DOW’s Economic Defense Unit: Top points for defense and defensetech companies

The United States Department of War (DOW)’s newly formed Economic Defense Unit (EDU) introduces funding opportunities and a new set of legal, structural, and governance considerations for companies operating in priority defense and dual-use sectors. 

This alert provides an overview of the EDU, the types of funding instruments it is expected to deploy, and key considerations for companies evaluating potential engagement with the program.

Overview of the EDU

The EDU was established in early 2026 and is expected to work alongside the DOW’s Office of Strategic Capital.

The stated goal of the EDU is to coordinate and lead the DOW’s efforts in developing the defense industrial base and to centralize planning, requirements generation, resource allocation, and oversight for new defense-related economic initiatives. The EDU will issue grants, loans, options, equity investments, and purchase commitments to accelerate US defense production through commercial-like deal structuring that also includes private capital commitments and incentive structures.  

Funding opportunities overseen by the EDU will be available for both new and established defense and defensetech companies.

Potential areas of interest for the EDU may include:

• Munitions and missile production
  
  
• Defense manufacturing
  
  
• Emerging technologies (e.g., autonomous aircraft, ground vehicles, and vessels)
  
  
• Shipbuilding
  
  
• Critical minerals
  
  
• Dual-use technologies
  
  
• Global logistics
  
  
• Telecom infrastructure
  
  
• Other key technologies in the defense supply chain

Strategic investment agreements

The process for negotiating bespoke strategic investment agreements and other novel funding instruments with the federal government is notably different from negotiating procurement contracts under the Federal Acquisition Regulation (FAR). The agreements do not follow the typical structure of FAR-based agreements and often include clauses and/or requirements that would be inconsistent with the FAR. Strategic investment agreements may also include ownership rights and options that can be exercised upon events such as an initial public offering. Recipients may wish to negotiate protections into strategic investment agreements to address potential risks associated with accepting significant funding under novel transactional structures.

Timing and considerations for potential EDU engagement

Multiple media outlets have reported that the Pentagon is recruiting investment banking and private equity professionals to form a 30-person team within the EDU that would be responsible for deploying the $200 billion in funding over the next three years. Although the DOW has not publicly confirmed these reports, and the EDU has not yet published a specific timeline or schedule for company engagement, the program may move quickly once the operational infrastructure is in place.

In the interim, companies interested in the funding opportunities may wish to:

• Consider the type of financial instrument they may seek to pursue from the EDU and how such an instrument would be structured
  
  
• Begin assessing internal governance, capitalization, intellectual property, and exit considerations that may be implicated by EDU funding structures, including provisions tied to equity, control, or liquidity events

Preemptive planning could position companies to act efficiently and assess EDU funding opportunities once the program begins engaging with industry.

If you have any questions or are interested in learning more, please contact the authors.