a16z Podcast: Government, Startups, & Innovation -- with U.S. Secretary of Defense Ash Carter

Episode Summary

Executive Summary: Secretary of Defense Ash Carter argues that defense innovation must adapt to a commercial, global technology ecosystem: the Pentagon should lead on hard problems, then let costs fall and benefits spread. He emphasizes new approaches to navigation, startup engagement, basic research, and cybersecurity—especially threat sharing, active defense, and insider-threat detection.

Main Topics: From GPS to the “GPS of things” (Priority: 5/5): Carter explains why satellite-based GPS is expensive, vulnerable to jamming, and unreliable in some environments, and proposes embedding inertial sensors, clocks, and MEMS chips into devices so they can localize themselves without satellites. Defense as a market leader in innovation (Priority: 5/5): He describes the Pentagon’s role as first buyer for high-need technologies, funding expensive development upfront in areas critical to national security, then enabling broader commercial adoption later. The Pentagon as a major customer for startups (Priority: 5/5): Carter says the Defense Department is an enormous IT buyer and wants startups to sell directly to it, but bureaucracy and procurement complexity must be reduced so young companies can participate without being forced into traditional exits. Maintaining basic research while linking to application (Priority: 4/5): He argues that even under budget pressure, DOD must keep funding long-term basic research, while improving the bridge from lab work to real products through closer connections between innovators and end users. Building closer innovation proximity (Priority: 4/5): Carter stresses that innovators and users need physical and organizational proximity—what he calls “animal proximity”—to prevent research silos and ensure technologies solve real defense problems. Cybersecurity as an urgent defense and industrial gap (Priority: 5/5): He says industry has underinvested in protection for years, and DOD must both invent advanced defenses and treat serious cyberattacks as attacks deserving response, including intervention or counterattack when warranted. Threat sharing and interactive defense (Priority: 5/5): Carter highlights two needed cybersecurity innovations: rapid, quiet sharing of attack information across companies and government, and active, inside-out network defense that detects intrusion and insider threats.

Key Arguments: Satellite GPS is expensive, vulnerable, and often unusable in contested or obstructed environments, so embedded sensors and precision clocks can replace many use cases. The Pentagon should sometimes pay first and pay more to develop critical technologies that the commercial market would not fund early. Defense innovation can no longer rely only on the old spinoff model; the DOD must also absorb and adapt outside commercial technology. Government procurement is too slow and bureaucratic, creating advantages for companies that know the system instead of companies with the best technology. Basic research should remain robust even during budget pressure because national security requires long-horizon breakthroughs. Innovation succeeds when researchers, developers, and end users are co-located or tightly connected so ideas do not stay trapped in a “ghetto.” Cyber threats are now advanced enough that companies, governments, and security vendors need faster intelligence sharing and more proactive defenses. At a certain severity, cyberattacks on American firms should be considered attacks on the country, not just routine hacking. Inside threats and exfiltration require continuous monitoring because perimeter-only security is insufficient against modern networks.

Data Points: Defense Department share of R&D spending: 50% - The interview references that DOD remains accountable for roughly half of R&D spending. Cyber underinvestment timeline: 10 years or so - Carter says industry has not invested adequately in cyber protection for about a decade as threats have grown. Number of pilot projects: 3 or 4 - Carter says the new experimental innovation unit will start multiple pilot projects.

Pivotal Quotes: "“I call it the GPS of things.”" — Ash Carter: Describing a future where chips with accelerometers, gyros, and precision clocks replace dependence on satellite GPS. "“The Department of Defense and the government in general has become a rather slow and stodgy buyer.”" — Ash Carter: Explaining why procurement must change to make it easier for startups to work with government. "“You have to patrol the walls and look for people who are drilling holes and people who are climbing over your wall.”" — Ash Carter: Describing why cybersecurity must be interactive and proactive rather than purely perimeter-based.

Implications: The Pentagon wants to become a faster, more startup-friendly innovation partner while still funding frontier research. For industry, that means more opportunity in defense tech, especially cybersecurity, but also more pressure to share threat data and design for active defense.