Federal contracting software startup Arkenstone Defense Inc. formally launched today with $35 million in new funding to take on the compliance, security and workforce setup that keeps many commercial technology companies out of the federal market.

The company sells a managed platform that handles the back-office work a startup must complete before it can win and deliver government contracts, from payroll and benefits to personnel security, labor compliance and accreditation. More than two dozen defense technology companies run on it.

Arkenstone is built around a professional employer organization, the entity that legally employs the cleared workforce contractors depend on. Around that, it layers payroll, insurance, Defense Contract Audit Agency compliance, facility and personnel security and the full accreditation lifecycle, packaged as a single service a company can switch on.

Co-founder and Chief Executive Peter Dixon previously co-founded Second Front Systems Inc., a software company that helps vendors ship software to the government and served as a major in the U.S. Marine Corps. Co-founder and Chief Operating Officer William Treseder has spent more than 15 years connecting Silicon Valley and the Defense Department through groups including BMNT, Hacking for Defense and the Marine Innovation Unit.

Arkenstone is betting on a market that keeps getting bigger and harder to enter at the same time. The Pentagon now spends more than $300 billion a year on acquisition. The pool of companies willing to sell to it, however, is going the other way. The Defense Department worked with about 76,700 businesses in 2017. By 2021 that count was down to roughly 60,000, the National Defense Industrial Association found. Prime contractors have thinned out too, from 51 in the 1990s to just five now.

Getting in the door is mostly a paperwork problem. A company that wants to handle sensitive defense information first has to earn Cybersecurity Maturity Model Certification Level 2. The Defense Department puts the cost for a small contractor at close to $490,000 over three years. Fewer than 90 assessors are authorized to do the work nationwide and enforcement turns mandatory in November. Certification is one line on a long checklist and Arkenstone is selling the whole checklist as a service.

“Too many companies spend years building a government back office before they ever win a contract, or they give up entirely,” Dixon said in a statement. “We’re changing that.”

The seed round was led by J2 Ventures, with participation from Susa Ventures, Granite Hill Capital Partners and Artis Ventures. Alexander Harstrick, managing partner and co-founder of J2 Ventures, said Arkenstone had built “the missing layer that allows commercial innovation to move into the defense ecosystem at scale.”

Arkenstone is based in Menlo Park, California, with offices in Albuquerque, New Mexico and Burr Ridge, Illinois.

Image: Arkenstone Defense