Establishment of the Australian government’s proposed Advanced Capability Investment Fund (ACIF) is an overdue step. Up to A$500 million in public capital, boosted to at least A$1 billion with private investment, will be spent to promote development of defence and dual-use technologies. It’s promising, but the ACIF will only matter if the government builds a sustainable system around it that aligns private investment with capability needs, procurement and demand.
Australia has a strong ecosystem of researchers, start-ups and tech-savvy investors but isn’t so good at putting things into volume production. The ACIF could catalyse private equity into defence capabilities and accelerate development in defence-related areas such as AI, quantum and autonomy. Recent investments by the National Reconstruction Fund show that the government is stepping into defence technology.
The fund’s emphasis on technology with lower levels of maturity is encouraging. That is where risk is highest and private capital often thin. If the ACIF can absorb some of that early risk, it could unlock follow-on investment and for promising ventures shorten the valley of death, the gap between early development and a production contract, during which attempts at innovation often fail.
The ACIF also provides a chance to shift perceptions. The advancement of defence technology is still slowed down by environmental, social and governance concerns. A credible, professionally managed fund could help normalise investment in national security capability.
But for the ACIF to be effective, the government needs to address three weaknesses.
The first is the issue of scale. The proposed A$500 million in public funds, while not trivial, suggests more of a pilot program than a fully fledged project. By comparison, the Queensland and federal governments put almost A$1 billion into tech startup PsiQuantum in 2024. The ACIF money is a fraction of the A$15 billion allocated to the National Reconstruction Fund and superannuation funds yet to be harnessed.
Scaling up also requires more than capital. It needs stronger procurement pull-through, sustained focus on priority technologies, clearer demand signals from Defence and credible pathways from prototype to contract. As the recently published Strategic Examination of Research and Development report shows, Australia’s innovation system is fragmented, with capital, research and demand poorly aligned. Even well-funded technologies will stall if they are not coordinated with mission needs and acquisition programs.
The ACIF’s second weakness is its focus on dual-use technology. While this widens markets and reduces risk, it may not actually advance defence capability. As others have argued, dual-use is a corporate strategy for industry, not a defence requirement. Capability need, not market attractiveness, should be proritised, otherwise capital will drift towards commercially proven areas, such as software and sensors with civil applications, rather than defence-unique capabilities. For example, energetics and warhead design do not feature regularly in investment pitches, but may offer decisive advantage in high-end conflict.
Instead of the focus on dual-use, the ACIF should be structured as a diversified portfolio spanning early-stage risk and defence-specific capabilities, addressing scalable dual-use opportunities only where they are aligned to a defence capability need.
Finally, the ACIF must avoid becoming just a cheque.
For this, Australia should look to the United States’ Office of Strategic Capital (OSC), which is not simply a fund but an organisation within the Pentagon that works across research, industrial policy and acquisition. It deploys loans and guarantees, coordinating across government and aligning capital with mission needs. Money is one tool but the OSC’s real value lies in its role within the system.
The lesson that Australia can learn is that capital works best when it is embedded in a system that links research, investment and demand. This consideration should also inform clearer roles for the Advanced Strategic Capabilities Accelerator and the soon to be formed Defence Delivery Agency.
The ACIF is a good first step, provided it is funded and sustained. It is proof that the government knows that ‘strategy without money is just hot air‘, as Richard Marles said in 2023, and that developing capability requires sharing risk with investors.
Now, policymakers must treat the fund as part of a broader shift. They must attract large-scale investment from superannuation funds by setting up risk-sharing mechanisms and credible long-term demand signals. They must install clearer procurement pipelines that give investors confidence. They must support commercially unattractive defence-unique technologies as well as export-friendly dual-use opportunities. And they must ensure better coordination across research, investment and industry.
The ACIF will succeed if it becomes a cornerstone in a larger framework of sovereign capability finance that demonstrates the ambition behind it.