Justin Fanelli, who serves as the chief technology officer for the Department of the Navy, has dedicated the last three and a half years to improving the U.S. Navy’s business engagement. In a conversation from last year, he highlighted a transition from the complex and outdated system of interactions with startups to a more streamlined approach. This new model resembles a funnel, where successful companies are integrated into the Navy’s technology ecosystem as enterprise services.
This week, during a video call, we reconnected with Fanelli, who was in a hurry, literally sprinting to catch a flight on short notice, with no details about his destination provided.
“You have an hour and 15 minutes to board a plane,” he shared, recounting the unexpected instructions he received while walking in the sunlight. “I asked, ‘Where to?’ and was met with a vague answer about logistics being sorted out as I went. I wondered if it was just an overnight trip, and they confirmed, ‘Yes!’” Even as he headed to his car, he remained puzzled about his packing and travel plans, but he expressed excitement about this unexpected journey.
Fanelli reached out again because the interest he generated with investors has only increased since last year. The Navy’s publication of its long-term technology objectives has reshaped investor perceptions regarding the Navy’s procurement strategies. Consequently, he is preparing to release an updated list of desired purchases for the upcoming years, this time reviewed by several unnamed venture investors prior to publication.
According to Fanelli, the actual yearly expenditure of the Navy can vary based on how spending is categorized. “We spend approximately $150 billion annually,” he mentioned but clarified the distinction between total Navy spending and specific equity investments.
While traditional purchasing methods still dominate, Fanelli indicated that the Navy is gradually moving toward a co-investment strategy. This approach involves the Navy investing alongside private capital in startups instead of merely paying established prime contractors. Taking equity stakes represents the most ambitious form of this strategy, although it remains uncommon. More frequently, co-investment occurs when the Navy waits for companies to advance their products without direct funding for initial research.
Furthermore, the type of companies the Navy engages with has evolved. “We primarily purchase from Series D to F companies,” Fanelli explained, noting that the Navy previously funded early-stage research to bridge the gap up to Series B. Now, they aim to leave that support to private investors, which is a part of why the priorities document is crucial. “It’s our responsibility to send a clearer signal if we’re not going to undertake that role ourselves,” he added.
In discussing recent contracts, Fanelli, a former Air Force cadet whose career spans defense, intelligence, DARPA, and open-source projects, highlighted several notable purchases. A significant contract for $562 million was awarded for the MQ-25 Stingray, an autonomous drone designed to refuel fighter jets, thus extending their operational range.
The Navy has also been procuring edge computing hardware from a company named Armada, described as shipping containers filled with servers intended for deployment on ships or in remote areas. Additionally, they have contracted Gecko Robotics for inspection tasks previously performed manually and considered hazardous; Fanelli noted minimal resistance to this shift since very few wanted the dangerous role. Furthermore, Domino Data Lab is currently managing the Navy’s machine learning processes.
In a particularly interesting case, Fanelli shared how the Navy replaced a long-delayed shipboard camera system from a defense contractor with commercial cameras integrated with software from Applied Intuition, significantly shortening the timeline and allowing for broader implementation across more ships than initially anticipated.
With ongoing tensions in the Strait of Hormuz — marked by incidents involving tankers, vessel seizures, and breakdowns in ceasefires over shipping routes — we inquired whether any of the commercial technologies were currently employed in that region. Fanelli was cautious in his response, admitting that the sensitive nature of the information, often discussed among those with clearances, made it difficult for him to offer specifics without further verification.
Interestingly, Fanelli mentioned that the purchasing process doesn’t require approval from many individuals. Decisions are made by a source selection committee, a compact group rather than a lengthy approval chain, aimed at ensuring that merit governs the choices made.
When asked about common technology failures within the Navy, Fanelli didn’t elaborate on his drive but noted in our previous conversation that budgetary constraints often hampered promising technologies. The Navy typically operates on extended planning cycles, and new solutions must justify replacing existing systems that are already a financial burden.
Before concluding our call, Fanelli shared a refreshed internal outline of the technology sectors the Navy is focusing on, collaboratively issued by his office and the Portfolio Acquisition Executive for Mission Systems. This outline includes five major categories for those involved in developing or funding defense technology.
The first category is applied AI, involving machine learning and software designed to transform raw data into informed decisions, focusing on areas like sensor fusion and autonomous operations.
The second category concerns quantum information science, emphasizing not so much the possession of quantum hardware but the practical application of quantum techniques in navigation and secure communications.
Third on the list is advanced networking, which aims to securely manage data transfer even amid degraded or interrupted connections, applicable to both naval vessels and coalition partner networks.
Electromagnetic spectrum operations comprise the fourth category, which focuses on technologies that can sense and adapt to various electromagnetic conditions rather than relying on fixed settings.
Lastly, the fifth category encompasses digital engineering and interoperability, addressing foundational elements like open APIs and model-based systems engineering designed to facilitate seamless communication between different Navy systems without the need for custom integration.
It’s worth noting that none of these categories signifies funding commitments or ranks specific programs. The memo also highlights that these priorities are subject to change based on evolving immediate and long-term needs. Essentially, it’s advised not to take this as a definitive guideline but rather as a roadmap to assist companies and investors in making informed decisions regarding where to allocate resources in the Navy’s future.
