Threading the Innovation Chain: Scaling and Manufacturing Deep Tech in the United States

Tracking the development of new hardware technology from inven­tion all the way to domestic production offers new insights into advanced manufacturing challenges in the United States. This approach provides details often missing from more abstract analysis, including the specific difficulties at each stage of production, such as the lack of avail­able financing for capital-intensive manufacturing. Such a case study can also offer systemic insights: the United States has a deeply frayed, if not broken, innovation chain, though little-known new policies from the Department of Defense are helping to plug some of the gaps. It is also worth contrasting this picture with China, where improving scale-up processes to support advanced manufacturing, rather than being con­fined to technical discussions, are at the very center of national dis­course and Xi Jinping’ policies.

In 2024, few think of the textile fibers found in our clothes as an opportunity for innovation. Indeed, textiles are often presented as an example of a non-strategic sector that we should be eager to offshore. Yet entrepreneurs continue to improve and advance this ancient tech­nology. If nylon was the paradigmatic example of a twentieth-century fiber invented and manufactured in the United States, comparable inno­vations today are taking place in bioengineered and bio-manufactured fibers.

One new fiber that this essay will highlight is bio-manufactured and inspired by nature. Its unique attributes derive from bioengineering the genetics of the squid. It offers advantages over existing fibers in terms of both wearability and battlefield applications. What follows is the saga of the problems and solutions encountered at each stage of trying to scale and manufacture this novel fiber.

Fibers Past and Present

The global fiber market is currently dominated by just two fibers: cotton at 25 percent and polyesters at 55 percent. Both fibers have severe drawbacks. Cotton requires extensive water for cultivation. The decline of aquifers impacting existing cotton fields, plus the lack of new land available for cultivation, means that cotton production faces long-term challenges. The disadvantages of polyesters include that they are oil-based, require in­tensive energy use for production, and create plastic and microfiber pollution. Each time they are washed, they shed microfibers (which can be seen as lint in the filter of a dryer), and the runoff enters the water. These tiny plastic particles contaminate the oceans and land and are now found in animals and plants. Some oncologists speculate that microfibers might be a driver of the marked increase in colorectal cancer among the young.¹

The remaining 20 percent of the fiber market includes many different materials, none of which dominate, and all are more expensive than cotton and polyester. Animal fibers face production or other constraints. Wool is a product of the domestication of sheep, originally in Anatolia. Wool trading networks existed throughout the neolithic Middle East, with wool spun into cloth using ground looms. The wool textile indus­try has advanced since then, furthered by inventions such as the power loom in the eighteenth century. The sheep population, however, has yet to keep up with the explosion of the human population, relegating wool to less than 1 percent of the market share of fibers.

Silk is also among the most ancient fibers used by humans. Silk making was pioneered in China before reaching industrial levels of output in nineteenth-century Mount Lebanon, where silkworm farming, along with spinning, made up 50 percent of the country’s GDP.² Silk is fashionable and comfortable to wear and also has military applications: it can be incorporated into body armor, offering troops some ballistic protection. Nevertheless, silk has a big problem—this expensive fiber shrinks upon contact with water. Additionally, silk faces challenges related to labor intensity, price fluctuations, and vulnerability to disease, among others.

Until this century, fibers were limited to two broad categories: natural fibers and oil-based synthetics. There is now a third revolutionary category of fiber production: bio-manufacturing (industrial fer­mentation). It is a new age of domestication—this time using bioengineered microorganisms.

In bio-manufacturing, a domesticated microorganism such as bacteria or yeast is engineered to include new genetic material, or strains with desirable traits are selected.³ It is fermented in a bioreactor and combined with water and sugar. Given how long humans have produced beer, fermentation may be even older than wool production. Here, this fermentation process results in biomass, which is then harvested, and the proteins are extracted to create an entirely new material.

Bio-manufacturing can be used to overcome the limitations of silk by creating a silk-like material that is water-resistant. The genetic inspiration for this material is found in the ocean: squid tentacles, specifically the tiny teeth that ring squids’ suction cups. At a molecular level, this material resembles silk, but it does not shrink upon contact with water.

Here, for the fermentation process, yeast is engineered to include squid genes. This yeast is added to water and sugar in a bioreactor to ferment, leading to a material that can then be spun like silk. The se­quences in squid genes enable them to be easily manipulated through genetic engineering, more so than silk, allowing for the creation of a versatile protein material.⁴

Squitex is a bioengineered fiber inspired by squid ring teeth, developed by a start-up, Tandem Repeat Technologies, cofounded by a coauthor of this article. Tandem offers a prominent firm-level case study of the profound challenges entrepreneurs face when scaling up deep tech and manufacturing in the United States. (Deep tech, sometimes called hard tech, refers to a start-up trying to solve a hardware or engineering problem. Using AI to solve a finance problem is not deep tech.)

At every stage of scaling up Squitex toward domestic production, Tandem faced strategic bottlenecks. Though some were specific to Squitex and Tandem, most were systemic: the United States faces severe constraints in terms of workforce, manufacturing capacity, a supporting industrial ecosystem, and, most notably, financing for capital-intensive industries.

The story of Tandem’s Squitex points to needed policy fixes as well as practical workarounds by entrepreneurs. It also reveals some of the hidden strengths of America’s innovation system, however, including the role played by the Department of Defense (DoD). The DoD has long been interested in supporting textiles and fibers for military uni­forms and many kinds of special equipment, and it helped further the development of Squitex.

The Innovation Chain

The “innovation chain” describes the scaling of technology from invention to commercialization and the many steps in between. In contrast to the United States, China’s industrial policies are focused on fostering the country’s innovation chain. Plugging any gaps in the chain is a national strategic priority.

Barry Naughton, the economist and China expert, writes, “The concept of the innovation chain is popular in China, and it provides simple but powerful insights into China’s techno-industrial policies. China’s approach is conceptually systematic and comprehensive. It aims to bridge all possible gaps in innovation chains.” He defines the innovation chain as “when a scientific discovery—sometimes called an ‘invention’ in the literature—is converted into an engineering achievement. Engineering achievements are then transformed into new products that produce economic value.”⁵

China is creating many new research institutions and research consortia to solve the multiple engineering challenges required to move a new technology up the chain from invention to widespread diffusion and eventual commercial dominance. The country is building new devel­opment zones and industrial clusters to further these goals. It nurtures new manufacturing firms (“Little Giants”) that provide the technologies required to fill gaps.

The German think tank merics has similarly found that, “inspired by the idea of the innovation chain, Beijing is accelerating its efforts to optimize and align every step of the innovation process.”⁶ Massive government-backed investments and vast subsidies underpin the efforts to propel technology forward.

What is also notable is the prominence given to the concept of an innovation chain in government documents and speeches by officials, which further underscores the seriousness of the Chinese approach. The framework of “an innovation chain” was introduced as part of the “Na­tional Innovation-Driven Development Strategy” of 2016.⁷ More recent­ly, Xi Jinping, at the Twentieth National Congress of the Communist Party of China, made the exhortation, “Promote deeper integration of the innovation, industrial, capital, and talent chains.”⁸

The ultimate goal of plugging these gaps in the innovation chain is self-sufficiency, making the country less reliant on technologies con­trolled by others.⁹ In this sense, the innovation chain concept has simi­larities to supply chains: here, reducing reliance upon other countries is also a key concern. The innovation chain and supply chain concepts are highly interdependent. The innovation chain relies upon supply chains for the inputs required to manufacture the new products being developed.

Even though both terms can be variably defined, there are nevertheless differences between the supply and innovation chains. Supply-chain mapping is primarily applied to inputs to an existing product, while the innovation chain looks at the steps to developing a new product. Hence, the concept of the innovation chain focuses on the long-term progression of discovery, while supply-chain mapping primarily deals with the current state of the inputs into products.

Technology Readiness Levels

In the United States, though the concept of an innovation chain is com­paratively obscure, the Department of Defense has developed a meas­urement scale that tracks a technology’s maturity and progress. Tech­nology Readiness Level (TRL) is a nine-point measurement scale that classifies a technology by stage, from invention (TRL 1) all the way to commercialization (TRL 9).¹⁰ TRL was originally developed by NASA to measure the maturity and risk of space-exploration technology. The DoD’s own related TRL scale is used primarily for acquisition purposes. Manufacturing readiness level (MRL) is a related but distinct scale, with levels 1–10, measuring manufacturing maturity and risk, and the capabil­ity of manufacturing a technology. Bio-manufacturing readiness levels (BRL) have been developed by the DoD to assess the maturity of a technology and readiness for commercial bio-manufacturing.

Roughly, TRL 1–3 is assigned to early-stage technologies, progressing from basic invention to proof of concept. This research is often undertaken in an academic setting. TRL 4–7 describes the transition from academia to start-up, focusing on minimizing engineering and prototype risk. These are technologies for which a prototype has been produced in a lab setting, progressing to a point approaching pilot production in a simulated production environment. TRL 8–9 is about transitioning from start-up to scale-up. It is assigned to a technology that is actually being produced, first at a small scale and then at full commercialization.

TRLs are descriptive only. Unlike the Chinese and their innovation chain, they do not offer any analysis of what bottlenecks might be pre­venting a technology from moving up the TRL scale or suggest policy solutions.

TRLs do, however, provide a common vocabulary for assessing a technology and its readiness for manufacturing. The Government Accountability Office (GAO), in its 2021 report on the Manufacturing Institutes, wrote that the use of TRLs and MRLs “enables consistent comparison of maturity between different types of technologies or manufacturing capabilities.”¹¹

At the same time, the TRL framework has significant limitations, namely that industry requirements are independent of TRL. In the tex­tile industry, for example, when a company’s fiber production capabilities are limited to the first hundred kilograms—due to the strict uniformity requirements of yarn-making and the need for a minimum scale of weaving or knitting machines—commercial buyers often dismiss the technology. Unfortunately, this crucial industry-specific information is not included or conveyed in the TRL framework.

TRL 1–3: Invention

A coauthor of this piece, Melik Demirel, is a professor of engineering at Penn State and a materials scientist with expertise in biotechnology. Melik was aware of century-old research into the squid’s anatomy and contributed to a more recent study of the molecular structure of the teeth around its suction cups. His discovery of the self-healing property of squid ring teeth revealed a new protein-based material found in nature,¹² which offers numerous promising possibilities as an untapped source for advanced bioengineered materials.

This research was initially funded by the U.S. Office of Naval Research (ONR) to investigate the genes responsible for developing squid ring teeth inside the suction cups and related material properties. Even without immediate applications, the Navy is interested in and supports basic research into little-known ocean-based materials. This project aimed to analyze six different squid species (out of 350) and collect their genomic information. When Melik mapped the squid ge­nome, he found interesting repetitive protein patterns resembling silk.¹³

The U.S. Army Research Office (ARO) biochemistry program provided further funding for this scientific research. The Army was particularly interested in silk-like materials because of silk’s unusual battlefield properties. One cause of death from a blast is the shockwave, which ruptures veins. Silk is shock-absorbing. It has been found that silk underwear for troops can offer some protection from an explosion.

After receiving additional grants from ARO and the Air Force Office of Scientific Research (afosr), the technology advanced to TRL 2, still in the basic research stage. The grants were used to optimize squid-inspired genes and further bio-manufacture them in bacteria, resulting in the creation of novel materials such as thermally responsive materials¹⁴ or composites.¹⁵

This project produced an actual material using these genes because Penn State had a bio-fermenter on campus, the CSL Behring Fermentation Facility. This was a gift from the biotech company BSL Behring, which is open to all for research, development, and small-scale pro­duction. By inserting a gene from the squid into bacteria and using the bio-fermenter, protein-based materials are produced that, in some ways, replicate those found in nature, albeit not in thread form as in silk.

Bio-manufacturing experiments further improved the natural proper­ties of squid proteins. Could this material produced through fermentation be made stronger? More flexible? Self-healing if torn? More thermally conductive? Tuning properties of squid protein by engineering the bacteria pointed toward additional applications.¹⁶

The question was what to do with this new material. Melik needed to find a use case and a business case.

TRL 4–7: The Valley of Death

The gap in the United States between academic or government research and the later commercialization of technology is sometimes referred to as the “valley of death.” Bridging this gap between TRL 4 and 7 was the explicit motivation for creating the Manufacturing Institutes established during the Obama administration.

As the 2012 Advanced Manufacturing Partnership Report to the President noted:

Many of our research discoveries have not been quickly translated into U.S. manufactured products. Many technologies fail to move to commercialization because the private sector, particularly SMEs, often does not have adequate technical resources and is not able to make sufficient investments in early technologies. In fact, the stage between research and production is a perilous period in business development and is often called “the valley of death.”¹⁷

The solution, as proposed in a subsequent report, was a national network of manufacturing institutes: “The NNMI (National Network for Manufacturing Innovation) proposal is aimed at strengthening support for R&D that lies between the ‘discover/invent’ beginnings of innovation and the ‘manufacturing innovation/scale up’ stages that precede commercialization. The Institutes, therefore, will focus on Technology Readiness Levels 4–7.”¹⁸

The scale and capabilities of U.S. manufacturing have declined significantly since these reports were written, with China now dwarfing American manufacturing output. Despite the establishment of the Manufacturing Institutes, the valley of death between TRL 4 and 7 is still very much in evidence.

Start-Ups and Scale-Ups

In 2017, Melik encountered investors who were interested in possibly using his squid protein as a source material for medical meshes. He found, however, that the medical mesh market is tightly regulated by the Food and Drug Administration and limited in size. He explored the adhesive market, which also presented limited opportunities. Instead, he turned his attention to a much bigger market, one not tightly governed by the FDA: textile fibers. The textile market is worth $3 trillion annually. A start-up’s market penetration goal of 1 percent after five years made for a compelling pitch to venture capitalists. He would try to spin his new nature-inspired material into a fiber.

In 2018, a new spin-off from Penn State, Tandem, was established. Together with two cofounders, Melik hoped to commercially produce a new self-healing silk-like material as a fiber, Squitex. To proceed, Tandem needed manufacturing capacity, skilled labor, and financing.

Manufacturing. Manufacturing the new product involved bio-fermentation to create the protein pulp and then spinning it into an actual fiber. These processes need to be integrated and work in parallel. This proved challenging domestically, however, because of the disappearance of the American textile industry. Previous attempts at manu­facturing bioengineered fibers in the United States failed because they couldn’t make the spinning stage work or produce fibers at a competitive price.¹⁹

The United States is the global leader in fermentation capacity because it is used in producing biofuels, chemicals, and foods. Companies such as ADM, Bunge, Cargill, and Dreyfus (collectively known as the ABCD companies) have large-scale fermenters of 100,000 liters or more, while universities like Penn State have on-campus fermenters limited to 100 to 1,000-liters, suitable for experiments. Hence, there is a gap in the market for fermenters in the middle range, from 1,000 to 100,000 liters.

Tandem found a solution at the University of Illinois, which had a bio-fermenter with this mid-range capacity. IBRL, the Illinois bioprocessing facility, was created by the university in partnership with state and industry players.²⁰ It is designed to bridge the gap between research and commercialization. It is institutionally distinctive in that it is a “shared production facility” and open to small newcomers such as Tandem for use. Start-ups can rarely afford to build new production facilities of their own. In the past, this was less of an issue when large vertically integrated firms dominated the economy, but today that is no longer the case, and the lack of shared production facilities—unlike in, say, Taiwan—is another reason why deep-tech companies often cannot scale in the United States.²¹

Tandem could use IBRL to scale up protein production and purifica­tion, but the company also needed to find a way to spin the resulting biomass into fibers. Though the United States has kept pace in fermentation, it is no longer a major player in most spinning technologies.

There are roughly two types of spinning: melt and solution. In melt spinning, with polyester as an example, the chips of the polymer plastic are melted and forced through a spinneret to create a fiber. In solution-based spinning, the polymer is dissolved in a solvent. This can take forms such as “wet” spinning, in which the solution is reconstituted in a coagulation bath (e.g., acrylic), or “dry” spinning, in which the solution is extruded into the air and evaporates, leaving fiber (e.g., acetate). Another method is “dry-jet” spinning, which combines both techniques (e.g., cellulose).

One of Melik’s discoveries included using dry-jet spinning to in­crease the stability of protein fibers, a process that he patented. He had to formulate his solutions to dissolve and then re-coagulate the protein, an innovation almost as crucial as creating the protein in the first place. The production process is very similar to cellulose-based spinning, meaning it uses the same machine and solvent (but with different parameters), only with the source material of fermented protein pulp rather than natural wood, as in the case of cellulose.

Tandem could have turned to cellulose manufacturers for the spin­ning stage of production, but this industry has primarily exited the United States, even though the process for creating wood-based fibers, known as Lyocell, was first invented in North Carolina in the 1970s. Lyocell fiber is enormously popular because of its look and feel and, most importantly, because it offers environmentally friendly manufacturing with Eucalyptus trees as the source material.

Despite the early American commercial dominance of Lyocell, the industry has largely migrated to Europe (though an Austrian corporation still maintains a factory in Alabama for making nonwovens). The Europeans built a pilot factory in China, which was almost immediately copied into thirteen new factories across China. Following the expiration of the Lyocell patent in 2018, Chinese production, primarily at state‑owned enterprises, has exploded, going from zero to 59 percent market share in under a decade, with subsidies key to this success. Economies of scale mean that the price of Chinese Lyocell continues to decline. Given the Chinese economic model of vast subsidies for inputs such as electricity, as well as grants, loans, and injections of below-market equity through government guidance funds, plus periods of currency manipulation, the Chinese future dominance of Lyocell seems likely.

The lack of an existing domestic spinning industry meant that Tandem could not easily contract with a legacy manufacturer to produce the new bio-engineered fiber. It is an example of how it is very hard to create an advanced manufacturing industry if the underlying basic pro­duction capabilities have been lost. You can’t have advanced manufacturing without basic manufacturing.

Producing Squitex domestically would, therefore, require the up­grading of legacy spinning industries, as well as building a related sup­porting industrial ecosystem including a skilled workforce and smaller suppliers. This is a much larger effort than narrowly advancing a tech­nology along the TRL frontier.

Tandem turned to the fiber-focused manufacturing institute affoa (Advanced Functional Fabrics of America) for technical support for its attempt to integrate spinning and fermentation. Yet because the institute focuses on developing advanced textiles—and Tandem’s interests include bio-manufacturing and integrating advanced and legacy manu­facturing—securing funding for these projects from affoa was challenging.

Workforce. One workaround for the lack of domestic spinning facilities was to repurpose machines from America’s remaining spinning industries and also recruit workers who knew how to operate them. Tandem investigated buying machines used in carbon precursor fiber spinning, as several such production facilities still exist in the United States (carbon fibers are used in everything from airplanes to golf clubs). Owning a machine is one thing; having people operate that machine is another. Tandem found that it couldn’t find a skilled labor force to operate the machines for the kinds of functions it required; once the industry is lost, so is the professional workforce.

One alternative possibility was to hire near or actual retirees with the missing expertise, but they didn’t want to return to blue-collar jobs, nor did younger workers. Potential recruits were interested in white-collar jobs instead. Recent graduates with degrees in textiles from universities in the Carolina region asked for desk jobs like marketing. Their salary expectations to move to Pennsylvania were financially impractical.

There is a cultural issue in the United States regarding blue-collar manufacturing work: it is not prestigious. Upgrading the solution spinning job’s responsibilities, skill level, and salary is one possibility to counter this. Rebranding or redefining the job to increase its appeal is another solution. Or the job could just be automated.

Blue-collar manufacturing workers in the United States are poorly paid, not just compared to white-collar workers but on an international basis. For instance, the U.S. Bureau of Labor Statistics’ most recent comparison of hourly manufacturing costs across thirty-three countries found that the United States was mid-range at $36 an hour. In Germany, manufacturing workers were paid $48 an hour, Sweden at $52 an hour, and Switzerland at $63 an hour.²²

In contrast, U.S. white-collar workers in professional services (fi­nance, law, consulting) are exceptionally well paid on an international basis. First-year associates at the top fifty U.S. law firms could expect to earn $205,000 in 2021, according to firm surveys conducted by American Lawyer.²³ In the UK, associates at comparable firms (“the magic circle”) had a starting salary of $139,000. In Germany, they were be­tween $118,000 and $142,000. In the Netherlands, first-year associate salaries ranged from $46,000 to $64,000.

American CEOs are the highest paid in the world. Inequality in the United States is widely discussed. It is increasingly known that domestic blue-collar labor costs cannot explain the loss of U.S. competitiveness. But could the high salaries in professional services have a negative effect, particularly if actual domestic production is involved? The high cost for white-collar workers is an overlooked factor in explaining the decline of U.S. manufacturing.

Financing. To finance the pilot project, which aimed to produce ten to one hundred tons of protein pulp, Tandem needed between $10 and $15 million. Proper commercialization (TRL 8–9) would require sig­nificantly higher funding, starting at $100 million.

Despite the commercial opportunity’s attractiveness, given the textile market’s size and potential off-take agreements with U.S. and EU fashion brands, Tandem’s needs were a poor fit for venture capital investors. For hardware, large VCs needed to see annual recurring reve­nue of $1 million or higher and an actual market share with a set value.

Instead, VCs prefer to finance technologies such as software that scale at zero marginal cost. In 2023, software accounted for 40 percent of all deals (mainly in the AI domain), followed by health care at 24 percent.²⁴ The VC system is not designed to support capital-intensive advanced manufacturing or the scaling up of new deep tech.²⁵

Further, the U.S. VC industry is facing a crisis of its own: the lack of “exits,” through which LPs and partners are paid. In 2023, the industry had the lowest number of exits (through IPOs or acquisitions) in a decade.²⁶ There is a drought of DPI, or distributed to paid-in capital, a measure of returns to investors. In a poetic flourish, the National Venture Capital Association described the situation: “The lack of exits represents a serious issue. A venture capital ecosystem without exits is like dancing without music, doable but somewhat nonsensical.”²⁷

Early-stage VCs, a subcategory of VCs that tend to be very small shops, will finance pilot projects that are pre-commercialization. During the period right after Covid-19, this category of VCs had ample liquidity to invest. Tandem raised approximately $2 million from these early-stage VCs. Early-stage VC deals are often funded by larger VC firms that don’t have time to invest in smaller deals.

Tandem also applied for and won competitive grants from Bio­MADE, the bioindustrial manufacturing institute funded by the Depart­ment of Defense. Its mission is to “enable domestic bio-industrial manufacturing.” The contract with BioMADE was for R&D, which Tandem used to pilot facilities in the United States for strain optimization and fermentation.

Overall, Tandem raised approximately $8.8 million to proceed with the pilot production of protein fibers. But this amount was peanuts compared to the size of Tandem’s problems in the United States, which didn’t have the manufacturing infrastructure even to support a full pilot production project. America lacks dry jet spinning facilities that could be used, as well as integration between fermenting and spinning, and a skilled workforce capable of operating the machines (even if the ma­chines could somehow be obtained). Building a new dry jet spinning manufacturing facility and an integrated protein pulp facility would cost $100 million due to the lack of existing production facilities.

Offshoring scale-up. Though the fiber industry has largely disappeared from the United States, Europe has retained some production capacity, even if much of its industry is similarly in the process of departing for China. Europe still has residual factories and a supporting industrial ecosystem, including suppliers and a skilled workforce. It also has a vast and well-funded network of research institutes linking indus­try, academia, and government, unlike the handful in the United States.

Tandem explored piloting the project in Europe with many research facilities and government-backed innovation institutes from which to choose. Some proved to be too costly for the pilot, while others had production capabilities limited to the research stage. Next, Tandem approached engineering and manufacturing firms in Austria and Italy. Eventually, it found the best fit in Germany at a textile research institute with a focus on manufacturing processes.

To proceed to the pilot production stage required further bio-engineering work on dry spinning to make it function at scale. The recyclability and cost of a solvent became an issue during scale-up, even though it was not at the experimental stage. The basic thermodynamics of spinning change as scale changes, including transport viscosities, pressures, and temperatures; the equilibrium points of the different phases of the process shift. These changing parameters were only ob­servable on an increased scale, and this scale only existed in Europe.

Tandem had to experiment with different parameters in the solvents, adjusting solid versus liquid proportions to create the viscosity, pres­sures, and temperatures required for large-scale production. The new bioengineering work that went into the pilot underscores the fact that innovation is required at every step along the innovation chain and at every TRL, not just in basic R&D.

This is consistent with the conclusions of MIT’s Production in the Innovation Economy (PIE) Commission. The commission’s cochair, Professor Suzanne Berger, noted that “Manufacturing capabilities are important in that in the process of making things there’s a lot of innovation and learning, which feeds back into research and development. We could see that in the biotech industry, where scaling up processes is an extraordinarily complex scientific and engineering problem. Innovation takes place at multiple points along the line before commercialization.”²⁸

America’s apparent strategy of trying to be at the leading edge in advanced technology and design is difficult without actual manufacturing activity. The country misses out on later-stage manufacturing inno­vations, which in turn inform further research and development and ultimate success in production.²⁹

Tandem received an award of €200,000 from the German government to proceed with pilot production and to incentivize the company’s relocation to Germany. Tandem established a German subsidiary and began shipping protein from the United States to Germany for spinning. In 2024, Tandem proceeded with pilot fiber production at a 100 kilo­gram scale. The pilot was a success. It took place mainly in Germany, though both the fermentation and spinning technologies were invented in the United States.

Tandem may therefore be yet another case study of how a “deep tech” invented and developed in America ends up being primarily manufactured abroad (or, in Tandem’s case, only partially since bio-fermentation remained in the United States). But this isn’t the end of the story when it comes to the new squid-inspired fiber. Industrial policy, as well as interventions by the DoD, can change this grim trajectory. Enter the DIBC.

TRL 8-9: An Aspiration

The Defense Industrial Base Consortium (DIBC) is a DoD-funded initiative that aims to build a more robust and modern defense industrial ecosystem. It offers the DoD access to new commercial technologies being developed by nontraditional government contractors such as small or emerging companies. In turn, it provides members with “access to funding opportunities and potential collaboration partners, guidance on Government contracting, networking and information.”³⁰

The consortium aims to enhance and expand the defense industrial base in support of the critical subsectors of the DoD’s “Manufacturing, Capability Expansion, and Investment Prioritization Director­ate” (mceip). Mceip’s mission includes: “Addressing defense supply chain issues, developing the industrial workforce, sustaining critical production, commercializing Research and Development (R&D) efforts, and rapidly scaling emerging technologies to build a robust, resilient DIB.”³¹

The DIBC, therefore, has the potential to address the many missing gaps in the advanced levels of the U.S. innovation chain. Providing financing for commercialization is a key one. When it comes to bio-manufacturing, investments are directed toward supporting a self-sustaining, domestic bio-manufacturing ecosystem, including capability gaps in critical military supply chains. A possible and positive outcome is that advanced technology will be tethered in some way to supporting the domestic manufacturing ecosystem, which has rarely been the case in the United States in recent years.

In August 2024, Tandem, in conjunction with a defense contractor, received a $1.5 million grant³² from the Department of Defense Distributed Bioindustrial Manufacturing Program,³³ executed through the Defense Industrial Base Consortium (DIBC) Other Transaction Agreement (OTA).³⁴ The grant involved a complex array of agency and corporate partners to study the feasibility of scaling up domestic pro­duction of its protein fibers.

This grant, therefore, marks a significant policy shift. Previously, when Tandem had received contracts from the government or government-funded institutions, it had been for R&D only, not to prepare for actual manufacturing, as was the case here. The grant was merely the first phase of a much larger matching grant for production, the build phase. As part of the planning phase, Tandem is working with multiple engineering contractors to design the factory, specify the workforce and training needs, identify supply-chain risks, and undertake other plan­ning efforts that will lead to actual production.

The contract included seven milestones Tandem needs to meet to obtain further financing for the building phase, including a marketing plan and business development, strategic business plan, manufacturing plans, process and product characterization, scaled production plans, business and technical process assessment, and prototype testing.

Tandem can meet all these planning milestones; the choke point it faces is in financing the building phase, even though the government is offering up to $50 million in the form of a matching grant toward the $100 million facility.

Tandem will still require another $50 million in financing from the private sector. It also faces the long-standing challenges of any manufacturing operation in the United States, such as the lack of a skilled blue-collar workforce, an expensive white-collar workforce, and increasing energy costs. Still, these are trivial impediments compared to the lack of financing.

Tandem has three to five years to find the $50 million matching funding. It is looking to VCs and private equity (PE). If Tandem is able to find this investment, the problem will be solved. Production of the protein fibers will finally begin in the United States.

But, if it can’t find matching funds, the company will face a critical decision. It could look for a European partner with existing manufacturing facilities, or production could move to China.

Policy Implications and Practical Solutions

How should the United States go about fixing its innovation chain and closing its numerous gaps? For starters, almost no one has heard of the “innovation chain” aside from scale-up specialists and China watchers. The topic does not have public visibility. Addressing the gaps in the chain does not appear to be at the top of policymakers’ minds. These are not campaign issues in the United States. In contrast, President Xi and the Chinese Politburo’s discussions repeatedly refer to specialized man­ufacturing SMEs and bottleneck technologies.

Tandem is not alone in its struggles. Overcoming the many bottlenecks inhibiting U.S. manufacturing requires improved institutions, a reskilled manufacturing workforce, a rebuilt industrial ecosystem including basic manufacturing to support advanced manufacturing, new financing tools, new analytical approaches, and, ultimately, new metrics beyond TRL. The example of Tandem shows, however, that there are also pragmatic ways forward for entrepreneurs that don’t require massive policy overhauls.

Trade. One general insight is that tariffs or other trade measures alone are insufficient to help a new technology scale and reach mass commercialization. The chain has many gaps that have nothing to do with China and are purely the result of domestic U.S. deficiencies, such as a lack of financing tools.

But given Chinese manufacturing overcapacity, trade measures now need to be added to the industrial policy mix to protect infant as well as mature industries from Chinese mercantilism. Further, industrial policy is usually not well integrated with trade policy in the United States, with a few exceptions. Typically, the agencies that run funding programs are not agencies that have any role in trade policy. The White House could coordinate, but there is little evidence that the United States has a well-developed trade strategy corresponding to the new industrial strategies benefiting companies like Tandem.

Programs and institutions supporting manufacturing. The Tandem case study presents a mixed picture of U.S. manufacturing-related insti­tutions. The company benefited from using shared production facilities, though these are rare. It also received some financial support from BioMADE, a manufacturing institute. Nevertheless, these institutions’ funding and scale are minuscule compared to China’s, or even those Tandem accessed in Europe.

Production innovation occurs at every TRL and MRL, but there are severe gaps in American research institutions. For instance, the federal labs don’t focus on researching manufacturing processes.³⁵ The United States has successfully created advanced technologies, such as AI, quan­tum, etc. But these are typically seen as an end in themselves. They are not systematically being fed back into improving manufacturing.

In contrast, in China, state commentary before the Third Party Plenum stressed the “imperative” to “develop new quality productive forces according to local conditions. The layout of China’s strength in strategic science and technology should be improved, emerging industries cultivated and strengthened, the development of industries for the future arranged in advance, and the transformation and upgrading of traditional industries empowered by advanced technologies.”³⁶

According to merics analysts, China is becoming an “accelerator state,” launching new industrial policy programs to grow SMEs.³⁷ The “Little Giants” program cultivates high-tech SMEs in ten strategic manufacturing sectors. The program is built on a series of competitions. Winners are offered preferential financing and outright subsidies, as well as research funding and access to state entities. China has already launched ten thousand Little Giants, with a “farm team” of an additional seventy thousand specialized SMEs poised to compete. Merics further notes that “Beijing’s focus [is] on the industrial upgrading and prioritization of hard technologies over soft technologies, i.e., hardware and equipment over consumer-oriented software applications.”³⁸

America needs to pay more attention to its traditional manufacturing industries. It lacks a program to cultivate specialized SMEs on the scale of “Little Giants.”

But the DIBC shows a way forward. The manufacturing feasibility study Tandem undertook as part of its DIBC grant was tightly focused on improving manufacturing processes, strengthening the supply chain of inputs, with the DIBC potentially providing the financing needed to construct new factories. It shows that the United States, too, can culti­vate the success of manufacturing SMEs, at least when defense issues are involved, albeit not on the scale of China.

The DIBC should be expanded or used as a model for similar programs that go beyond the defense industrial base. As the Commerce Department and others have noted, “economic security is national security.”³⁹ The United States needs a program like the DIBC to support all sectors deemed critical for economic security.

For its part, Tandem is helping revive legacy manufacturing industries by integrating them with advanced manufacturing. Combining fermentation with solution spinning is a way to devote resources to and upgrade this traditional industry.

Workforce. Developing a manufacturing workforce should be a solvable problem. Industry should be able to train and sustain its labor force. But that requires a long-term commitment, and manufacturing industries themselves are disappearing across the United States. At times, they leave behind a skilled workforce. The biofuel wave, for example, even once it crested, created a workforce that could sometimes transition to bio-manufacturing. More “Centers of Excellence,” which are collaborations between businesses, states, and educational institutions, could be an answer to the workforce problem in theory, but Tandem did not turn to them because they didn’t have a focus on bio-manufacturing fibers.

How to create a skilled workforce is part of the DIBC feasibility study. Tandem can access the existing skilled workforce in bio-fermentation, but the problem is on the spinning side, which needs to be integrated into bio-manufacturing.

One pragmatic approach would be repurposing an existing manufacturing plant with an existing workforce, even if both are old. One start-up purchased an old Monsanto plant in Georgia for almost nothing and converted it into a contemporary bio-manufacturing facility, retraining the existing workforce. Tandem is currently studying this model as well.

Financing. The lack of a financing mechanism for scaling up manu­facturing is the most severe issue plaguing the U.S. innovation chain for deep tech. It is only solvable with a policy intervention.

China has been highly innovative on this front, with an entire armamentarium of financial tools for scale-up, including bank loans, grants, guarantees, trillion-dollar guidance funds, and the creation of new stock markets. The governor of the People’s Bank of China sounded quite unlike a Fed official when he stated, “In terms of monetary policy structure, we will focus on the key links of high-quality development, establish refinancing for technological innovation and technological transformation, and increase financial support for technological innovation and equipment upgrading and transforma­tion.”⁴⁰

The contrast with the United States is stark; such financing tools for the scale-up of hardware simply don’t exist here. For deep tech, using Tandem as an example, the financing requirements are:

TRL 1–3: $1 million, basic science/innovation;

TRL 4–7: $10 million, valley of death;

TRL 8–9: $100 million, factory scale.

There is enough funding in the United States for fundamental science, but not beyond that. Venture capital won’t fund hardware scale-up; only 8.9 percent of all venture capital invested in 2023 went to hardware companies.⁴¹ Policy proposals to create new funding for scale-up, such as the “SBA Reauthorization and Improvement Act of 2019,” have typically stalled or failed. The various plans for a U.S. sovereign wealth fund would mark a turning point if successful.

Even if it manages to launch a sovereign wealth fund, the United States also needs complementary financing programs targeting deep-tech SMEs critical to economic security. A good starting point would be to expand and scale up the DIBC.

Gap analysis. The United States has developed sophisticated new supply-chain risk assessment tools. These tools identify vulnerabilities and aim to build more resilient supply chains. Highly technocratic economic security exercises often include an assessment of supply-chain risks.

The United States needs to develop a complementary set of analyses for the gaps in the innovation chain. These gaps are similarly crucial to long-term economic security. What are the strategic bottlenecks pre­venting scale-up? What are the policy or other solutions? Such a research agenda would map critical technologies to identify choke points that prevent scale-up in the future.

Policy Readiness Levels (PRL)

Finally, the United States needs a new measurement scale, this time for policy. The Tandem case study points to the multiple bottlenecks facing scale-up in the United States, which need to be solved by policy, but somehow rarely are. They include the lack of financing tools to support capital-intensive deep tech, the decrepitude of basic manufacturing in the United States, without which advanced manufacturing can’t function well, and many others. The required policy solutions are often discussed but are rarely implemented.

We introduce a new scale to highlight these policy bottlenecks: “Policy Readiness Levels” (PRL). The scale measures the maturity and capability for implementing policy along a nine-point scale, from for­mulation of basic principles to mass application.

PRL 1 is assigned to a basic concept. It describes a policy proposed in an academic seminar, a think tank white paper, or a policy journal article. PRL 2 and PRL 3 include the development of a concrete plan. PRL 4–7 are policies for which there is governmental buy-in, but the policies are not implemented at scale. These policies can be implemented from the bottom-up, for example, at the city (PRL 4) or state level (PRL 5), or multi-state level (PRL 6) as a pilot, or from the top down by the government (PRL 7). An example would be the recent supply-chain summit hosted by the Commerce Department, with attendees from industry and discussions of potential public-private partnerships for implementation. PRL 8–9 describes policies that have been implemented at scale.

PRL incorporates three distinct but interrelated components or sub-measures. The first component is state capacity. Even if the government wanted to implement a policy, does it actually have the capability, including institutional depth and technical knowledge, to do so? For example, the United States might be short of competent officials capable of implementing industrial policies. This situation is not static, however. Presumably, there has been organizational learning-by-doing, which the government has gained from the industrial policies of the current White House. The Department of Defense also has deep expertise in industrial policy, including in logistics, contracting, and even building manufacturing facilities, as was shown by Operation Warp Speed, even if these capabilities have yet to be adequately tapped for sectors outside of defense.

A second component is political readiness levels. Are politicians ready to embrace and implement the policy? How will the media react? Or funders? Does the politician have the political will or technical knowledge?

The third component is public readiness levels. Is the public support­ive of the new policy? What is the media’s position? Does the policy reflect received wisdom? Is it fashionable?

The PRL scale enables consistent comparison of the maturity and feasibility of different policy solutions. It can point to a policy’s inabil­ity to scale. This would highlight the need for targeted scale-up strate­gies to propel it to the next PRL and the important role of policy entrepreneurs.

Tax credits for EVs are an example of policy which has ascended to the highest PRL levels. It is supported by environmental and manufacturing lobbies, as well as celebrities and the entire climate-emergency discourse. In contrast, improving capacity to build nuclear submarines is at a much lower PRL. There is no large manufacturing lobby pushing for this effort. It is not of interest to celebrity “influencers.”

There is a vast corpus of policy papers identifying the dangers of deindustrialization and proposing industrial policies that can revive American manufacturing. This growing body of knowledge has largely stalled at PRL 1–3, with a few exceptions. This can be seen clearly in the subcomponents of PRL, where state capacity, political readiness, and public readiness often still reflect the previous policy consensus, the Washington Consensus, updated with a moralistic overlay.

The story of Squitex/Tandem illustrates the challenges of building capital-intensive hardware companies given the limitations of the current U.S. inno­vation chain as well as slow progress in PRL. America faces multiple scale-up problems, not only in deep tech but also in terms of policy solutions. As the country continues on its increasingly perilous journey, it must walk through several valleys of death.

This article originally appeared in American Affairs Volume VIII, Number 4 (Winter 2024): 58–79.

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Notes