DoD Contracting for Startups 101

For startups, working with the Department of Defense (DoD) can feel like stepping into a fortress of bureaucracy — procurement is slow, compliance is daunting, and knowing who actually makes buying decisions is like navigating a maze in the dark. Yet, for those who learn to successfully navigate these hurdles, the rewards can be enormous.

The DoD is one of the world’s largest and most stable customers, spending hundreds of billions on modern defense systems and technology annually. Unlike volatile consumer markets, defense contracts offer not just funding, but also long-term sustainment. Small wins can lead to multi-million-dollar deals, resulting in high-margin, predictable revenue streams. And beyond financial incentives, building technology that strengthens national security carries undeniable appeal in supporting our country and our interests as Americans.

But this market is not for the impatient. Sales cycles take years, compliance is non-negotiable, and understanding who buys what, and through which funding mechanisms, is as important as having a strong product. Startups must approach the DoD with a strategic, long-term mindset — because while the opportunities are vast, so are the barriers to entry. 

While we hope for DoD procurement reform, the following is a high-level primer intended to arm you with a rough framework of how to approach selling to the DoD today.

How the DoD buys technology … today

Selling to the DoD isn’t as simple as pitching a product and securing a contract. The military operates on a rigid, multi-year budgeting system — PPBE: Planning, Programming, Budget, and Execution — that dictates what gets funded, how, and when. Unlike the fast pace of technology startups, DoD funding moves slowly through layers of approval.

The Future Years Defense Program (FYDP) is a rolling five-year budgeting cycle, updated annually, that outlines the Pentagon’s planned spending across programs, priorities, and force structure, thus shaping long-term defense investments. Each branch submits a Program Objective Memorandum (POM) — a funding wishlist — refined and approved at multiple levels before allocation. But even inclusion in a POM doesn’t guarantee funding; Congress must first approve it through the NDAA and Defense Appropriations bill. Ignoring this political reality can stall progress, and startups that engage early with lawmakers and DoD sponsors have a much better shot at securing long-term funding.

Equally important is understanding the “colors of money,” or the different categories of DoD funding. 

The first three colors of money are allocated each year in the defense appropriations process, which starts with the Five Year Defense Plan. Research, Development, Test, & Evaluation (RDT&E) supports early-stage research and prototyping, making it the most accessible entry point for startups. But RDT&E itself is divided into six budget activities (BA), ranging from basic research (BA 1) to full-scale system prototyping (BA 6). Startups often receive BA 3 funding (Advanced Technology Development) through programs like Small Business Innovation Research (SBIR) but must transition to BA 4-6 to access larger DoD budgets. 

Startups often pursue Cooperative Research & Development Agreements (CRADAs) with government customers, as well. While CRADAs don’t always have funding attached to them, they can be a great way for startups to jointly pursue R&D with customers and better understand end user requirements. Collectively, the goal for startups is to progress out of RDT&E funding and move into Procurement, where products are purchased at scale. CRADAs can also have DD Form 254s attached to them, which means startups can begin holding security clearances to engage with sensitive customers.

However, there can be intellectual property concerns around CRADAs for the jointly developed products, which startups should consider as they look to engage.

Contracting pathways: SBIR / STTR

Unlike the commercial world, where companies sell directly to customers, breaking into the military procurement system requires navigating multiple entry points — each with its own trade-offs, timelines, and levels of control. The key is choosing the right approach based on a startup’s technology, funding needs, and long-term growth strategy.

Two of the most well-worn paths are the SBIR and Small Business Technology Transfer (STTR) programs. These programs provide non-dilutive capital to fund early-stage companies developing high-impact technologies for defense applications. 

Phase I grants ($50,000 to $250,000) fund feasibility studies, while Phase II ($750,000 to $1.5 million) supports prototype development. However, the real opportunity is Phase III, where successful startups move beyond small-dollar grants into sole-source government contracts, bypassing competitive bidding and unlocking real procurement dollars. Some companies with strong commercial traction skip Phase I entirely through Direct-to-Phase II (D2P2), which requires proving feasibility and securing a customer memo from a DoD stakeholder.

SBIR awards are often called a “license to hunt,” because Phase I and II contracts don’t guarantee a long-term deal or always provide a path to large scale programs. Rather, SBIR awards grant startups access to DoD stakeholders to demonstrate customer demand signals and open doors to broader adoption. With an SBIR contract in hand, companies can engage directly with Program Executive Offices (PEOs) who manage acquisition programs and end-users to find pathways into larger procurement programs (more on this later).

Many organizations within and outside the DoD have SBIR/STTR authority, each with distinct focus areas and funding priorities.

• Air Force and Space Force: AFWERX, SpaceWERX
• Army: Army Applications Lab, Army Futures Command
• Navy and Marines: NavalX, Marine Corps Warfighting Lab
• SOCOM (special operations): SOFWERX
• Cross-service efforts: Office of the Secretary of Defense (OSD) SBIR program
• Other agencies: DARPA, Department of Energy (DOE), NASA, NSF, DHS

For startups, winning a SBIR doesn’t guarantee success, but it provides the critical first step: credibility, funding, and a direct line to DoD buyers. The successful completion of an SBIR can also serve as sole-source justification for future contracts, which can speed up sales cycles on future engagements.

Contracting pathways: Additional R&D funding

The Department of Defense has established additional funding routes and pathways to help with the transition of innovative capabilities from prototype to production. A few key programs to track are:

• Strategic Funding Increase (STRATFI) and Tactical Funding Increase (TACFI) programs: AFWERX funding programs available to companies that have received Phase II SBIR awards. They extend SBIR-backed technologies into larger DoD contracts, bridging the funding gap before full-scale procurement.
• Accelerate the Procurement and Fielding of Innovative Technologies (APFIT): A program within the Undersecretary of Defense for Research & Engineering’s office to provide procurement funding to innovative capabilities that have completed prototyping and are ready to transition to operational use. APFIT is suitable for capabilities at high TRL levels that DoD services, Combatant Commands (COCOMs), or agencies are interested in procuring. 
• Rapid Defense Experimentation Reserve (RDER): RDER is a program within the Undersecretary of Defense (Research & Engineering) organization in the Pentagon focused on accelerating development of capabilities that solve joint warfighting gaps. 

Contracting pathways: OTs and OTAs

Other Transactions (OTs), or Other Transaction Agreements (OTAs), are another increasingly popular route. They offer the government greater flexibility to engage with non-traditional vendors and explore innovative contract structures. While the Federal Acquisition Regulation (FAR) ensures standardized procurement processes, its complexity can slow down the adoption of cutting-edge technologies. FAR-based contracts often require lengthy approval cycles, rigid cost structures, and extensive compliance measures, making them challenging for startups and emerging tech companies. OTA agreements provide a streamlined alternative, enabling the DoD to rapidly prototype, test, and transition new technologies while maintaining appropriate oversight and accountability.

For example, the Defense Innovation Unit (DIU) frequently uses OTAs for 90-day prototype contracts with dual-use commercial companies, which, if successful, can transition into larger-scale deployments. But while OTAs can accelerate adoption, most successful technologies still need to transition into a FAR-based contract for large-scale procurement. 

Contracting pathways: teaming

Partnering with prime contractors like Lockheed Martin, RTX, Northrop Grumman, General Dynamics, and Boeing can also provide a critical entry point. These firms have established relationships, programs of record, contract vehicles, and deep institutional knowledge of military procurement — resources that can help startups navigate the complex DoD landscape. Teaming with primes can also offer much faster sales cycles for startups with products that align to existing programs.

The trade-off? Subcontracting often means less control, lower margins, and longer sales cycles, which can limit a startup’s ability to drive disruptive change. However, primes aren’t just bureaucratic gatekeepers; they are also massive customers in their own right, constantly seeking innovative suppliers to integrate modern technology into their own defense programs. For startups, the key is positioning themselves as indispensable enablers — leveraging primes’ scale while retaining a strategic path to long-term growth.

The most successful startups often combine multiple approaches: securing SBIR funding to build credibility, using an OTA contract for rapid prototyping, and ultimately partnering with a PEO to scale into a Program of Record (POR).

The key players in the DoD buying process

Understanding who actually makes purchasing decisions is just as critical as knowing how to secure a contract. The DoD is a sprawling bureaucracy, and startups that fail to engage the right stakeholders risk spending years chasing dead-end conversations. Those that map the ecosystem early can dramatically accelerate their path to procurement.

At the highest level, the Pentagon houses organizations that shape DoD technology adoption: 

• The DIU serves as a bridge to commercial tech, funding rapid prototyping with an eye toward service-wide adoption. 
• The Chief Digital & AI Office (CDAO) drives investments in artificial intelligence, cloud, and digital transformation,
• Undersecretary of Defense for Research & Engineering (USD(R&E)) oversees DoD-wide R&D funding. For companies looking beyond early-stage funding, this agency plays a key role in long-term procurement decisions.

Beyond the Pentagon, each military branch runs its own innovation hubs to fund and pilot emerging technologies, shared above as having SBIT/STTR authority.

However, securing early-stage funding is not the same as achieving scale. This is where PEOs become critical. PEOs manage the lifecycle of major acquisition programs, overseeing everything from early technology assessments to full-scale deployment. Each branch has multiple PEOs, often structured around mission areas like aviation, space, ground systems, intelligence, and cybersecurity. These offices report to service acquisition executives and control POR funding — which determines whether a technology moves beyond experimentation and into mass adoption.

Without a PEO sponsor, even the most promising technology risks falling into the “Valley of Death,” where innovations stall before reaching full-scale procurement. Startups that engage PEOs early and align with an existing or emerging POR significantly increase their chances of securing long-term funding. In many cases, working across multiple PEOs helps expand adoption beyond a single branch, ensuring a technology evolves into a multi-service capability.

Finally, Combatant Commands (COCOMs) — such as SOCOM, INDOPACOM, EUCOM, and CENTCOM, and CYBERCOM — play a pivotal role in defining mission-critical needs and influencing DoD acquisition priorities. While PEOs control funding and execution, COCOMs generate demand signals, helping justify why certain technologies should receive long-term investment. The most successful startups align with both PEOs and COCOMs, ensuring they have both a clear funding pathway and a defined mission need — the two key ingredients for surviving the DoD acquisition pipeline.

Scaling up

However, as we’ve hopefully made clear, winning an initial DoD contract — whether through SBIR, OTA, or a subcontract with a prime — is just the first step. The real challenge is scaling from short-term funding to long-term procurement, ensuring a technology moves from experimental pilots to widespread deployment. Many startups stall in the Valley of Death between R&D funding and full-scale adoption, unable to secure the necessary budget lines for sustained production. Breaking through requires understanding how the DoD funds procurement at scale — and how to navigate the political and bureaucratic forces that shape those decisions.

One of the most effective ways to bridge the funding gap is through STRATFI and/or TACFI, programs designed to extend SBIR-backed technologies into larger DoD contracts. STRATFI supports high-priority, long-term initiatives with funding between $3 million and $15 million, while TACFI provides smaller-scale transition funding between $375,000 and $1.7 million. Both require matching funds from either a DoD program office or commercial investors, reinforcing the need for early stakeholder buy-in. 

But true scale requires securing a POR — a fully funded, long-term acquisition program written into the DoD budget. Early funding through SBIR Phase III or OTA contracts can provide a crucial bridge, but the final hurdle is Congressional support. The DoD budget is ultimately controlled by Congress, and securing inclusion in the NDAA and Defense Appropriations Bill is essential for locking in multi-year funding.

Role of government relations and compliance

Scaling in defense is not just about technology — it’s also about politics. Funding decisions are made at the intersection of DoD priorities and Congressional oversight, meaning startups must engage with both military leadership and lawmakers to ensure their technology remains funded. The House and Senate Armed Services Committees (HASC/SASC) set DoD policy via the NDAA, while the Defense Appropriations Committees (HAC-D/SAC-D) control actual spending. Successful startups don’t just wait for the Pentagon to buy; they actively work with DoD sponsors to influence budget requests and build relationships with Congressional staffers who determine which programs receive funding.

But even with the right strategy, security and compliance can present a major roadblock. FedRAMP (cloud security), CMMC (cybersecurity maturity), and ITAR (export controls) are non-negotiable for defense sales. Startups that neglect these requirements risk losing contracts late in the process or being disqualified entirely. Investing in compliance early — before it becomes a bottleneck — is essential. 

The startups that succeed understand how to move from SBIR to procurement, secure Congressional support, and eliminate security roadblocks before they become deal-breakers. Those that don’t? They remain trapped in perpetual pilots, watching as their technology gets shelved while someone else’s product makes it to the battlefield.

Case studies: Startups that have succeeded

The startups that have made it through the bureaucratic gauntlet have done so not just with strong technology, but by mastering the intricate dance of contracting, procurement, and political buy-in. Two companies — Anduril and Palantir — stand out as prime examples of how to navigate the system effectively.

Anduril, best known for its autonomous surveillance and defense systems, leveraged SBIR contracts to bypass the traditional, slow-moving defense acquisition process. Initially focused on Customs and Border Protection (CBP) rather than the military, the company transitioned from small-scale pilot projects to a full-fledged, multi-million-dollar production contract. Today, Anduril has deployed more than 300 autonomous surveillance towers along the U.S. border, proving that non-traditional players can break into federal security markets — not by waiting for the DoD to buy, but by first proving operational value elsewhere in the federal government.

Palantir, a software company long at odds with the defense establishment, achieved a historic win against RTX when it secured the U.S. Army contract to develop and deliver prototypes of the Tactical Intelligence Targeting Access Node (TITAN) ground station system. This contract was awarded after a multi-year competition and made Palantir the first software company selected for a prime agreement. It was awarded through an OTA and includes a team of traditional and non-traditional partners like Anduril, who is a subcontractor leading hardware development and scaled manufacturing for the program. 

It’s not just Palantir and Anduril that have had big wins in the DoD Market. Shield AI, Skydio, and Applied Intuition have all been awarded OT prototyping contracts through DIU, and companies like Apex Space and Inversion Space have been awarded STRATFI contracts through the Air Force. Cape, a secure mobile network provider, found early success with the U.S. Navy, deploying their technology in Guam to guard against cyberattacks from China. We’ve also seen exciting moves from Prototype to Production OT Contracts with companies like Vannevar Labs. 

Fundamentally, all these companies understand that having the best technology isn’t enough — winning in defense requires navigating the budget process, leveraging flexible contracting mechanisms, aligning with the military’s operational end user needs, and engaging Congress. Their success provides a roadmap for other startups: demonstrate impact, leverage flexible contracting pathways, and find champions within the system who can push a technology into real deployment.

Locked and loaded: final takeaways

The defense market isn’t built for speed, though the DoD is working to adapt to today’s threat environment. Startups that grasp how it operates can unlock massive opportunities—but success depends on mastering DoD funding cycles. Understanding how money flows through Planning, Programming, Budgeting, and Execution (PPBE) and the Program Objective Memorandum (POM) process ensures a startup isn’t just pitching an idea, but securing a place in future budgets. As with any customer, the key is knowing how decisions are made, who holds the purse strings, and how to navigate the system — except, in this case, there are more layers, more steps, and public elections in the mix.

Small Business Innovation Research (SBIR) is an excellent entry point, but it is not an endgame. Startups should treat it as a stepping stone to full-scale procurement, leveraging Phase III SBIR contracts, Strategic Funding Increase (STRATFI) and Tactical Funding Increase (TACFI) funding, or OTAs to transition from grants to sustained revenue. The best technologies often die in the Valley of Death — not because they don’t work, but because they fail to secure a Program of Record (POR) or long-term procurement funding.

Security and compliance are not optional hurdles — they are prerequisites. FedRAMP (cloud security), CMMC (cybersecurity standards), and ITAR (export controls) can become roadblocks if not addressed early. Defense sales are high-stakes, and non-compliant vendors will be eliminated before they even get to contract negotiations.

Additionally, relationships matter as much as technology. Winning contracts isn’t just about selling to DoD program managers — it’s about building relationships with Program Executive Offices (PEOs) who control funding and aligning with congressional stakeholders who influence appropriations. Without internal DoD advocates and external congressional support, even the most promising startup can find itself excluded from long-term funding cycles.

Above all, startups must be patient and strategic. Selling to the DoD takes time, but a well-executed defense strategy can lead to billion-dollar contracts, sustained revenue, and technological impact at a national scale. The companies that succeed are not just those with the best ideas — but those that understand how to make those ideas indispensable to the U.S. military.

A special thanks to John Doyle of Cape for his contributions to this piece.

Glossary

There is no shortage of acronyms in the DoD. Here are some frequently used terms — many of which we reference in this piece — and why they matter: 

• Accelerate the Procurement and Fielding of Innovative Technologies (APFIT): A program that provides procurement funding for ready-to-field technologies with high TRL levels.
• Broad Agency Announcement (BAA): A competitive solicitation method used by DoD agencies to seek innovative research proposals. BAAs focus on scientific and technical challenges rather than specific product acquisitions.
• Commercial Solutions Opening (CSO): A contracting vehicle designed for commercial companies, allowing the DoD to acquire innovative solutions with streamlined procurement. Frequently used by the Defense Innovation Unit (DIU).
• Combatant Commands (COCOMs): Geographic or functional military commands (e.g., SOCOM, INDOPACOM, EUCOM) that define mission-critical needs and influence DoD acquisition priorities.
• Cooperative Research & Development Agreements (CRADA): A written contract between a federal laboratory and a non-federal entity to collaborate on research and development, formalizing government-industry partnerships.
• Cybersecurity Maturity Model Certification (CMMC): A DoD-mandated cybersecurity standard required for handling sensitive defense data.
• Defense Innovation Unit (DIU): A DoD organization that partners with commercial tech companies to rapidly prototype and transition solutions into military use.
• Defense Production Act (DPA) Title III – A government program that funds the expansion of domestic industrial capacity for defense-critical technologies, including semiconductor manufacturing, energy storage, and materials.
• Direct-to-Phase II (D2P2): A fast-track SBIR pathway that allows startups to skip Phase I feasibility studies if they have commercial traction and a DoD customer.
• Federal Acquisition Regulation (FAR): The primary set of rules governing DoD procurement, ensuring transparency and competition but often slowing innovation.
• Federal Risk and Authorization Management Program (FedRAMP): A security framework for cloud-based solutions selling into the DoD.
• Future Years Defense Program (FYDP): A rolling five-year budgeting cycle that outlines the DoD’s planned spending across programs, priorities, and force structure.
• Indefinite Delivery, Indefinite Quantity (IDIQ): A contract vehicle that allows the government to place multiple task or delivery orders over a specified period without re-competing each purchase.
• International Traffic in Arms Regulations (ITAR): Export control laws governing military-related technologies, restricting sales to certain foreign entities.
• Lowest Price Technically Acceptable (LPTA): A contract evaluation method where the government selects the lowest-priced bid that meets the minimum technical requirements. Often a challenge for startups competing with incumbents.
• Middle-Tier Acquisition (MTA): A streamlined acquisition pathway designed to accelerate the development of critical military capabilities outside of traditional procurement timelines. MTAs fall under two categories: Rapid Prototyping (TRL 6+) and Rapid Fielding (TRL 9).
• Multiple Award Contract (MAC): A contract vehicle that allows multiple vendors to compete for individual task orders under an overarching agreement, often used in IT and professional services.
• National Defense Authorization Act (NDAA): The annual bill that sets policy and funding priorities for the DoD, influencing what programs receive Congressional backing.
• Operations & Sustainment (O&S): Funding that supports long-term system maintenance and logistics, typically where mature technologies receive large-scale procurement dollars.
• Other Transaction Authority (OTA): A flexible contracting mechanism that allows the DoD to engage non-traditional vendors without full Federal Acquisition Regulation (FAR) compliance.
• Other Transaction for Production (OTP): A follow-on production contract awarded after a successful Other Transaction Agreement (OTA) prototype, allowing for non-competitive procurement at scale.
• Planning, Programming, Budgeting & Execution (PPB&E): The DoD’s resource allocation process, ensuring funding aligns with strategic priorities.
• Procurement Technical Assistance Center (PTAC): A federally funded resource that helps small businesses understand and navigate DoD procurement processes, including proposal development and compliance requirements.
• Program Executive Office (PEO): Organizations within each military branch that oversee the lifecycle of major acquisition programs and control funding.
• Program Objective Memorandum (POM): A branch or agency’s funding proposal, refined and approved at multiple levels before inclusion in the defense budget.
• Program Office (PO): The teams within PEOs that manage the execution of acquisition programs, evaluating and integrating new technologies.
• Program of Record (POR): A fully funded, long-term acquisition program written into the DoD budget, representing the ultimate goal for sustained procurement.
• Rapid Defense Experimentation Reserve (RDER): A DoD initiative focused on accelerating development of capabilities that address joint warfighting gaps.
• Rapid Prototyping Fund (RPF): A funding mechanism aimed at accelerating the development of emerging technologies by bypassing traditional acquisition processes.
• Research, Development, Test, & Evaluation (RDT&E): A DoD funding category that supports technology development, often a key entry point for startups.
• Small Business Innovation Research (SBIR) / Small Business Technology Transfer (STTR): DoD programs providing non-dilutive funding for startups developing defense-relevant technologies.
• Strategic & Tactical Funding Increases (STRATFI / TACFI): Programs that extend SBIR-backed technologies into larger DoD contracts, bridging the funding gap before full-scale procurement.
• Technology Readiness Level (TRL): A nine-level scale used by DoD to assess the maturity of a technology, with TRL 1 being basic research and TRL 9 representing full operational deployment.
• Undersecretary of Defense for Acquisition & Sustainment (USD(A&S)): Oversees DoD-wide acquisitions, contract administration, logistics, and sustainment, and the defense industrial base.
• Undersecretary of Defense for Research & Engineering (USD(R&E)): Oversees DoD-wide research and development, managing transition programs like APFIT and RDER.
• U.S. Africa Command (USAFRICOM): Oversees military operations across Africa, excluding Egypt, to counter threats and strengthen regional security.
• U.S. Central Command (USCENTCOM): Manages U.S. military operations in the Middle East and Central Asia, including counterterrorism and regional stability efforts.
• U.S. Cyber Command (USCYBERCOM): Leads cyberspace operations, network defense, and offensive cyber capabilities to protect U.S. national security.
• U.S. European Command (USEUCOM): Covers military activities in Europe, parts of Asia, and the Middle East, focusing on NATO partnerships and deterrence.
• U.S. Indo-Pacific Command (USINDOPACOM): Oversees military presence and operations in the Indo-Pacific region, countering strategic threats from China and supporting regional allies.
• U.S. Northern Command (USNORTHCOM): Focuses on homeland defense, disaster response, and security cooperation across North America, including the U.S., Canada, and Mexico.
• U.S. Southern Command (USSOUTHCOM): Directs military operations in Central America, South America, and the Caribbean, addressing narcotics trafficking, security cooperation, and humanitarian efforts.
• U.S. Space Command (USSPACECOM): Conducts operations in, from, and through space to support joint force operations, space security, and satellite protection.
• U.S. Special Operations Command (USSOCOM): Develops and deploys special operations forces for counterterrorism, unconventional warfare, and global crisis response.
• U.S. Strategic Command (USSTRATCOM): Oversees strategic deterrence, nuclear operations, and global strike capabilities, ensuring U.S. military superiority in high-threat environments.
• U.S. Transportation Command (USTRANSCOM): Manages global logistics and transportation of military personnel, equipment, and supplies across all domains.
• Valley of Death: The funding gap where promising defense technologies stall between R&D and full-scale procurement due to lack of budgetary alignment.