De-Risking Defense Innovation at the Earliest Stages: The Strategic Role of Entrepreneurial Fellowships and Early Non-Dilutive Grant Funding

Abstract

Despite billions in sustained U.S. investment in defense-related basic and applied research, many high-potential technologies fail to transition from the laboratory to operational capability, resulting in capital inefficiency, delayed warfighter access, and erosion of U.S. technological advantage. This gap is most pronounced at the earliest technology readiness levels (TRLs), where technical uncertainty, unclear demand signals, and limited access to capital stall progress. Traditional defense acquisition and grant mechanisms are optimized for integrating mature technologies against well-defined requirements, rather than high-risk early technologies, leaving early-stage innovations without viable pathways to maturation and adoption. This paper examines entrepreneurial fellowship models, defined as structured, multi-year programs that provide early-stage, non-dilutive funding, as critical infrastructure for defense and other critical innovation. These models provide intensive mentorship through company formation, salary support enabling full-time founder commitment, and early connections to investors and government customers. By sustaining founders with modest grant funding through the highest-risk period of financing and technology validation—before conventional acquisition or venture capital funding are viable—entrepreneurial fellowships prevent loss of critically important technological innovations before they reach acquisition relevance. Beyond addressing this core failure in the innovation pipeline, they enable earlier alignment with military requirements while achieving public capital efficiency. Drawing on evidence from defense-adjacent fellowship programs and comparable innovation initiatives, this paper argues that early-stage grant-based fellowships outperform other funding mechanisms in three key ways: (1) accelerating transition from proof-of-concept to defensible prototype, (2) reducing downstream acquisition risk by enabling earlier validation of operational use cases and requirements, and (3) crowding in private capital at later stages without prematurely forcing commercial scaling or misaligned market entry. Importantly, these programs complement—not replace—existing acquisition pathways by feeding them with better-defined, more advanced technologies. These effects are particularly pronounced in strategically critical technology domains, including position, navigation, timing (PNT) capabilities, advanced manufacturing, biomanufacturing, and advanced materials, where fellowship-supported companies have delivered novel technologies that surpass existing solutions in both capability and cost. In an era in which future conflicts will be decided by technological superiority, the nation that validates and fields critical technologies first accrues decisive strategic advantage. This paper concludes with policy recommendations for the Department of Defense (DoD) and interagency partners to expand and institutionalize early-stage entrepreneurial fellowship funding as a strategic tool for strengthening the defense industrial base, shortening time-to-capability, and preserving U.S. technological advantage amid intensifying global competition.