children with its furniture deliveries. These ludicrous claims were ignored by many but believed by enough that they inspired calls for boycotts, attempts to manipulate the company’s stock value, posting physical locations of executives’ home and office addresses, and efforts to grind call center operations to a halt by flooding phone lines.
Read more from the TechCrunch Global Affairs Project

More recently, disinformation campaigns have leveraged false narratives about pharmaceutical companies, driven crypto scams and coin pumping, and attempted to manipulate consumer trust in high-tech solutions, such as space technologies, electric vehicles and vaccines. In just one example, our organization, Alethea Group, conducted an investigation in 2020 in which we assessed a network operated by Chinese billionaire Guo Wengui and former adviser to President Trump Steve Bannon was manipulating QAnon-related conversations in an attempt to spread election conspiracies. But the network was not just targeting elections, it was also mentioning private companies and prominent brands, including travel and hospitality, food, beverage and technology companies.

As the threat has evolved, regulations governing the digital space have not kept up, and the agencies that have historically sought to defend us against disinformation face an asymmetry that is difficult to overcome alone. A combination of legislative and bureaucratic inertia, limitations on the collection of social media data and a failure to develop new technology solutions catered to the threat have only exacerbated this asymmetry, with government entities often having insufficient resources to defend against the full threat landscape.

If organizations are unable to rely on government to defend them in the digital sphere, the private sector must lead in protecting customers, employees and financial bottom lines. By implementing strategies to catch nascent disinformation campaigns before they gain momentum, companies can mitigate malign attempts to manipulate their brands, reputations, stock prices and consumer trust.

In addition to defending against reputational harm through launching precision messaging campaigns rooted in fact, there are often opportunities to seek recourse against those launching disinformation campaigns by exposing their efforts or taking legal action. And by sharing information with the government, companies can also increase situational awareness that enables law enforcement and the intelligence community to work within authorities to act against those seeking to harm U.S. interests.

Disinformation is not only a threat to democracy; it’s a threat to our economy as well. This means that businesses and individuals — not just government agencies — have an important role to play in exposing and mitigating malign influence efforts, in protecting themselves and their economic interests, and in helping to defend our society writ large. Companies can act to protect consumers and shareholders in ways that government cannot, by working to uncover and expose the threat actors targeting them and pursuing a variety of remediation options ranging from legal action to public awareness campaigns. Indeed, our collective democratic and economic interests will depend upon it.

Read more from the TechCrunch Global Affairs Project

Government action on tech innovation is good news for startups

The TechCrunch Global Affairs Project examines the increasingly intertwined relationship between the tech sector and global politics.

Much has been written in this space about the Defense Department’s efforts to tap Silicon Valley’s innovation — and the steep hill tech firms have to climb to ultimately win DOD contracts and cross the “Valley of Death.” The good news is that the U.S. government has heard Silicon Valley’s pleas to cut bureaucracy and foster new ways of doing business and is taking action.

The Critical 4Cs 

Over the past year strong, bipartisan alignment has emerged between the executive and legislative branches around a set of actions aimed at closing gaps and removing barriers to success, best thought of as the “Critical 4Cs”: Culture, Contracting, Congressional Budget Cycles and Champions.

Let’s start with Champions. The American people are fortunate to have two of Silicon Valley’s greatest champions in Deputy Secretary Kathleen Hicks and Under Secretary for Research and Engineering (R&E) and (CTO) Heidi Shyu. They, along with other champions in the Pentagon, fully understand the challenge and have taken concrete steps from the top down to prime the DOD system for innovation.

For example, Hicks and her former software czar led a huge effort in 2021 to deliver DOD’s Software Modernization Strategy, which aims to better organize the Pentagon’s internal processes for adopting new software technologies across the enterprise. The strategy also produces, in effect, the formal policy “demand signal” for scaling up Silicon Valley tech across the DOD.

Hicks has also visibly empowered the CTO, her management group and the Innovation Steering Group to map the Pentagon’s innovation efforts, examine its alignment and acquisition practices and engage honestly with — and incorporate the views of — industry’s smaller tech stakeholders as moving forward. DOD has also established new programs to recruit and grow tech talent and thereby attract and retain a greater pool of defense tech champions. This gets at another key “4C”: building a tech savvy — and tech driven — culture within the DOD.
Read more from the TechCrunch Global Affairs Project

Under Shyu, an experienced senior procurement and acquisition executive who holds degrees in math and engineering, the Pentagon has been launching a raft of efforts to help it “go faster.” As head of Research and Engineering, Shyu helps coordinate the hundreds of innovation offices and efforts across the Defense Department. She’s been taking concrete action to strengthen the position of small tech innovators and reduce barriers to working with DOD.

Among them is a Technology Vision released in February, which prioritizes the Pentagon’s key focus areas such as Trusted AI, Space, Advanced Computing and Software. Under Secretary Shyu has also asked Congress for authority to assist small innovators through an expanded Small Business Innovation and Research (SBIR) grants process to mature experimental programs and increase the odds that they become programs of record. This is one of many efforts underway aimed at easing the systemic “contracting C” barriers to promising programs.

In the last “C,” Congressional budget, the Biden administration proposed in its FY2023 budget a 9.5% increase over the FY22 funding level for the Defense Department’s Research, Development, Technology and Engineering. If adopted by Congress, it would represent a significant effort to advance modernization and tech adoption, building on the measures passed by Congress in the FY22 National Defense Authorization Act (NDAA) and FY22 Budget

The FY22 legislation specifically authorized and funded DOD’s plans to reduce barriers to tech adoption and provided additional funding for software and SBIR programs. For example, the FY22 NDAA Section 833 directed DOD to develop a pilot program to implement unique acquisition mechanisms for emerging technologies. Meanwhile, Section 834 mandated accelerated procurement and fielding of advanced tech — both intended to address speed and reduce the pain of the Contracting “C” as funding levels were envisioned to rise in FY23.

Congressional members and staffers continue to hear from Silicon Valley startups about the lack of planned funding at the end of SBIR funding cycles, but Congress’s challenge, they say, is balancing rapid innovation success with oversight and accountability for such taxpayer funding. They don’t write blank checks. This is why Under Secretary Shyu’s request to Congress to expand the SBIR cycle is important.

Unintended consequences

As Congress and the Pentagon continue to address the “4C” challenges, they must avoid creating new ones. For example, when broader spending and authorities for software and new tech were passed, Congress created new reporting requirements to account for how the money was being used, in some cases, disincentivizing innovation. As one DOD program executive put it, “Now I must provide quarterly quantitative and qualitative reports on progress to include comparisons of similar programs. Thanks, but I’ll stick with [traditional programs] and focus on delivering products instead of reports.” New reporting burdens can eclipse the intent and create cultural antibodies to doing new things among well-respected yet overworked program executives. There has to be a balance between “oversight” and “free for all.” Watch this space.

Gaps remain

A recent report from the consultancy firm Mitre outlined why simply throwing more money and expanding latitude in the SBIR grants process is an incomplete solution to solving the problem of rapid tech adoption. In a nutshell, all defense acquisition is rooted in the formal requirements process, the lengthy Pentagon process that articulates what the military needs and why, and its related acquisition and budget processes that establish how much it can buy, how and when. If a particular new technology isn’t in that requirements and budget process, it would be difficult for the Pentagon to fund and adopt it.

The current processes often pit program executives and contracting officers against the innovation teams and end users who want advanced tech now — a dynamic that makes it easier to keep the status quo. In order to make tech adoption a reality, these formal processes need an overhaul to keep progress moving in the right direction. It’s one thing to develop or test out new tech, it’s another thing to deem it a hard requirement and get it into the formal buying cycle to scale it across the world’s largest, most complex fighting force and its networks.

Authorization to Operate (ATO) presents a substantial hurdle for startups and end users alike. If a company’s software or hardware is deemed secure on one Army network, why isn’t it secure on another? Often firms must go through separate approval processes for each office, branch, or Pentagon agency. This could be streamlined without making tech adoption itself a security vulnerability, including by more effectively leveraging cloud resources. Clearly more work is needed to address ATO challenges if new tech is to be scaled at the speeds and levels Pentagon leadership desires.

The U.S. government clearly recognizes the serious national security and financial imperatives for rapidly adopting Silicon Valley’s most innovative and applicable commercial/dual-use solutions. But as the adage goes, “Rome wasn’t built in a day” and continued efforts will be needed to close gaps and mitigate unintended consequences. Startups need to continue to actively engage with the Pentagon and Congress to communicate specific examples of their “pain points” and offer constructive ideas, while at the same time adjusting to a business, compliance and contracting culture vastly different from the Valley. By working together toward success, the Pentagon and Silicon Valley are truly capable of anything, including defending the free world against the worst existential threats.

Read more from the TechCrunch Global Affairs Project

Digital diplomacy gets a reboot

The TechCrunch Global Affairs Project examines the increasingly intertwined relationship between the tech sector and global politics.

It should come as no surprise that government bureaucracies move slowly. After all, over a year into its term, the Biden administration has successfully filled fewer than half of its key positions a year. But that just makes this week’s launch of the State Department’s Bureau of Cyberspace and Digital Policy (CDP), just six months after it was announced, seem positively nimble by comparison.

It will have to be if it is to succeed. “The United States is the most technologically advanced country on Earth,” Secretary of State Antony Blinken said in a speech announcing the bureau last year at the Foreign Service Institute. “The State Department should be empowered by that strength.”

Yet until now technology has been, if not an afterthought, certainly not front and center of American diplomacy. Despite the establishment of a cyber office in 2011 under Secretary of State Hillary Clinton, the office was downgraded during the Trump administration.

No longer. “The last few years have made evident how vital cybersecurity and digital policy are to America’s national security,” Secretary of State Antony Blinken wrote State Department staff in an email on Monday provided to TechCrunch. “We’re in a contest over the rules, infrastructure and standards that will define our digital future.”
Read more from the TechCrunch Global Affairs Project

With that in mind, several clear policy goals of the new bureau have emerged. Some are quite expansive, like reducing national security risks from cyber activity and emerging technology and ensuring U.S. leadership in the global technology competition.

Other objectives, like setting technical standards in international fora and defending an open, intraoperative internet in spite of the actions of authoritarian countries like China and Russia, are more concrete and defined. I was encouraged to see Secretary Blinken tweet out his support last week for Doreen Bogdan-Martin’s candidacy to lead the International Telecommunications Union, one of the main intergovernmental organizations regulating the global internet.

But first, the State Department itself needs an update. Simply put, the State Department is operationally out of date, which is why the bureau’s first imperative, one official tells me, is to modernize the Foreign Service to allow diplomats to better connect with the digital global environment. That might mean experimenting with new tech like Zoom to be present in places diplomats can’t be physically, or more creative use of social media. Using the metric of how many embassies or consulates you have in a country as a sign of your presence is antiquated now, the official notes. “The establishment of the CDP bureau is a key piece of Secretary Blinken’s plans to build a State Department ready to meet the tests of the 21st century,” according to a State Department spokesperson.

Beyond that, the bureau is still in formation, but in conversations with current and former State department officials and outside experts, I’ve learned what officials hope to get out of the bureau.

CDP will have three policy buckets: international cyber security, digital policy and digital freedom. Each roughly corresponds to preexisting competencies: the cyber coordinator office (created back in 2011), the Bureau of Economic and Business Affairs and the Bureau of Democracy, Human Rights and Labor, respectively. It will be run by a yet-to-be-confirmed ambassador-at-large; in the meantime, career diplomat Jennifer Bachus will run the team as principal deputy assistant secretary.

While the new bureau will deal with the day-to-day, a separate special envoy position will also be created to focus on more long-term issues around emerging and critical technologies like AI, quantum and biotechnology.

Missing in action no more?

The “decision to stand up a new bureau is an indicator of how seriously [the Biden administration] see these threats of the need to have more thought leadership and diplomatic capacity,” Eileen Donahoe, a former U.S. ambassador who now runs the Stanford Global Digital Policy Incubator, tells me.

One sign of that seriousness is that both offices will, for at least a year, report directly to Deputy Secretary of State Wendy Sherman, the department’s number two official. This is a good thing, says Chris Painter, who was the Obama administration’s top diplomat on cyber issues. Sherman, he says, has a long history with cyber issues and worked to integrate technology issues at regional bureaus she ran earlier in her career.

Secretary Blinken and Deputy Secretary Sherman visit the new Cyberspace and Digital Policy Bureau. Image Credits: U.S. State Deparment/Ron Przysucha

CDP will need that high-level support. The State Department is playing catch up, I’m told, and attempting to bring its expertise — diplomacy and knowledge of international relations — to more technical policymakers at the Departments of Commerce, Energy, and other agencies. The implication is clear: State’s voice has been missing in the interagency process and opportunities have been missed both at home and abroad.

For example, as Nate Picarsic and Emily de la Bruyère have written, the U.S. has been largely absent from the politics of the intergovernmental organizations that are quietly setting the global standards of technology. As a result the U.S. has ceded ground to others, especially Russia and China, but even the European Union, with massive implications for who controls the future of technology.

And as new international entities emerge, like the EU-U.S. Trade and Technology Council or the Quad’s technology working group, the State Department needs to be able to coordinate and advise. Under the Trump administration, you “had good, talented people,” working these issues, Painter tells me, “but no one at the leadership level [able] both to deal with the White House and senior counterparts and foreign counterparts. [The new bureau] helps fill that gap.”

“This is a real down payment by the department,” says Yll Bajraktari, a former national security official who is now the CEO of Special Competitive Studies Project, an AI advocacy group. “Integrating the department’s capacity for cybersecurity, digital infrastructure and governance issues including internet freedom will help create a coherent diplomatic strategy.”

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I’m struck by several obstacles the new bureau will face, however. Some are institutional.

For example, there are a myriad of challenges out there, says Painter, from writing new cyber norms to countering state action to promoting human rights issues. “These issues are being debated in almost every fora. That means we have to be there, actively planning, and that takes people and attention.” Simply staffing the bureau with enough qualified people to handle all these issues will be a lift.

Some policy advocates I spoke with fear that the new bureau may end up focused on cyber issues to the detriment of issues like democracy and human rights. If personnel is policy, the proof will be in how the State Department prioritizes staffing the new bureau — and who the ambassador-at-large will be (when asked, a State Department official told me that there will be new staff positions covering all policy areas).

The new bureau also has to “mainstream these issues across the department,” Painter adds, but that will take time. Secretary Blinken wants the department to think and act differently but how willing will a recently demoralized foreign service be to embrace the change that is necessary to make policy on highly technical subjects many may not be familiar with? Diplomats will have to learn how to assert themselves on technological issues in the interagency process with departments like Defense and Homeland Security with far greater experience on these issues. “We have to be patient as State now builds expertise,” Bajraktari says.

Other challenges are more strategic. I’ve not been shy about calling for the use of technology in U.S. foreign policy and was thrilled when the U.S. slammed Russia with export controls in response to its invasion of Ukraine. If CDP is to succeed, it has to be allowed to influence policy outside the narrow remit of cyber treaties and technical policy (as important as they are).

“You can’t put cyber in a box,” Painter tells me. “It has to be part of all the tools we have.” After all, he notes, we don’t have a cyber problem with Russia and China but a Russia problem and a China problem full stop.

Still other challenges combine the institutional and policy. “What’s really needed is understanding the interconnectivity between all of these issues,” says Donahoe, who advised those that created the new bureau. She points to the fact that freedom of speech, what we once thought of as a human rights issue, has become a weapon when used as disinformation. State will also have to manage conflicting priorities across agencies — for example, will it side with Commerce officials who want to back American tech companies or antitrust officials who want to work with the EU to neuter them?

Meanwhile, so many aspects of tech, from cybercrime to cybersecurity norms, have yet to be fleshed out internationally. Can Washington forge agreement among its allies over what a democratic internet looks like? Does the U.S. have the diplomatic and bureaucratic skill to set norms in the face of China and Russia’s efforts to set the agenda themselves? Experts wondered if Russia would launch a cyber war on the West in response to its support for Ukraine, but we still have no idea what that even means.

As authoritarians increasingly use technology to build up dictatorships and undermine democracy, it is good that American diplomats are thinking seriously about how technology fits into American diplomacy and its efforts to bolster democracy around the world. These are difficult issues that require an all-of-government approach. Let’s hope the State Department learns quickly.

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It’s time to address the role of New Space firms in global security

The geopolitics of space is nothing new. Cold War rivalry spurred the Space Race, and space has stayed in the purview of national competition ever since. From the control of GPS to support military decision-making to satellite-based communications or precise imagery to assist humanitarian organizations and refugee flows in high-risk countries, governments have a clear and present interest in what happens in outer space. More recently, space has emerged as a battlefield in global security.

Yet despite this precedent, highly specialized companies are increasingly shaping the geopolitics of space. First, as governments increasingly depend on private capabilities to act in space, space companies have obtained an unprecedented level of influence over the development of certain details and capabilities in national space operations. For the first time, strategic competition over space is as much based on the private as the public sector. And as independent actors, New Space firms have a much more important presence in outer space. By launching their own private equipment, they have changed the way global security in, from, and to space has been long understood.  Space, in short, is no longer only about governments.

Near equals?

That doesn’t mean New Space companies have entirely displaced governments from space; public investments in space are still higher than the private ones. For example, from 2008 to 2017 government-led funding grew by 44% and the private sector accounted for a lower share of space launches. Five years later, the figures are quite similar.

Read more from the TechCrunch Global Affairs ProjectBut the nature of how private firms work in space is also changing. Space-specialized companies continue to support government projects as legacy firms like Boeing, Lockheed Martin or Raytheon did. However, New Space firms have gained a higher level of autonomy and decision-making with respect to government.

In the 1980s there was limited access to government projects for the commercial market in satellite-powered remote sensing. However, once the intelligence community started to need high-resolution imagery — for example,  to monitor military forces movements across the planet — government limitations fueled the opening of a new market for specialized private space companies to develop these products.

As New Space firms provide a high level of specialization in their services portfolio, the relationship between governments and private firms became less one of “prime contractors,” and more of a public-private partnership of near equals. Before, NASA defined “what” and “how” capabilities should be developed; now, the government defines the goal (the “what”) and top-level requirements, while leaving the details of how to do it to industry.

As a result, governments increasingly rely on space specialized firms not just to provide tailored responses to pressing demands, but to help them be at the forefront of global strategic competition. This is the case of the European Union’s CASSINI Space Investment Fund of at least $1 billion for startups, and the Chinese government’s D60 decision in 2014 to enable large private investment in space companies. Until then, the Chinese market was restricted to two state-owned enterprises (CASIC and CASC). But since 2014, the space industry has grown exponentially — see Galactic Energy or Spacety —  exporting its wares to third countries under the Digital Silk Road, part of the Belt and Road Initiative, especially in Latin America and the Caribbean and Africa, or attracting foreign talented workforce, as MinoSpace does.

This cycle has become a virtuous one for New Space firms: In order to remain competitive in space, governments have become dependent on some of their services and products. Interstate politics has made way for space firms to have a greater influence in the way governments compete with each other.

The crowded frontier

Space firms are also shaping the geopolitics of space by their mere presence, itself a novelty. For example, the Chinese government stated that its space station was forced to activate preventive collision avoidance control when it encountered StarLink satellites. Also, NASA postponed a spacewalk from the International Space Station over concerns about space debris, although it is not that easy to distinguish debris produced by private and public actors.

The rise in New Space firms acting autonomously in outer space has shed light on some geopolitical vacuums that have not been addressed until now. Let’s think about the risks that may arise for democratic countries if a privately led space capability is “kidnapped” by terrorist groups, organized crime or other unlawful actors. Or the need for mutual trust between governments and private sectors upon any sort of cyberattack to a satellite that manages sensitive data for people’s protection and welfare.

Without common rules between public and private stakeholders, policy vacuums will endure. Simply put, the unprecedented pace at which these firms have taken flight means existing multilateral fora have not created yet the necessary mechanisms to address these pressing challenges. This should be of interest for countries supporting democratic principles, because in addition to the traditional challenges of space, there are new issues where private firms have a greater role and these need to be addressed from a democratic perspective.

It is undoubtedly clear that New Space companies are reshaping the global competition over outer space. They are influencing the way governments interact and compete with other countries, and they also have a greater, autonomous presence in outer space by creating facts “in the air.”

With so many actors in space, we can no longer afford to operate without common understanding and rules between them. There is now a pressing need to set up global multistakeholder dialogues to address the New Space age, its global security implications and the needs and demands of individual and emerging players, be they countries or private firms.

Governments will continue having a major role in the decision-making of global norms, as they are the core of political representation. However, the new age of space cooperation is already here; the time to create new norms and protocols is now.
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Artificial intelligence is already upending geopolitics

The TechCrunch Global Affairs Project examines the increasingly intertwined relationship between the tech sector and global politics.

Geopolitical actors have always used technology to further their goals. Unlike other technologies, artificial intelligence (AI) is far more than a mere tool. We do not want to anthropomorphize AI or suggest that it has intentions of its own. It is not — yet — a moral agent. But it is fast becoming a primary determinant of our collective destiny. We believe that because of AI’s unique characteristics — and its impact on other fields, from biotechnologies to nanotechnologies — it is already threatening the foundations of global peace and security.

The rapid rate of AI technological development, paired with the breadth of new applications (the global AI market size is expected to grow more than ninefold from 2020 to 2028) means AI systems are being widely deployed without sufficient legal oversight or full consideration of their ethical impacts. This gap, often referred to as the pacing problem, has left legislatures and executive branches simply unable to cope.

After all, the impacts of new technologies are often hard to foresee. Smartphones and social media were embedded in daily life long before we fully appreciated their potential for misuse. Likewise, it took time to realize the implications of facial recognition technology for privacy and human rights violations.

Some countries will deploy AI to manipulate public opinion by determining what information people see and by using surveillance to curtail freedom of expression.
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Looking further ahead, we have little idea which challenges currently being researched will lead to innovations and how those innovations will interact with each other and the wider environment.

These problems are especially acute with AI, as the means by which learning algorithms arrive at their conclusions are often inscrutable. When undesirable effects come to light, it can be difficult or impossible to determine why. Systems that constantly learn and change their behavior cannot be constantly tested and certified for safety.

AI systems can act with little or no human intervention. One need not read a science fiction novel to imagine dangerous scenarios. Autonomous systems risk undermining the principle that there should always be an agent — human or corporate — who can be held responsible for actions in the world — especially when it comes to questions of war and peace. We cannot hold systems themselves to account, and those who deploy them will argue that they are not responsible when the systems act in unpredictable ways.

In short, we believe that our societies are not prepared for AI — politically, legally or ethically. Nor is the world prepared for how AI will transform geopolitics and the ethics of international relations. We identify three ways in which this could happen.

First, developments in AI will shift the balance of power between nations. Technology has always shaped geopolitical power. In the 19th and early 20th century, the international order was based on emerging industrial capabilities — steamships, airplanes and so on. Later, control of oil and natural gas resources became more important.

All major powers are keenly aware of the potential of AI to advance their national agendas. In September 2017, Vladimir Putin told a group of schoolchildren: “whoever becomes the leader [in AI] will become the ruler of the world.” While the U.S. currently leads in AI, China’s tech companies are progressing rapidly and are arguably superior in the development and application of specific areas of research such as facial recognition software.

Domination of AI by major powers will exacerbate existing structural inequalities and contribute to new forms of inequity. Countries that already lack access to the internet and are dependent upon the largesse of wealthier nations will be left far behind. AI-powered automation will transform employment patterns in ways that advantage some national economies relative to others.

Second, AI will empower a new set of geopolitical players beyond nation states. In some ways, leading companies in digital technology are already more powerful than many nations. As French President Emmanuel Macron asked in March 2019: “Who can claim to be sovereign, on their own, in the face of the digital giants?”

The recent invasion of Ukraine provides an example. National governments responded by imposing economic sanctions on the Russian Federation. But arguably at least as impactful were the decisions of companies such as IBM, Dell, Meta, Apple and Alphabet to cease their operations in the country.

Similarly, when Ukraine feared that the invasion would disrupt its internet access, it appealed for assistance not to a friendly government but to tech entrepreneur Elon Musk. Musk responded by turning on his Starlink satellite internet service in Ukraine and delivering receivers, enabling the country to continue to communicate.

The digital oligopoly, with access to large and growing databases that serve as the fuel for machine learning algorithms, is fast becoming an AI oligopoly. Given their vast wealth, leading corporations in the U.S. and China can either develop new applications or acquire smaller companies that invent promising tools. Machine learning systems might also be helpful to the AI oligopoly in circumventing national regulations.

Third, AI will open possibilities for new forms of conflict. These range from influencing public opinion and election results in other countries through fake media and manipulated social media postings, to interfering with the operation of other countries’ critical infrastructure — such as power, transportation or communications.

Such forms of conflict will prove hard to manage prompting a complete rethink of arms control instruments not suited to grapple with weapons of coercion. Current arms control negotiations need the adversaries to clearly perceive each other’s capabilities and their military necessity, but while nuclear bombs, for example, are limited in their development and application, almost anything is possible with AI, as capabilities can develop both quickly and opaquely.

Without enforceable treaties restricting their deployment, autonomous weapons systems assembled from off-the-shelf components will eventually be available to terrorists and other non-state actors. There also exists a significant likelihood that poorly understood autonomous weapon systems might unintentionally initiate conflicts or escalate existing hostilities.

The only way to mitigate AI’s geopolitical risks and provide the agile and comprehensive oversight it will require, is through open dialogue about its benefits, limitations and complexities. The G20 is a potential venue, or a new international governance mechanism could be created to involve the private sector and other key stakeholders.

It is widely recognized that international security, economic prosperity, the public good and human well-being depend on managing the proliferation of deadly weapon systems and climate change. We believe they will increasingly depend at least as much on our collective ability to shape the development and trajectory of AI and of other emerging technologies.
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