Happy New Year to all our friends!
As is apropos of the holiday, we are taking this opportunity to reflect on the past year, get inspired for the next, and make resolutions. This week, I’ll tackle a look at last year.
2022 was a momentous year for geopolitics, the economy, and the defense technology ecosystem. The War in Ukraine highlighted the very present threat of Great Power Competition turning into naked aggression and all-out Great Power War. The Russian invasion of Ukraine reset expectations about the future of full scale armed conflict in the 21st century–from a potential anachronism to a real possibility. Many countries, including previously apathetic or ambivalent ones, have renewed their commitment to deterrence and defending against aggression.
Innovative modern combat techniques of using drones to spot artillery rounds, suicide UAVs, information warfare, and OSINT–most of them practiced in Syria over the past 5 years–have been greatly scaled and nearly perfected in Ukraine. Likewise, the venerable tools of massed artillery, tank warfare, hunter/killer guerrilla teams, and trench warfare proved their continued relevance. The American and European response in support of Ukraine has been overwhelming- we will see in 2023 how far that commitment will continue.
The economy of 2022 was a case of boom and bust that corresponds roughly with the first and second half of the year. 2021 was a banner year for technology firms and startups, and the first half of 2022 remained favorable. As the inflation crisis continued and the Federal Reserve increased rates through the back half of the year, businesses and investors started pulling back in preparation for a recession. Later stage startup valuations were hit hard, as was the technology sector generally.
The supply chain crisis, most acute in the first two-thirds of the year, has had a big impact on the way businesses and the government approach the risk of supply chain disruptions to their businesses. This trend has been exacerbated by the ongoing ‘decoupling’ of the Chinese and US economies. China’s extreme COVID lock-down for much of the year, bellicose actions towards Taiwan, and general economic malaise have led to renewed American interest in finding other sources of goods and raw materials.
The defense technology ecosystem seemed to fit in the middle of both trends–buffeted by the tailwinds of increased defense spending wrought by the war in Ukraine, but battered by headwinds from the overall economic environment. The growing prominence of non-traditional defense contractors and new entrants to the market have made for plenty of excitement. As the military expands its JADC2 architecture and incorporates lessons learned in Ukraine, we expect to see renewed emphasis on interoperability among services, systems, and all types of tools, with flexibility as an important watchword.
Meanwhile, at Fairwater Labs, we remained focused on our core mission of launching new companies that answer real national security challenges.
We launched and supported our newest hatch, Swell, as the team built their beta product and started rolling out their product in the Fort Campbell area. We’re excited about their mission of improving mental health and well-being, starting with the military. Swell is now a licensed Tricare provider for Tricare East and is scaling their therapist team for the new year.
As we closed out the year, we have been evaluating a number of potential launch opportunities, all of which are related to the macro trends we observed this year and expect to see continue to develop over the coming years.
Thanks for reading, next week we will be sharing more about our plans for the coming year!