The Tech Revolution and Irregular Warfare: Leveraging Commercial Innovation for Great Power Competition

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The Issue
The U.S. government has not adequately leveraged the commercial sector to conduct irregular warfare against China, Russia, Iran, and other competitors because of significant risk aversion, slow and burdensome contracting and acquisitions processes, and a failure to adequately understand technological advances. There is an urgent need to rethink how the United States works with the commercial sector in such areas as battlefield awareness, placement and access, next-generation intelligence, unmanned and autonomous systems, influence operations, and precision effects.
U.S. adversaries are developing capabilities and taking actions that pose a growing threat to the U.S. military and intelligence community across the globe. China, for example, is investing significantly in artificial intelligence (AI) such as DeepSeek, quantum computing, and other emerging technologies, as well as improving capabilities in areas such as information and influence operations, long-range strike, autonomous systems, cyber, and space. China can leverage an economy that has greater purchasing power parity ($31.2 trillion) than the United States ($24.7 trillion), a situation that the United States did not face with the Soviet Union during the Cold War.1
China’s military-civil fusion (军民融合) development strategy—also called national strategic integration—has created a way for the government to direct and facilitate cooperation with the commercial sector and fuse China’s defense industrial base with its civilian industrial base.2 China has also cooperated with Russia, Iran, North Korea, and other countries to develop greater military, intelligence, and dual-use capabilities that will complicate U.S. military and intelligence activities overseas.3
This analysis focuses on one specific area of competition: actions and capabilities below the threshold of conventional warfare, or what this analysis refers to as irregular warfare. As used here, irregular warfare refers to activities short of conventional and nuclear warfare that are designed to expand a country’s influence and legitimacy. These activities include information operations, cyber operations, support to state and non-state partners, covert action, and economic coercion.
To better understand the changing dynamics of great power competition and the implications for irregular warfare, this analysis asks several questions: How might U.S. adversaries evolve their capabilities in ways that impact the United States’ ability to conduct irregular warfare? What types of missions might U.S. military and intelligence units be asked to conduct, and what types of commercial capabilities will likely be required to conduct these missions? How can military forces and intelligence better leverage the commercial sector to develop and implement these capabilities?
In answering these questions, this analysis makes two main arguments. First, the United States is not adequately prepared for the evolving nature of irregular warfare. China, Russia, Iran, and other states are developing conventional and irregular capabilities that present serious challenges—and opportunities—for intelligence, special operations, and other military forces across the globe. U.S. military and intelligence units will require disruptive capabilities in multiple areas where the commercial sector has a comparative advantage: battlefield awareness; next-generation intelligence, surveillance, and reconnaissance; unmanned and autonomous systems; influence operations; placement and access; and precision effects.
Second, the U.S. military and intelligence communities need to fundamentally change the way they work with the commercial sector in order to compete more effectively in irregular warfare—both on offense and defense. Commercial innovation and production capacity in the commercial sector provides a major advantage for the United States and its allies and partners in irregular warfare, including for Title 10 and 50 activities. But the United States has not adequately leveraged these innovations because of risk aversion, slow and burdensome contracting and acquisitions regulations, and a failure to adequately understand viable options in the commercial sector. There is a significant need to rethink the framework of government collaboration with this sector and to treat commercial entities as partners serving a common goal.4
The rest of this analysis is divided into four sections. The first examines the growing importance of irregular warfare and some of the associated missions and capabilities. The second section argues that U.S. adversaries, such as China and Russia, possess significant capabilities that will likely pose challenges for U.S. military and intelligence operatives. The third section highlights the growing importance of the commercial sector to the development of innovative capabilities for competition in irregular warfare. And the fourth highlights challenges and opportunities for military and intelligence in irregular warfare.
Irregular Warfare in Great Power Competition
Irregular warfare will likely be a major area of competition between the United States and China, Russia, Iran, North Korea, and other countries. It is critical for the United States to build conventional and nuclear capabilities to deter adversaries and—if deterrence fails—fight and win wars. But the financial, political, and military costs of conventional and nuclear war among major powers are high. During the Cold War, the most frequent type of competition between the Soviet Union and the United States was irregular warfare, as the two sides fought proxy wars in Latin America, Africa, Asia, and Europe. The same may be true over the next several years.
Irregular warfare involves activities short of conventional and nuclear warfare that are designed to expand a country’s influence and legitimacy, as well as coerce, deter, or weaken adversaries.5 It includes numerous tools of statecraft that governments can use to shift the balance of power in their favor without resorting to conventional conflict:
- Information and influence operations, including public diplomacy and psychological warfare
- Cyber operations, including offensive cyber operations
- Training, advice, and other assistance to state and non-state partners
- Covert action
- Economic coercion
Government officials and scholars have used different terms—such as political warfare, hybrid warfare, gray zone activity, asymmetric conflict, and the indirect approach—to capture some or all of these actions.6 Some might object to the term “warfare” to describe activities like economic coercion and information operations, but that is not how the United States’ competitors see it. China has used terms like “three warfares” (三战), which involves public opinion, legal, and psychological warfare—none of which include the direct use of violence. Iran has utilized such terms as “soft war” (جنگ نرم) to describe such activities as propaganda and information operations.
Based on the increasingly competitive landscape, U.S. intelligence, special operations, and other military units are likely to conduct several types of missions as part of irregular warfare. The commercial sector plays—and should continue to play—an important role in helping to develop hardware and software capabilities in all of these areas:
- Foreign Internal Defense: Build the capacity of foreign governments and their security and intelligence infrastructure. Examples include training, advising, assisting, accompanying, and equipping the military, law enforcement, and intelligence forces and institutions of partners.
- Unconventional Warfare: Train, advise, assist, accompany, and equip non-state partners that are attempting to resist a hostile actor. Unconventional warfare can involve U.S. or partner forces working by, with, and through guerrillas, resistance organizations, militias, or other non-state organizations.
- Information Operations: Inform and influence foreign audiences or counter an adversary’s information, misinformation, and disinformation operations. Information and influence operations can be overt or covert. For U.S. military forces, including special operations forces, these types of missions generally come under the rubric of Military Information Support Operations (MISO).
- Direct Action: Strikes or other offensive actions employing specialized capabilities to seize, sabotage, destroy, capture, or recover designated targets. They can also include damaging or disrupting—or threatening to damage or disrupt—an adversary’s infrastructure, or weakening a foreign entity through individuals working secretly from within.
These missions can include overt and clandestine activities as well as covert action, as defined in 50 USC § 3093(e).7 There are other missions that military operations and intelligence units will need to perform, such as special reconnaissance, civil affairs operations, intelligence, crisis response, counterterrorism, counterproliferation of weapons of mass destruction, counterinsurgency, and hostage rescue and recovery.
These missions can include both defensive operations (protecting the United States and its partners from threats) and offensive operations (undermining an adversary’s power, influence, and legitimacy) as part of irregular warfare. Defensive operations generally involve developing resilient infrastructure, institutions, and systems that protect against adversary covert and overt activities. Offensive operations involve conducting missions that weaken China, Russia, Iran, and other adversaries—including within their homelands. Both defensive and offensive missions generally require the support of one or more allies and partners.
Based on these missions, U.S. military and intelligence units will likely require capabilities in several areas where the commercial sector has a comparative advantage: battlefield awareness; placement and access; intelligence, surveillance, and reconnaissance; unmanned and autonomous systems; influence operations; and precision effects. In all of these areas, a growing number of commercial entities can work discretely in the field on a non-attribution basis, operate with flexibility and agility, deploy worldwide, and use secure communications systems.
Battlefield Awareness: It is important to find and fix targets in contested environments and improve decisionmaking at the tactical level. Better technology from the commercial sector is necessary for developing sensors and fusing intelligence from multiple data sources to enhance the domain awareness of commanders engaging in irregular warfare at the tactical and operational levels. Better technology is also important to connecting warfighters and intelligence officers to manned and unmanned platforms and systems. Advances in AI could allow units in the field to simulate thousands of operational and tactical approaches, decreasing the time between preparation and execution of missions.8 In the cyber domain, this could mean integrating technology and tools to provide an open-architecture command system that is optimized for military and intelligence units deployed in the field. It could also mean leveraging open-source data to ensure forces can access timely, georectified, and accurate information.9
Military and intelligence units need to continue to evolve their relationships with space organizations, such as the U.S. Space Force, to develop payloads that provide forces with space-based capabilities at the tactical level.10 In addition, military and intelligence units increasingly need redundant and secure communications; examples range from advancements in establishing a common operating picture to updated versions of combined joint all-domain command and control.11
Placement and Access: In an increasingly competitive landscape, there will likely be a growing need to work with the commercial sector to modernize platforms in order to operate effectively in contested environments with partner forces. For example, existing aviation platforms need to be equipped with advanced infiltration and penetration capabilities, including terrain-following and terrain-avoidance radar. These capabilities provide rotary- and fixed-wing fleets with radio frequency countermeasures, including for MC-130 special mission aircraft. Other examples involve investing in modernized surface and subsurface maritime platforms, including unmanned and autonomous platforms.12 In addition, military and intelligence units will need to explore new types of fuel and power for vehicles, communications equipment, laptops that run backpack drones, and other equipment. Power is critical for intelligence. Miniaturized batteries can fuel communications or collections devices concealed in strategic locations. In addition, a push toward more unmanned systems with longer loitering requirements will require high-performance batteries.13
Intelligence, Surveillance, and Reconnaissance: There is a growing need to improve next-generation intelligence platforms, systems, and software that can quickly collect and analyze vast amounts of information on adversary activities for irregular warfare. Adversaries will likely attempt to hide their actions in a variety of terrains, from jungles and mountains to dense forests, subsurface locations, and tightly packed megacities. They will also attempt to use denial and deception tactics and techniques. These challenges will require overcoming the tyrannies of distance (operating over a significant area) and time (reacting quickly when necessary).14
With the help of the commercial sector, next-generation intelligence, reconnaissance, and surveillance systems and platforms should be designed to conduct long-range and long-endurance missions at high and low altitudes, often quickly. Systems and platforms also need to provide over-the-horizon detection, identification, and location of radar and communications signals. Figures 1a and 1b show satellite imagery analysis of a Russian private military company in Bamako, Mali, working with the Russian Ministry of Defense. The figures show an expansion of infrastructure, including new barracks, headquarters and administration buildings, revetment walls, and guard positions.
There are several types of commercial technologies that may be important for intelligence, surveillance, and reconnaissance missions as part of irregular warfare. One is quantum technology, which can potentially break asymmetric encryption and allow the use of navigation systems that can operate in GPS-denied environments. Another is improved space-based technologies, including on-orbit refueling and on-orbit data processing. Hyperspectral and other sensors mounted on satellites could help identify important intelligence using AI and then downlink quickly to a ground-based network. More broadly, advances in AI will help analysts and warfighters scan data from a variety of sources, process it, provide indications and warning, and manage a multilayered battlefield.15
Unmanned and Autonomous Systems: Collaborative and autonomous unmanned air, surface, subsurface, and land-based platforms produced by the commercial sector will be important for strike, intelligence, logistics, and other missions operating for longer periods of time, including inside anti-access and area-denial environments. These platforms offer some advantages over traditional irregular warfare weapons: they can be smaller and cheaper, offer unmatched surveillance capabilities, and reduce the risk to soldiers. For example, a special operations or covert intelligence unit could utilize an autonomous submarine that could quickly move supplies into contested waters or an autonomous truck that could potentially find the ideal route to carry weapons across dangerous terrain.16
In addition, robots will likely provide support for logistics and sustainment operations. Ground robots, for instance, may increase the ability of units to engage in reconnaissance, conduct direct attacks, map battlefields, predict points of attack, evacuate wounded soldiers, and clear minefields. Unmanned systems may carry heavy equipment (like powerful batteries), explore disaster sites, and conduct battle damage assessments. Many jobs that are too strenuous or too dangerous for a soldier could become the responsibility of robots.17 In densely packed urban terrain, military and intelligence units may need to deploy small, maneuverable robots and drones—including swarms of drones—that are guided by algorithms and can process visual data.18
Technological advances will also be important to counter unmanned air, surface, subsurface, and ground systems, including at relatively low costs. Improvements in electronic warfare to jam targeting and navigation systems can complicate efforts to counter unmanned systems. After all, several U.S. adversaries have achieved what some have called “precise mass,” or the ability to combine mass and precision.19 Military and intelligence units need to find ways to minimize the effects of large volumes of unmanned and manned systems.
Influence Operations: Military operations and intelligence units will likely need to develop greater capabilities to compete in the information space, including for such activities as covert influence and counter-value operations (targeting an adversary’s civilian population). In cooperation with the commercial sector, AI and large language models have significant potential for irregular warfare applications. AI translation and message crafting can provide government officials with the ability to rapidly communicate in any language with anyone in the world. Advances in natural language processing will accelerate intelligence work, helping analysts to sort through reams of text and drawing connections a human brain might not notice. AI will be able to review terabytes of data for influence operations, including tipping and cueing for additional collection or human review.20
Precision Effects: The United States historically enjoyed an advantage in precision strike capabilities, thanks in part to the “second offset” from the late 1970s through the 1980s.21 But several countries—including China and Russia—have made significant improvements because of advancements in conventional munitions, sensors, and guidance systems.22 To keep up, military and intelligence units will likely need to improve precision-strike platforms that are scalable and, in some cases, “attritable”—meaning that their low cost makes losing any one system of little consequence. Examples include kinetic fires, cyber capabilities, and electromagnetic effects for striking targets or countering unmanned systems.23 Other examples include improvements in directed energy, including for electronic warfare and electronic attack. In addition, AI models may be increasingly useful in helping warfighters predict where to strike, as has occurred to some degree in Ukraine.24
Advances in bioengineering can also improve precision effects. The capabilities of CRISPR Cas-9—a technology that allows scientists to modify genetic material such as DNA—have created new possibilities. While scalability will be initially challenging, bioengineering can be used to create energetic materials such as explosives, plasticizers, and binders. New synthetic biological compounds can be helpful in creating stronger polymers for more effective protective gear, such as high-temperature composites, fire-resistant materials, coatings, fibers, fabrics, adhesives, and armor.25
These are only a few potential areas in which the commercial sector can play a valuable role in research, development, and production for irregular warfare missions. Several other types of emerging technology—such as alternative power systems, hyperscale and edge computing and processing, alternative energy, digital signal processing, and additive manufacturing—may also be helpful for future missions.
A Coalition of Adversaries: Military-Civil Fusion
China, Russia, Iran, North Korea, and other countries are developing capabilities and conducting activities that will increasingly impact the United States’ ability to conduct irregular warfare around the globe.26 China presents the most serious threat and has established a program of military-civil fusion—what some Chinese leaders have referred to as “national strategic integration”—that involves developing, producing, and acquiring dual-use technology for military purposes and strengthening the country’s national defense–related science and technology capabilities.27 In many ways, the concept of military-civil fusion is not new for China. Every leader since Mao has outlined the need to leverage commercial capabilities to support the PLA.
But Xi Jinping has elevated the concept of military-civil fusion as essential to developing military power.28 Military-civil fusion is motivated by the reality that the commercial sector is responsible for creating society’s most transformative technologies. It dovetails with such Chinese concepts as “intelligentized warfare,” which involves the use of AI, quantum computing, big data, and other advanced technologies at multiple levels of warfare.29 Military-civil fusion includes several efforts designed to amalgamate China’s commercial and defense industrial bases, which range from better integrating science and technology innovations to developing talent that is useful for both civilian and military purposes.
Six Major Aspects of China’s Military-Civil Fusion
- Integrate China’s defense industrial base with its commercial industrial base.
- Leverage science and technology innovations across military and civilian sectors.
- Cultivate military and civilian expertise.
- Establish military requirements for civilian efforts and leverage civilian capabilities for military purposes.
- Exploit civilian service and logistics capabilities for military objectives.
- Strengthen China’s national defense mobilization system to include relevant aspects of its society and economy for use in competition and war.[30]
More broadly, China is developing capabilities—including AI, quantum computing, synthetic biology, automation, and new energy—that could make it difficult for the United States and its partners to conduct irregular warfare and operate in contested environments. Beijing has already deployed AI-powered surveillance and electronic warfare systems, and it has used AI and big data to enhance information operations such as deepfakes. Several Chinese government institutions—as well as companies such as Baidu, Alibaba, and Huawei—continue to develop generative AI technologies for text, image, audio, and video creation.31 In January 2025, the Chinese AI company DeepSeek launched an AI model called R1 at a fraction of the cost of U.S. companies and apparently using less-advanced chips.32
In cooperation with its commercial sector, China is developing an operational concept of “multi-domain precision warfare” that incorporates big data and AI into a broader command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) network.33 While China has made some technological advances because of espionage, Chinese companies have also been innovative in the research, development, and production of some emerging technologies, including AI.34
China is also making significant advancements in its cyber, space, air, maritime, and ground capabilities that will likely impact the United States’ ability to conduct irregular warfare. For example, China considers information operations an important way to achieve superiority early in a conflict as part of a broader strategy of “informatization.” For China, informatized warfare is the utilization of information technology—such as large language models—to establish a system that enables the PLA to acquire, transmit, and use information during a conflict to conduct integrated joint military operations. For example, senior researchers at PLA institutions have used the U.S. company Meta’s open-source Llama model to develop an AI tool for information operations.35 China is also exploring other capabilities, as a PLA Daily article summarized:
“Compared with traditional models, ChatGPT applications can efficiently generate massive amounts of false news, false pictures, and even false videos to confuse the audience. They can even use the power of the platform to covertly output values through information products, influence the value orientation of the people of other countries, subtly interfere with the cognition of the other people, and guide their public opinion. Compared with humans, the information generation capabilities of large model technology applications have huge advantages in both quantity and time.”36
In addition, China is developing substantial space-based capabilities that could impact U.S. military and intelligence operatives overseas engaged in irregular warfare. In 2023 alone, China conducted 67 space launches—the most in its history.37 Working with its commercial sector, China is pushing forward in such areas as Long March rockets, global navigation satellite systems, satellite communications, missile warning, and intelligence, surveillance, and reconnaissance. China continues to develop its counterspace capabilities. It has fielded jamming and directed-energy systems, demonstrated direct-ascent anti-satellite capabilities, and tested technologies relevant to on-orbit counterspace weapons systems. The PLA maintains both fixed and mobile electronic warfare systems that could interfere with satellite communications links, global navigation satellite system signals, and synthetic aperture radar intelligence-gathering satellites.38
China is likely to use these and other capabilities to engage in offensive irregular campaigns designed to expand China’s power and influence across the globe, not just in the Indo-Pacific. As Xi Jinping has outlined, China must “adopt an asymmetrical strategy of catching up and overtaking” the United States and the West.39 China has multiple organizations that can conduct irregular warfare, such as PLA special operations forces, the Cyberspace Force, the Ministry of State Security, the Ministry of Public Security, the People’s Armed Police, the China Coast Guard, and the China Maritime Militia.
Over the next several years, Chinese actions will likely include offensive cyber operations, information and disinformation campaigns, economic coercion (including through the Belt and Road Initiative, the Digital Silk Road, and the Green Silk Road), and espionage against U.S. and other Western government agencies and corporations. As part of the Digital Silk Road, China has worked with companies to develop next-generation cellular networks, fiber-optic cables, undersea cables, and data centers throughout the Global South. In addition, China has used irregular means to expand its footprint and basing access in East African countries (e.g., Djibouti), the South China Sea (e.g., the Spratly Islands), the Taiwan Strait, and other places (e.g., the Solomon Islands).
Russia also presents a serious threat for U.S. military and intelligence units, as it is developing a range of capabilities to conduct irregular warfare and complicate the ability of U.S. special operations, intelligence, and other military forces to operate across the globe. In cooperation with its commercial sector and with the help of China, Iran, North Korea, and other countries, Russia has improved its capabilities in such areas as electronic warfare, autonomous and unmanned systems, precision strike, air and missile defense, cyber capabilities, and space systems.40 For example, the Russian government has relied on close collaboration with several companies, such as ZALA Aero Group, to produce unmanned systems. Russia has also developed significant space and counterspace capabilities, including a nuclear anti-satellite capability.41 These capabilities could present a serious challenge to the United States and its partners, as Moscow exports them to other countries where U.S. and partner military and intelligence units operate.
In addition, Russia’s Main Directorate (GRU), Foreign Intelligence Service (SVR), private military companies, and other state and non-state organizations are likely to continue utilizing these and other capabilities to perpetrate aggressive irregular warfare campaigns in Europe and other regions. Examples include assassinations, sabotage operations, offensive cyber campaigns, disinformation operations, intelligence collection, and other clandestine activities. The GRU’s Service for Special Activities is likely to be particularly active, including Unit 29155 (also known as the 161 Center or, more formally, the 161 Intelligence Specialists Training Center), Unit 54654, and the GRU’s headquarters and planning department.42 Russia will also likely continue to wage a disinformation campaign against the United States, conduct offensive cyber campaigns against U.S. and Western government agencies and companies, and engage in a range of other activities such as assassinations and sabotage.
Iran will continue to wage an aggressive irregular campaign against the United States and its allies and partners across the Middle East using a range of partner forces such as the Houthis in Yemen, Hezbollah in Lebanon, Hamas and other groups in the Palestinian territories, and the Popular Mobilization Forces in Iraq. Iranian companies, such as the state-owned corporations HESA and Shahed Aviation Industries, will likely continue to play an important role in the research, development, and production of weapons systems to conduct irregular warfare and to counter U.S. government agencies engaged in irregular warfare. In addition, Iranian government agencies, such as the Islamic Revolutionary Guard Corps, and their non-state partners will likely improve their offensive cyber capabilities and their ability to conduct attacks against the United States and its allies and partners at home and abroad.
Finally, China, Russia, Iran, North Korea, and other states will likely continue to provide military, technological, and economic aid to each other; share tactics, techniques, and procedures; and proliferate capabilities in ways that threaten U.S. special operations, intelligence, and other U.S. government actions across the globe. Starting in 2022, for example, China provided substantial aid to Russia’s full-scale war in Ukraine, including semiconductors and microelectronics for use in Russian weapons systems, precision machine tools, titanium and magnesium alloys, spare parts, drones, and military contractors. Chinese companies such as Xiamen Limbach helped design and develop Russia’s Garpiya series long-range attack unmanned aerial vehicle, in collaboration with Russian defense firms like JSC Aerospace Defense Concern Almaz-Antey.43
Iran has exported drones (including the Shahed-136) to Russia, as well as artillery shells, ammunition, and short-range ballistic missiles.44 Russia has potentially supplied—or may supply—Iran with Yak-130 pilot training aircraft, Su-35 multirole fighter jets, Mi-28 attack helicopters, and S-400 air defense systems, as well as aid to Iran’s space and missile programs.45 In addition, Russia has provided Iran and some of its partners with intelligence and targeting support.46 Finally, North Korea has provided artillery rounds (including 152 mm and 122 mm rounds); soldiers; rockets; KN-23, KN-24, and KN-25 solid propellant, short-range ballistic missiles; and other defense materiel to Russia.47
This cooperation will likely strengthen all four countries’ respective capabilities in ways that complicate the actions of U.S. military (including special operations) and intelligence units. Table 2 summarizes some of the main types of military and dual-use cooperation that has occurred between Russia, China, Iran, and North Korea.
Commercial Sector Advantages
The commercial sector is a hub for innovation and presents a significant opportunity for providing irregular warfare capabilities to be used against these and other adversaries. During the Cold War, much of the defense-related funding for the private sector—including companies based in Silicon Valley and along Route 128 in Massachusetts—came from the Department of Defense, especially from such organizations as the Defense Advanced Research Projects Agency (DARPA).
But funding changed dramatically beginning in the late 2010s. Venture capital and private equity firms poured billions of dollars into start-ups and other defense companies that developed space and cyber capabilities, AI, quantum computing, autonomous platforms, and a wide array of other hardware and software. Not to be outdone, a growing list of technology companies—such as Microsoft, Amazon Web Services, and Google—also entered the defense market and developed cutting-edge technologies and systems essential for military power.48
The venture capital space has seen a high volume of activity. In 2013, venture capital firms secured 184 deals in defense technology for a total value of $1.9 billion. In 2021, there were 848 deals (nearly five times as many) for a total value of $40.5 billion (more than 21 times as much). By 2023, venture capital investments in defense technology totaled $35 billion from 627 deals.49 The primary investment areas included advanced computing and software ($3.7 billion); sensing, connectivity, and security ($3.7 billion); and space technology ($3.5 billion).50 All of these areas have applications in irregular warfare. The trend lines show a steady increase in the deal count and deal value of venture capital defense investment as firms have become increasingly willing to invest in space technology, autonomous platforms, and other areas with commercial and defense applications.
Venture capital firms such as Sequoia Capital, Andreessen Horowitz, Lux Capital, General Catalyst, Shield Capital, Accel Partners, Razor’s Edge Ventures, and Founders Fund have invested in defense and intelligence start-ups. In addition, several big defense contractors have created their own venture capital funds: Lockheed Martin launched Lockheed Martin Ventures, and Raytheon established Raytheon Ventures. Some venture capital investments have been successful, such as SpaceX (which produces advanced rockets and spacecraft), Palantir (software), Anduril (autonomous platforms and advanced technology), Shield AI (AI-powered systems and technology), HawkEye 360 (geospatial analytics), Skydio (drones), Rebellion Defense (advanced software powered by AI and other emerging technology), and Epirus (electronic warfare and advanced electronics).51
In Europe, the European Investment Fund agreed to provide €175 million (approximately $182 million) to venture capital and private equity funds that invest in European companies conducting research and development of innovative technologies with both defense and commercial applications.52 The European Commission also launched a €95.5 billion (approximately $100 billion) Horizon Europe program to support companies conducting research and development on dual-use technologies.53
Yet venture capital is not the only area in which the private sector has made defense investments. Private equity is another. The modern private equity industry developed in the late 1970s and was pioneered by New York–based investment company Kohlberg Kravis Roberts & Company, or KKR.54 Unlike venture capital funds, which focus on start-ups, private equity firms raise funds from financial institutions, pension funds, insurance companies, endowments, and wealthy individuals to acquire and then sell established companies.55 Before 2000, private equity firms were relatively uninterested in the defense market, as they correctly perceived it as a closed shop dominated by a small number of defense primes.56
In the 2010s, however, private equity acquisitions of defense and intelligence firms significantly increased. Between 2004 and 2009, there was an average of 67 deals per year. But it doubled over the next decade, averaging 120 deals per year between 2015 and 2021.57 Investors also went after larger defense companies. Prior to 2010, private equity firms generally bought small or midsize defense companies. By 2021, however, firms were involved in deals for companies of all sizes. The median size of a deal in 2000 was $50 million; by 2021, that had jumped to nearly $350 million.58
Private equity firms gobbled up companies in such sectors as cyber, intelligence, additive manufacturing, defense electronics, space, drones, and sensors.59 Private equity firms remained active in the defense sector through 2025, including by acquiring companies that produced “disruptive” technologies (innovations that might change the way militaries operate) such as unmanned systems, AI, quantum computing, cyber, and hypersonics.60 Examples of private equity firms in the defense sector included Arlington Capital Partners, Carlyle Group, Cerberus Capital Management, McNally Capital, Stellex Capital Management, and Veritas Capital.
Challenges and Opportunities
The budding commercial sector in the United States and other countries provides enormous opportunities for U.S. government agencies engaged in irregular warfare. Such organizations as In-Q-Tel and the Defense Innovation Unit have improved the government’s connection to the commercial sector. But there are still significant barriers to cooperation. This section identifies several challenges and opportunities for military and intelligence to more effectively work with the private sector on irregular warfare capabilities.
Better Understanding the Commercial Sector: There is still a lack of awareness and expertise among general officers, warfighters, and intelligence personnel about the types of capabilities and technologies that are available to help conduct irregular warfare. Indeed, military and intelligence leaders typically have a much better understanding of emerging technology and commercial sector opportunities after they retire. Some events—such as SOF Week, held each year in Tampa, Florida—have brought together special operations forces and the private sector.61 But more needs to be done. Military and intelligence leaders need to interact more routinely with industry leaders to better understand commercial sector innovations and communicate government needs.
One possible solution is to increase the opportunity for military and intelligence personnel to conduct “externships” with the private sector. Externships are typically short-term fellowships with companies for the purpose of better understanding commercial capabilities and practices. U.S. military services and the intelligence community have established fellowship programs with think tanks and academic institutions to improve their research, analytical, strategy, leadership, and critical-thinking skills.62 But externships with commercial companies are less common.
Another option to improve partnerships between the government and commercial sector is to establish or augment programs that help transition soldiers and intelligence operators from government service to the private sector. For example, SkillBridge is a Department of Defense program that gives service members the opportunity to conduct training, apprenticeships, and internships during the last 180 days of their military service.63 Retired military and intelligence personnel in the commercial sector can be critical conduits for the government. In addition, military and intelligence organizations should better leverage a range of organizations—such as the Defense Innovation Unit, In-Q-Tel, the CIA Transnational and Technology Mission Center, and the Office of Strategic Capital—that have established close connections with the private sector.
Minimizing Risk Aversion: There is still far too much risk aversion in military and intelligence cultures regarding cooperation with the commercial sector. In some cases, government policies and regulations make it difficult for government personnel to meet with the commercial sector to better understand innovations and communicate government needs. Government lawyers are sometimes overly restrictive in allowing interaction with the commercial sector or have unnecessarily high barriers to taking even informational briefings from the private sector.
Military and intelligence organizations at the Pentagon, CIA headquarters, and out in the field should reexamine and reevaluate their policies and procedures to distinguish between legal requirements and outdated policy impediments. General officers, flag officers, and senior intelligence service personnel should establish a culture that allows lower-level staff, where appropriate and legal, to better identify and understand emerging capabilities in the technology sector in such areas as battlefield awareness; placement and access; intelligence, surveillance, and reconnaissance; unmanned and autonomous systems; influence operations; and precision effects. Developing a strategy to promote leaders—and future leaders—who are willing to take calculated risks to understand emerging technologies is necessary to foster innovation and adaptability.
Conducting More Offensive Operations: The United States needs to work more closely with the commercial sector to develop capabilities to wage offensive information operations against China, Russia, Iran, and other countries in ways that are consistent with U.S. laws and democratic ideals. Democracy, a free press, and open access to information are threats to authoritarian regimes. Their political systems and attempts to control access to information—including through state-run media—make them vulnerable to U.S. and Western information campaigns.
By leveraging commercial technologies, the United States and its partners should target the domestic populations of China, Russia, Iran, and other countries through covert, clandestine, and overt means, where appropriate. The commercial sector can be helpful in developing and utilizing AI, large language models, and software that directs information to specific audiences that Beijing, Moscow, Tehran, and other regimes are attempting to control. Offensive information operations could focus on a range of issues:
- Domestic grievances and societal divisions. Anti-regime riots, protests, and demonstrations highlight the weakness of the regimes in China, Russia, and Iran. All three of these countries have faced—and will likely face—protests from their local populations because of economic, political, cultural, health, and other grievances.
- Human rights abuses, including the arrest, torture, and assassination of defectors, political opponents, and those investigating or prosecuting corruption and human rights abuses (such as journalists and lawyers).
- Problems with regional economic campaigns—such as China’s Belt and Road Initiative—that sometimes place exorbitant debt on countries. Beijing, for instance, often relies on Chinese labor and companies overseas rather than on local workers and local companies.
- Corruption and cheating scandals, which are pervasive in China, Russia, and Iran. In China, for example, PLA officers have frequently paid bribes to get promoted. China’s defense industrial base has also been plagued by corruption.64
- Economic problems, including high unemployment (particularly youth unemployment), rising government debt, low growth, high inflation, and massive income disparity, all of which these regimes may—and already do—try to hide from their populations.
- Espionage and clandestine influence overseas, including at universities, corporations, and government agencies.
During the Cold War, irregular warfare involved taking risks. In some cases, as with the CIA’s covert action program to support Solidarity in the 1980s (codenamed QRHELPFUL), those risks paid off by weakening the Soviet Union and its partners.65 But in other cases significant mistakes were made, such as when U.S. officials during the Reagan administration illegally sold arms to Iran and used the proceeds to fund the Contras in Nicaragua.
Because of these risks, some officials will strongly resist engaging in offensive irregular warfare. But this would be a mistake. While it is important to weigh the pros and cons of specific actions, the United States would never have succeeded in undermining Soviet power and influence without taking risks that exploited Soviet vulnerabilities. The United States needs to be more risk-acceptant in conducting offensive information and other operations against China, Russia, Iran, North Korea, and other countries as part of irregular warfare.
Streamlining Acquisition and Contracting: Another challenge to working with the commercial sector is the acquisition process, which can be too slow, inflexible, and risk-averse. As one U.S. Department of Defense study bluntly warned, “Major defense programs continue to take ten years or more to deliver less capability than planned, often at two to three times the planned cost.”66 A 2024 Government Accountability Office study that reviewed 108 defense acquisition programs concluded that the Department of Defense “remains alarmingly slow in delivering new and innovative weapon system capabilities, even as national security threats continue to evolve.”67 While this prolonged schedule might be fine in peacetime, it is not sufficient for a wartime environment. Companies looking to deal with the Department of Defense too often must comply with the dizzying Federal Acquisition Regulation, or FAR, which includes rules regarding government procurement. They must also deal with the Defense Federal Acquisition Regulation Supplement (DFARS), which includes rules and regulations established by the Department of Defense to ensure that contractors and subcontractors follow specific cybersecurity best practices to protect sensitive information.
It is no wonder that numerous companies in the commercial sector, including venture capital and private equity firms, have shied away from the defense sector. Many want to work with the Department of Defense or the U.S. intelligence community but have little interest in trekking through a byzantine contracting and acquisition system and are deterred by the heavy regulatory burden and limited financial upside. These companies often support the government’s mission and are patriotic, but they have little patience for a contracting and acquisition process that takes too long, is far too uncertain, and remains maddeningly opaque.
Many are also concerned about the “Valley of Death,” a phenomenon faced by start-ups trying to do business with the Department of Defense. The Valley of Death refers to the precarious journey in which a company transitions from a prototype or commercially available product to a Department of Defense contract. Many start-ups trying to do business with the Pentagon never make it from prototype to contract because of the mismatch in timelines between raising capital and securing a contract. Start-ups typically raise venture funding on timelines of one to two years, while the Defense Department often operates on an acquisition cycle of three to five years. A few, such as Palantir and Anduril, have succeeded, but many fail.68
Commercial companies are also concerned that the Department of Defense will attempt to seize their intellectual property. Trae Stephens, one of Anduril’s founders, once quipped that far too often, the department asks companies to “turn over your source code.” He continued, “It’s crazy. We’re literally doing to our companies in America what we’re criticizing the Chinese for doing to their companies and to our companies when we enter that market.”69
The outcome of such a convoluted contracting and acquisition process is that companies with broad commercial interests and expertise have not—yet—received significant Department of Defense funding, despite the explosion of venture capital and private equity investment. Companies with little or no commercial business accounted for 61 percent of the Department of Defense’s major programs by value in 2024—a major increase from 6 percent at the end of the Cold War. If one includes companies whose only commercial business was in aerospace, such as Boeing or Textron, the percentage jumped to 86 percent.70 That means that only 14 percent of the Department of Defense’s major programs went to commercial companies that served defense and other markets.
A defense industry operating in a wartime environment requires contracting and acquisitions processes that are faster, more flexible, and less risk-averse. The Department of Defense needs to cut the timelines for rewarding contracts using such options as Other Transaction Authorities, Rapid Acquisition Authority, and the Defense Production Act. Innovation generally occurs because of a synergy between the government and the commercial sector, making it important to find ways for imaginative commercial sector firms to more easily sell to the government.
Improving Collaboration with Allies and Partners: Throughout the history of the U.S. defense industrial base, allies and partners have played an important role in developing and buying military capabilities. As the 2024 U.S. Defense Innovation Board concluded:
“Since World War II, the United States’ network of allies and partners has stood as the cornerstone of our global strength and the envy of our adversaries. . . . Yet, the Department of Defense (DoD) is failing to fully integrate allies and partners into a networked defense industrial base, and to modernize the concepts, systems, and processes that enable these relationships to flourish.”71
Cooperation with allies and partners is particularly important for irregular warfare because of advances in defense-related hardware and software, such as AI, machine learning, quantum computing, autonomous systems, large language models, biotechnology, directed energy, electronic warfare, and other systems. U.S. allies in Europe and Asia have significant capabilities. Allies and partners also possess raw materials that are critical for the defense sector, such as South Africa’s chromium, rhodium, and platinum, and Australia’s lithium and zirconium.72 The reality is that modern weapons systems are products of a globalized market.73
The United States needs to facilitate technology sharing and defense exports to allies and partners through foreign military sales, the International Traffic in Arms Regulations, and other processes and procedures. For foreign military sales, the Department of Defense should develop a more efficient review process for releasing technology, provide allies and partner nations with relevant priority capabilities, accelerate acquisition and contracting support, and ensure broad U.S. government support to improve the sales process.74 For technology cooperation, the United States should encourage more co-development, co-production, co-sustainment, and other arrangements with allies and partners. There have been several recent examples of co-production with allies and partners, such as the High Mobility Artillery Rocket System (HIMARS) with Poland, the Precision Strike Missile (PrSM) and the Guided Multiple Launch Rocket System (GMLRS) with Australia, the Naval Strike Missile with Norway, and the SM-6 components and Tomahawks with Japan and Australia. But these examples are the exception rather than the rule.
Conclusion
China, Russia, Iran, and other U.S. adversaries are developing capabilities that pose a growing threat to U.S. military forces and intelligence units below the threshold of conventional war. Indeed, irregular warfare will likely become an increasingly significant aspect of great power competition. Eric Schmidt, chair of the Special Competitive Studies Project and former CEO and chair of Google, warned that the United States is not adequately prepared for this future environment:
“[T]he U.S. government will have to overcome its stultified bureaucratic impulses, create favorable conditions for innovation, and invest in the tools and talent needed to kick-start the virtuous cycle of technological advancement. It needs to commit itself to promoting innovation in the service of the country and in the service of democracy. At stake is nothing less than the future of free societies, open markets, democratic government, and the broader world order.”75
Despite these challenges, there are opportunities. The commercial sector has substantial capabilities that can help the U.S. military and intelligence community more effectively conduct irregular warfare. Innovative companies give the United States and its partners a significant advantage over China, Russia, Iran, North Korea, and other countries in such areas as battlefield awareness, unmanned systems, influence operations, placement and access, precision effects, and intelligence, surveillance, and reconnaissance.
As President Franklin D. Roosevelt explained in his fireside chat to the United States on December 29, 1940, a year before Pearl Harbor, the “American industrial genius, unmatched throughout all the world in the solution of production problems, has been called upon to bring its resources and its talents into action.”76 It is much the same today. The commercial sector is an important part of America’s “arsenal of democracy.” It needs to play that role again.
Please consult the PDF for references.
Seth G. Jones is president of the Defense and Security Department at the Center for Strategic and International Studies in Washington, D.C.
The author wishes to thank Sofia Triana and Riley McCabe for their help during the research, writing, and production phases.
The brief was made possible with the support of Nio Advisors.