Tech startups try to sell a cautious Pentagon on artificial intelligence

The company the Tseng brothers created in 2015, named Shield AI, is now valued by venture capital investors at $2.7 billion. The firm has 625 employees in Texas, California, Virginia, and Abu Dhabi, United Arab Emirates. And the Tsengs’s work is starting to show real-world results, with one of their early products having been deployed by the Israeli military in the immediate aftermath of the coordinated attacks last month by Hamas.

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Israeli forces used a small Shield AI drone last month, the company said, to search for barricaded shooters and civilian victims in buildings that had been targeted by Hamas fighters. The drone, called the Nova 2, can autonomously conduct surveillance inside multistory buildings or even underground complexes without GPS or a human pilot.

Shield AI is one of a handful of startups demonstrating the potential of cutting-edge technology to revolutionize war-fighting tools and help the United States keep its military advantage over China.

The company and others are developing new and more powerful ways for the Pentagon to gather and analyze information and act on it, including flying planes without pilots, creating swarms of autonomous surveillance and attack drones, and making targeting decisions faster than humans could.

Shield AI’s efforts to convince the Pentagon of the technology’s capabilities were on display one recent morning on the prairies of North Dakota as three of its larger military drones lifted off, buzzed across the sky, and then were turned over to Shield AI’s artificial intelligence programming to decide on their own how to carry out the surveillance mission they had been assigned.

“HiveMind is operational,” said Brian Marchini, an aerospace engineer for Shield AI, referring to the company’s AI program. “We have control,” he told the human pilots sitting in a tower above him, who until that point had been remotely directing the drones.

Shield AI’s business plan is to build an AI pilot system that can be loaded onto a variety of aerial platforms, from small drones — such as Nova 2 — to fighter jets.

The drones flying over North Dakota demonstrated how far the technology has come. Their mission for the test was to search for ground fire nearby, a task not unlike monitoring troop movements. When the AI program kicked in, it created perfectly efficient flight patterns for the three vehicles, avoiding no-fly zones and collisions, and wrapping up their work as fast as possible.

But Shield AI’s story also demonstrates the many hurdles that the new generation of military contractors face as they compete for Pentagon funding against the far bigger and more entrenched weapons makers that have been supplying the military for decades. And the growing role of AI in national security is playing out against concerns about granting life-or-death decisions to software programs and at a time when governments are taking initial steps to regulate the development of the technology.

Shield AI is still losing money, burning through what it has raised from investors as it plows the funding into research — it intends to invest $2 billion over the coming five years to build out its AI pilot system.

More fundamentally, the Tsengs and their team have so far won only a tiny sliver of funding from the Pentagon, at least by the standards of the multibillion-dollar contracts that go to the traditional arms makers such as Lockheed Martin, Boeing, and Northrop Grumman. If solving the technological problems and building the systems they envision is the first challenge, cracking the byzantine and cutthroat government procurement culture is the second, one they have come to recognize requires lobbying and a deep understanding of how Washington works.

The task is all the more complicated because the Pentagon is moving slowly and cautiously — too cautiously, critics say — away from its focus on big weapons platforms such as planes and ships to embrace smarter systems and the potential of artificial intelligence.

“Put simply, the Pentagon needs to accelerate — not slow — its adoption of responsible AI,” Michèle Flournoy, a deputy undersecretary of defense in the Obama administration, said in a recent article in Foreign Affairs.

None of the competitive or technological hurdles facing Shield AI will matter much if the company cannot solve an even more pressing problem: bringing in some substantial revenue.

Its revenues have grown from $23 million in 2019 to $102 million last year, according to company documents obtained by The New York Times. That is a big jump, but the total is still tiny for a company with more than 600 employees.

The company lost about $100 million between 2019 and 2021, internal data shows, and it expects to lose another $70 million this year. Its biggest source of revenue now is the V-Bat, its vertical takeoff drone that operates in most of its current Marine Corps deployments without artificial intelligence. The company has told investors that its goal is to generate nearly $750 million in annual sales and $100 million in profit by 2026.

Shield AI has raised about $770 million in venture capital but subsists largely on money given out by research divisions at the Pentagon and the one long-term military contract, which it secured by buying an even smaller drone maker that already had secured the deal.

Pentagon officials said the AI software being developed by companies such as Shield AI is at the heart of their plan to build a force of more than 1,000 robot drones that can act as wingmen to human-controlled fighter jets.

But Air Force Secretary Frank Kendall said the problem, in part, is that Congress has been slow to approve his spending plans, including $5.8 billion over the next five years to build the fleet of robot fighter jets.

This article originally appeared in The New York Times.

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Eric Lipton