[Edaily Marketin Won Jae-yeon Reporter] "No matter how advanced the technology is, if it hasn’t been validated in real-world operating environments, it cannot cross the ‘Valley of Death’ in the defense procurement market. That is why investment decisions are not made based on technological capability alone."
In an interview with E-Daily, Park Je-woo, CEO of E&Investment, cited “military field-testing experience” as the most important criterion for investing in defense startups. He explained that to assess the likelihood of a technology leading to actual procurement and mass production, one must verify not only the level of the company’s technology but also whether the military—as the actual end-user—has validated its functionality in battlefield and field environments.
E&Investment has been selected in succession this year for investment programs by the Korea Growth Finance Corporation and the Korea Development Bank and is currently working to establish the “E& K-Defense Technology Innovation Fund.” The firm is recruiting additional investors to expand the fund’s size to over 40 billion won and plans to complete fundraising within the target deadline.
CEO Park, who serves as the lead fund manager, plans to focus on identifying “dual-use” companies that possess technologies applicable to both the defense industry and the civilian market. The primary investment targets are companies where a single core technology can be applied to both civilian and military sectors, and that can sustain their business through civilian sales until military sales gain full momentum.
The fund’s investment strategy was modeled after the U.S.-based In-Q-Tel. Established in 1999 by the Central Intelligence Agency (CIA), In-Q-Tel is a nonprofit venture capital organization that identifies civilian technologies applicable to national security and connects them with the actual needs of government agencies.
Amid the government’s recent push to establish a “Korean-style In-Q-Tel” to foster innovative companies in new security fields such as artificial intelligence (AI), drones, cybersecurity, and aerospace, the plan is to assist domestic defense startups in commercializing their technologies by integrating the vetting and incubation capabilities of private venture capital (VC) firms.
CEO Park stated, “We do not invest simply because a company possesses defense-related technology; rather, we are establishing our own vetting system capable of verifying actual demand and procurement feasibility.”
“Defense Technologies Must Be Verified Directly by the Military in the Field”
Unlike general technology companies, defense startups cannot achieve commercialization through technology development alone. To generate revenue, they must not only meet the military’s performance requirements but also undergo verification in actual operational environments, complete procurement procedures, and demonstrate mass production capabilities. This means that the potential for commercialization cannot be judged based on the excellence of the technology alone.
Accordingly, E&Investment has established a two-stage screening system to progressively verify a company’s technological level and its actual potential for entering the defense market. In the first stage, quantitative prerequisites—such as relevance to the defense industry and Technology Credit Rating (TCB)—are assessed. In the second stage, the company’s growth potential and the prospects for nurturing and recouping investment are examined in depth based on military validation, delivery history, and mass production feasibility.
The detailed evaluation criteria include technology maturity, manufacturing maturity, military validation experience, delivery track record, and mass production capabilities. Among these, military validation experience is given the highest weight. This is based on the assessment that while technological capability and mass production capabilities represent internal corporate strengths, military validation constitutes external verification—where the military, as the actual end-user, confirms whether the technology functions in the field.
CEO Park stated, “While technological capability and mass production capacity can be verified through due diligence, military validation is effectively the only external evidence that a third party—the military—has verified whether our technology functions in actual battlefield and field environments.” He added, “If a company fails to pass combat trials conducted by the Agency for Defense Development (ADD) or the Defense Acquisition Program Administration (DAPA), the likelihood of it leading to actual procurement is low.”
He continued, “Companies that have obtained combat test certification and established partnerships with system integrators such as LIG Nex1, Korea Aerospace Industries (KAI), and Hyundai Rotem receive higher investment priority than those still in the demonstration phase.”
“From Demonstration to Mass Production… Building a Bridge to the Next Stage”
However, completing military demonstration does not immediately lead to the signing of a large-scale contract. E&Investment divides the process from technology verification to securing stable revenue into three stages and plans to support companies with the necessary funding and networks at each stage.
The first stage involves participating in small-scale projects, such as the Defense Acquisition Program Administration’s Rapid Research and Development Program or research and development (R&D) projects led by the Agency for Defense Development. Although the contract amounts are not large, this allows companies to establish a track record showing that the military has officially reviewed the technology.
Subsequently, companies must build a track record of formal deliveries through programs such as the Rapid Prototyping and Acquisition Program or designation as an “Innovative Product” by the Public Procurement Service. Even with small order volumes, having actual experience successfully navigating defense procurement procedures significantly increases the likelihood of being incorporated as a partner by a system integrator.
The final step is to enter the supply chain of a system integrator with a mass production project. Once established as a supplier of components or subsystems, a company can shift its revenue from one-off projects to recurring revenue based on mass production volumes.
CEO Park stated, “It is crucial to accurately assess which stage a company is in at the time of investment,” adding, “We will provide support by determining whether what is needed to move to the next stage is additional R&D funding, a connection with a system integrator, or investment in mass production facilities.” He continued, “We aim to be investors who go beyond simply providing capital to actively build bridges that enable companies to advance to the next stage.”
“We Will Not Chase Overheated Valuations”
The reason E&Investment is focusing on dual-use companies is that it believes such companies require a structure capable of withstanding the long commercialization period characteristic of the defense industry. Defense projects must go through several stages—including validation, procurement, and mass production—even after technology development is complete. Companies that secure civilian sales during this period can continue their R&D and organizational operations and hold out until the main defense contract is awarded.
Even before forming the fund, E&Investment built an investment pipeline by holding meetings with around 10 defense and dual-use companies. Although specific company names were not disclosed, the list of candidates included companies that have completed military validation and established partnerships with system integrators, as well as those that have secured a track record of deliveries—even on a small scale—under formal contracts.
CEO Park stated, “We are looking at companies with which we can begin concrete investment discussions as soon as the fund is established,” adding, “We will evaluate not only their technological capabilities but also their current stage in the military validation and procurement process, as well as what support is needed post-investment to lead to mass production.”
He cited as a cause for concern the fact that, as investment capital has recently flooded into cutting-edge defense technology sectors—such as defense, AI, robotics, drones, and space—the valuations of some startups have risen faster than their actual business performance. He noted that there are cases where even companies without sufficient military validation or delivery track records are receiving high valuations based solely on market expectations.
CEO Park said, “The valuations of a significant number of high-profile companies have been overvalued relative to their actual worth amid the concentration of investment capital,” adding, “The success of an investment depends not only on selecting good companies but also on investing at the right time and at the right price.”
He continued, “Rather than rushing into investments driven by market sentiment, we will assess a company’s fair value based on military validation, delivery track records, and mass-production potential,” and emphasized, “We will manage the fund to secure both profitability and stability through thorough due diligence and phased nurturing.”
