US Sales Guide
The Allure and Challenge of the U.S. Market
The Challenge: International Startups face a labyrinth of slow procurement, stringent compliance demands, and difficulty pinpointing decision-makers when selling to the US Government. Even most US commercial firms who want to business with international startups are governed by these same restrictions.
The Opportunity: Engaging with the US Government offers access to a stable, multi-billion-dollar market, and long-term contracts which can provide steady cash-flow while pursing commercial success.
The Need for Strategy: Success in the US Market requires patience, a strategic approach, and a deep understanding of the DoD's complex buying mechanisms.
Understanding How the US Government Buys Technology
Selling to the US Government is not a straightforward transaction. The US Government operates on a rigid, multi-year budgeting system known as Planning, Programming, Budget, and Execution (PPBE), which governs what gets funded, how, and when. This process moves at a deliberate pace, far removed from the agility of tech startups. Below details how the US Department of Defense budgeting process is defined.
PPBE and the FYDP
- The Future Years Defense Program (FYDP) is a rolling five-year budget plan that outlines the Pentagon's spending priorities.
- Each branch (i.e., Space Force and Air Force) submits a Program Objective Memorandum (POM), a funding proposal that undergoes rigorous review before allocation.
Congressional Approval
- The National Defense Authorization Act (NDAA) and Defense Appropriations bills are crucial for securing funding.
- Early engagement with lawmakers and DoD sponsors is vital.
"Colors of Money"
- Understanding funding categories, such as Research, Development, Test, & Evaluation (RDT&E), is essential.
- RDT&E supports early-stage research and prototyping, offering an accessible entry point for startups.
- US 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.DD Form 254s: Enable startups to obtain security clearances.
Contracting Pathways
Continuing our focus on the DoD procurement, specifically the Space Force here are some various entry points, each with trade-offs when considering entering the US Market from abroad.
SBIR/STTR Programs: These programs provide non-dilutive funding for early-stage development.
- Phase I: Funds feasibility studies.
- Phase II: Supports prototype development.
- Phase III: Leads to sole-source contracts.
- Direct-to-Phase II (D2P2): Offers a fast track for those with commercial traction. When pursing this phase, keep in mind that successful D2P2 require Memorandum of Support from Program Executive Offices (PEOs)
Although the SBIR/STTR Programs are not directly available to International Startups, Alpha-Vector has some unique tricks for how to overcome this hurdle.
Additional R&D Funding:
- Strategic Funding Increase (STRATFI) and Tactical Funding Increase (TACFI) bridge funding gaps.
- Accelerate the Procurement and Fielding of Innovative Technologies (APFIT) and Rapid Defense Experimentation Reserve (RDER) support technology transition.
Contracting Pathways Continued
Other Transactions (OTs/OTAs): OTAs offer flexibility and speed, bypassing traditional FAR requirements. The Defense Innovation Unit (DIU) frequently uses OTAs.
Teaming with Prime Contractors: Partnering with primes like Lockheed Martin and RTX provides access to established relationships and resources. Subcontracting offers faster sales cycles but may mean less control.
Cooperative Research & Development Agreements (CRADAs): Although not funded by the US Government, CRADAs can facilitate joint R&D with government customers. This is a great strategy for a startup that is well funded through investors, and can support R&D efforts. Using CRADAs will allow an international startup to work closely with a Government customer, which can lead to a future funded contract.
Find a Resellers: Similar to a subcontracting partnership except the resellers don’t provide any tech, just the contract vehicle. Resellers will take a percentage of your wins but will manage the vehicle.
GSA Schedule: This is a list of approved off-the-shelf products. While it’s crowded with other offerings, it’s a great way to get your product into the hands of warfighters.
Contracting Pathways Continued
Foreign Comparative Testing (FCT) program: This program identifies, evaluates, and implements mature foreign technologies to fill capability gaps, improve lethality, and boost readiness. Its mission is to deliver affordable, near-term solutions by seeking technologies offering cost savings, performance or schedule enhancements, or novel approaches The Office of the Secretary of Defense funds selected projects, which are then executed by the Military Services and USSOCOM. With a $1.42 billion investment, the FCT program has funded 281 projects valued at over $11 billion, averaging $500,000-$700,000 annually per project with an 18-24 month duration.
Combining Approaches: Successful startups often combine SBIR, OTAs, and PEO partnerships to achieve a Program of Record (POR).
Key Players in the DoD Buying Process
Overview: Understanding who makes purchasing decisions is crucial.
Pentagon Organizations:
- DARPA: Supports the development of early development technologies and ideas.
- DIU: Serves as a bridge to commercial tech, funding rapid prototyping.
- USD(R&E): Oversees DoD-wide R&D funding.
Military Branch Innovation Hubs: SPACEWERX, AFWERX, NavalX, etc., fund and pilot emerging technologies. Additionally, STRATFI/TACFI programs help extend SBIR-backed technologies.
Program Executive Offices (PEOs): PEOs manage acquisition programs and control POR funding. PEO sponsorship is essential to avoid the "Valley of Death."
Combatant Commands (COCOMs): COCOMs define mission-critical needs and influence acquisition priorities. COCOMS are broken up into operational areas of operations such at SPACECOM, SOUTHCOM, NORTHCOM, CENTCOM, INDOPACOM, EUCOM, and AFRICOM.
Scaling Up: From Pilot to Production
The Challenge: Transitioning from initial contracts to long-term procurement and avoiding the "Valley of Death" is the most important strategy consideration to take into account. To ensure that an international startups entry into the US Market is successful, securing a contract on a Program of Record (POR) for sustained procurement is vital.
Early-stage funding does not achieve scale and 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.
Without a PEO sponsor, even the most promising technology risks falling into the “Valley of Death,” where prototypes stop progression before reaching full-scale procurement. International startups that engage PEOs early and align with an existing or emerging requirements increase the chance 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, COCOMs defining mission-critical needs and influence DoD acquisition priorities. While PEOs control funding and execution, COCOMs generate requirements and drive the adaption of technologies into existing or new PORs. For long term success international startups that align with both PEOs and COCOMs, will ensure they have both a clear funding pathway and a defined mission need.
Government Compliance
Navigating complex regulatory landscape can represent a major hurdle for international startups, as non-compliance can lead to severe penalties and restrictions.
Compliance must be carefully considered when entering into the US Market. This compliance is not only restricted to working directly with the US Government, but all for US companies that want to work with foreign companies.
- International Traffic in Arms Regulations (ITAR) covers the export of defense-related materials.
- Export Administration Regulations (EAR) covers other items, including dual-use items.
However, the scope of both these regulations is wide and presents far-reaching consequences.
For example, a US company that develops technology that must be ITAR-compliant. No exportations are allowed without the appropriate authorization, with this rule applying not only to products but also to Intellectual Property (IP). This means an engineer in the U.S. who develops new IP and sends an email describing the concept to an international startup has in fact exported a product without having the license. This example illustrates some of the basic operational considerations international startups must consider when entering into the US market.
Final Takeaways and Recommendations
- Master DoD funding cycles (PPBE, POM).
- Treat SBIR as a stepping stone to POR.
- Prioritize security and compliance.
- Build strong relationships with PEOs and congressional stakeholders.
- Be patient and strategic.