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Notes from DSEI 2023 in London

Last week Coinvest Capital Managing Director Viktorija Trimbel attended one of the major defense industry events, DSEI in London, United Kingdom, as a part of an official delegation from Lithuania, organized by the Innovation Agency.

Lithuania was very well represented and well heard with Vice-minister for Economy & Innovations Ms. Erika Kuročkina giving a keynote “Key Drivers of Defense Innovation and the Technological Advantage in the Modern War. Will it be the Guarantee for Victory?” on the Strategic Command stage, and vice-minister for Defense Ms. Greta Tučkutė highlighting Lithuanian defense ecosystem on the panel discussion, mentioning, among other things, the role VCs, including Coinvest Capital, can play in accelerating the speed of bringing innovations to the battlefield through venture capital investments. This also requires advanced modeling tools to make confident quick, data-driven decisions in real-time, and risk-informed decisions required for the long-term strategy.

As our fund became authorized in March 2023 to invest in dual-use and defense investments, the purpose of this trip was to build know-how and connections in the field with specialized VC funds for potential co-investment and next rounds as well as with the key industry players, potential partners to current and anticipated portfolio companies.

Ambassador of Lithuania to the United Kingdom, H.E. Eitvydas Bajarūnas, hosted an excellent reception at the Travellers Club, where we finally met in person with Prof. Deeph Chana, Managing Director of DIANA, who attended our event virtually, while CDR Edward Ebbern, founder of the Defence BattleLab, has treated us to the Special Forces Private Club for a truly memorable experience.

As a fund, we at Coinvest Capital are currently looking at innovations in artificial intelligence, space, and unmanned drone systems, hence, these are a few takeaways on these topics of interest for our fund from the DSEI event.

Artificial Intelligence

Artificial intelligence (AI) is increasingly used to handle enormous and increasing volumes of data for Intelligence, Surveillance, and Reconnaissance (ISR) purposes, and is becoming the target of Adversarial AI, aimed to poison data inputs and alter results in a way different from traditional cyber attacks. The challenge lies not only in estimating the likelihood of an Adversarial attack but also in knowing what response AI will take.

Hence the role of situational awareness of human decision-makers remains crucial, and a “systems of systems” approach has to be taken in designing an option within the decision-making loop for future operators to take control of the AI systems. At the same time, this requires to fostering critical thinking capabilities and internet literacy of the general population, as global connectivity and social media algorithms alongside deep fakes become a powerful weapon in the hands of adversaries that aim to win the minds of the people ahead of kinetic attacks.

AI Ethics is even more critical in the defense sector, as consequences may be lethal, e.g. with autonomous weapons. A well-designed framework adds governance over human and AI system interaction, based on the following four key questions:

  1. Is AI used for the right reason? What checkpoints are in place to ensure no deviation from the intended use case?

  2. Can the reasoning path be explained? Is there a mechanism to drill down to specific data points that have led to recommendations made?

  3. Can biases be recognized and mitigated? There is a saying “Garbage in, garbage out”. Ensuring data sets are representative, complete, and balanced is one of the crucial prerequisites for quality recommendations.

  4. How secure is data fed into the algorithm? Even minor tempering of data is one of examples of the Adversarial AI techniques.

Unmanned Air Systems / Drones & Loitering Munition

War in Ukraine has brought attention to and unconventional use of drones for various functions on the battlefield. As we joked with one VC – there are so many drone startups, that a even dedicated drone fund would have a large funnel to pick from.

The US Department of Defense categorizes drones from small to large, classifying them into groups 1 through 5. Group 5 represents the largest, long-range persistent surveillance drones such as the RQ-4 Global Hawk. Group 1 consists of small drones less than 20 lbs. in weight and have endurance of a few tens of minutes, including Nano-UAS (0.14m), Micro-UAS (0.35m), Mini-UAS (1.4m) and Small UAS (2.8m). Group 1 and Group 2 drones are small and inexpensive. They carry increasingly capable COTS sensors and can be modified to carry weaponized payloads, for example, guns, explosives, or even laser-guided bombs, low-cost hobbyist drones can be retrofitted with upgraded high-resolution cameras, grenade mechanisms and explosives, even machine guns and laser rangefinders. Hence visual identification of a drone threat is necessary, 24/7, under all climatic conditions, radar and EO/IR sensors must be able to detect a potential threat with sufficient resolution to identify and discriminate between a broader range of small drone variants.

The global autonomous loitering munition market will grow significantly over the next decade, with projected requirements totaling $2.54 billion, fueled by technological advancements and increasing demand for efficient, cost-effective military capabilities. Multiple countries announced loitering munitions programs, such as France, Japan, Spain, Switzerland, and the US, and recently a combined total of $1.72 billion contracts were awarded for loitering munitions projects with some of the largest spenders being Estonia, Hungary, and Lithuania.

Space commercialization and defense

Recently space has become an increasingly private domain with many private companies and entrepreneurs racing for commercial gains, in space exploration, satellite deployment, and supporting related activities. The world market is predicted to grow around 11% annually until 2030, and private investors provide nearly 90% of the sector’s funding, even if 63% of them were new to the sector in 2021. Government space activity and research has also been growing. That has several impacts on defense and security:

  • Space accessibility and reduction of the cost of access to space, driven by reusable rockets and launch systems of companies like Blue Origin, Virgin Galactic, and SpaceX;

  • Competition and an increase in foreign capable surveillance and communication satellite constellations, make it hard to protect deployed assets from being tracked or observed. 1,100 launches have been predicted for 2025 compared to just 365 in 2018. Starlink alone plans to launch 12,000 satellites by 2027, while China aims for 13,000 satellites in the same low earth orbit (LEO) slots.

  • Space-as-a-service - satellite imagery, earth observation, telemetry, remote sensing, and more with loads of data for private or commercial, military or civilian use. Defense interest focuses on information for conflict monitoring, military tracking, battlefield reporting, general observation, and intelligence-gathering activities by integrating them with existing military data sets.

  • Diversification and abundance of commercial vendors enable more agile, effective, and simultaneous contingency planning and redundancy systems.

  • Disruptive technologies for global coverage - a combination of 5G with satellite communications will result in seamless and reliable connectivity in areas where terrestrial networks are not available or have limited coverage, like rural, maritime, or, disaster-stricken areas, and for mobile users including airplanes, ships, and vehicles.

  • Partnerships and information-sharing coalitions between defense organizations and industry can bring mutual benefits - from access to leading innovations and fast-paced development pathways to the security and stability of government defense contracts.

  • Multi-domain technologies - the separation between societal and defensive hardware becomes more complicated as many systems will have civilian and military applications. The sophistication of commercial earth observation, tracking, telemetry, and communication options make it more challenging to define what can and cannot be shared internationally.

  • Counter-space: an increased risk of asset collision in space, which could disrupt orbital pathways, creates the potential for more international tensions.

Other insights from the event

Whilst hardware is still important, it's the platforms and software that now give nations their competitive edge. The modern approach focuses on collaborative systems with the ability to quickly pivot if needed, contrary to previously prevailing proprietary systems of high secrecy:

  • analysis of data provides precision,

  • automation provides speed to decision-making and

  • autonomy of machines working with humans generates more mass.

A shortage of skilled staff was discussed at all levels – from military personnel, capable of operating increasingly complex weapon systems, to STEAM skills. Educational systems will be slow to produce enough skilled people, hence focus should be placed on carefully devised apprenticeship schemes. Focus on the skills and safety of military personnel has been also one of the key topics. Synthetic Training Environment (STE) solutions aim to enhance live with virtual training to create hybrid exercises that are accessible and repeatable, yet closer than ever to ‘the real thing’ by combining and making use of virtual reality (VR), augmented reality (AR), Mixed Reality (MR) and Artificial Intelligence (AI), commercial off-the-shelf (COTS) and government off-the-shelf (GOTS) software and hardware.

Lengthy and risk-averse innovation and procurement processes were also the focus of discussions at DSEI. Major adversaries are very quick to move ahead with a single-nation-single-mindset and no democracy in place. When pace becomes critical, compromises on cost and performance may occur. This demands stronger defense bonds with industry, a deeper understanding of supply chains and their resilience, and must be supported by swift decision-making processes. Defense must accept and share higher risk to achieve the ground-breaking innovation and pace, new innovative approaches to handling secure information and protecting intellectual property that has value and competitive advantage will be needed. The greater visibility and commitment provided to a supply chain, the greater their confidence to invest.

British defense agencies are creating mentoring programs for SMEs to navigate complex defense procurement procedures, one of the recommended recipes being to sell to larger corporations, and established defense contractors. Early engagement of the end users, i.e. military is also very important for a successful innovation process.

Lithuanian companies at DSEI

Hosted by the Innovation Agency, Lithuanian dual-use and defense startups were well represented at DSEI and most have built promising business contacts and even contracts. Among the exhibitors, it's worth mentioning:

  • VC-backed Repsense, our portfolio company, is building an AI-powered console to track fake and hostile narratives across media platforms, providing immediate actionable recommendations;

  • Unmanned Drone Systems, that supply battle-tested and deployed in Ukraine reconnaissance and target UAV systems, capable of countering Russian EW, plus loitering munition;

  • BlackSwan Space, building mission design simulators, that enable real-time spacecraft capabilities such as vision-based navigation, rendezvous and proximity operations, autonomous robotics, and more;

  • Astrolight designing space-to-earth laser-based optical connectivity solution;

  • RSI Europe developing highly adaptive up to 25 km remote initiation systems for a range of military and commercial objectives, including mining areas, exploding various types of objects, creating engineering barriers, setting ambushes, de-mining IEDs, UXOs, and others;

  • Ostara Labs created a hybrid electric special purpose all-terrain vehicle Krampus for security, defense, or industrial needs on a modular frame that allows for separating the frame, driveline, battery pack, and diesel generator for faster replacement in field conditions.

Currently, EUR 55 million of venture capital is available for defense and dual-use startups through Coinvest Capital, 100% funded with EU and Lithuanian public funds and co-investing with experienced business angels with a military background, specialized defense pre-accelerator and early-stage fund ScaleWolf and deep-tech focused Baltic Sandbox Ventures. Our national development agency INVEGA is considering a new defense loan instrument to meet increasing market needs and enable access to capital for defense industry companies.

It is also very important to have a mutual understanding and agreement with the heavily regulated financial sector regarding investments in defense, that defense and deterrence are in full compliance with the social responsibility towards our shared future.


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