Entering the U.S. Government Market: Fireside Chat with Morgan Lewis

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Partners from Morgan Lewis recently shared a grounded view of how the U.S. defense and civilian government market is evolving—and what that evolution means for Israeli startups aiming to scale in the United States. Drawing on experience across national security reviews, federal procurement, and cross-border transactions, the discussion highlighted a central theme: opportunity is growing, but preparedness now starts far earlier than it once did.

Overview

The U.S. government is expanding defense and dual-use spending while simultaneously broadening the range of technologies it views through a national security lens. At the same time, agencies are experimenting with more flexible acquisition models designed to attract non-traditional and early-stage companies. For Israeli founders, this creates a favorable but more complex environment—one where supply chains, ownership structures, and regulatory posture are as important as product performance.

National Security Strategy and the Defense Industrial Base

Recent U.S. national security policy places renewed emphasis on supply-chain resilience and revitalizing domestic manufacturing. While these priorities are often framed around geopolitical competitors, they apply broadly across the defense ecosystem. Even allied companies are expected to demonstrate clarity around sourcing, subcomponents, personnel, and investors.

For Israeli defense tech companies, this is less about exclusion and more about transparency. Companies that can clearly show how their technology is built, financed, and scaled—and how those choices mitigate downstream risk—are better positioned as procurement scrutiny increases. Manufacturing footprint, U.S. hiring, and domestic integration increasingly factor into how agencies evaluate vendors.

Procurement Is Opening Up—Selectively

The U.S. government, particularly the Department of Defense, continues to increase defense spending while actively seeking innovation outside traditional primes. Alongside standard FAR-based contracts, agencies are relying more heavily on flexible mechanisms such as Other Transaction Authorities and cooperative agreements.

These pathways can be especially valuable for early-stage and international companies. They allow faster engagement, more adaptable terms, and greater room for experimentation—while still aligning with mission needs. At the same time, the government is attempting to ease compliance burdens that have historically discouraged startups, signaling a gradual shift toward more industry-friendly engagement.

A Broader Regulatory “Strike Zone”

Compared to a decade ago, far more technologies now fall within areas of government interest. Capabilities once considered purely commercial may now intersect with national security, export controls, or sensitive data concerns. This doesn’t mean most companies face insurmountable barriers—but it does mean founders should expect earlier and more nuanced regulatory conversations.

The supplier landscape has also changed. The ecosystem is no longer defined solely by a handful of large primes and their subcontractors. Venture-backed integrators, non-traditional defense companies, and hybrid commercial-government players now create multiple entry points for Israeli firms, particularly through partnerships rather than direct contracting.

Foreign Investment Reviews and Growth Planning

For many startups, U.S. expansion begins with a greenfield subsidiary, which generally does not trigger foreign investment review. Complexity increases later—during acquisitions, major financings, U.S. reincorporations, or exit scenarios. At that stage, the Committee on Foreign Investment in the United States (CFIUS) can become relevant, particularly for companies working in critical or sensitive technologies.

The practical guidance is simple but often overlooked: plan ahead. Clean capitalization tables, thoughtful governance, and awareness of investor nationality can prevent delays when strategic opportunities arise. Importantly, data from recent years suggests that Israeli transactions—especially in critical technology areas—are frequently reviewed and approved, reinforcing that process, not prohibition, is the core issue.

Structuring the U.S. Presence

Beyond national security, fundamentals still matter. Tax structuring, state selection, capitalization of U.S. subsidiaries, and employee equity plans all shape how efficiently a company can operate and scale. The U.S. system is multi-layered, with federal, state, and local considerations that can materially affect costs and incentives.

Employee equity is another common friction point. U.S. equity plans are mature and tax-efficient domestically but rarely align cleanly with Israeli or other international regimes. Treating equity planning as a cross-border design problem—rather than a copy-and-paste exercise—avoids downstream complications as U.S. teams grow.

Regional Ecosystems and Subcontracting Paths

Market entry does not have to begin with a prime contract. Many foreign companies succeed first as subcontractors or teaming partners with established U.S. players, gaining credibility and familiarity with government customers. In parallel, state and local governments offer meaningful incentives tied to manufacturing, job creation, and regional development—often overlooked in favor of federal programs.

Defense-relevant ecosystems are increasingly distributed. Proximity to customers, manufacturing sites, and supportive state programs can matter more than being in a traditional tech hub. Strategic location decisions can unlock both funding and long-term customer relationships.

Key Takeaways
• U.S. defense opportunity is expanding, but scrutiny now starts earlier.
• Supply-chain clarity and ownership transparency are competitive advantages.
• Flexible procurement vehicles are lowering barriers for non-traditional players.
• CFIUS planning matters most at growth and transaction inflection points.
• Partnerships, regional ecosystems, and state incentives can accelerate entry.

Conclusion

For Israeli defense and dual-use startups, the U.S. market remains one of the largest and most attractive in the world. Success increasingly depends on treating regulatory readiness, procurement strategy, and structural decisions as core elements of company strategy—not afterthoughts. Founders who integrate these considerations early are better positioned to move quickly when demand, funding, and government interest align.

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