The investment in military technology start-ups is thriving due to the war in Ukraine and geopolitical tensions with China, which has increased confidence in the US government awarding profitable contracts to Silicon Valley companies that develop cutting-edge defense systems.
According to data from PitchBook, US venture capitalists have agreed to over 200 defense and aerospace deals worth nearly $17 billion in the first five months of this year. This amount is greater than the total amount raised in the sector during the entirety of 2019.
This boom in investment mirrors the growth experienced in the artificial intelligence sector, even as investment in start-ups in other areas of the tech industry has declined in recent months.
PitchBook data shows that US venture investment in defense start-ups has surged from under $16 billion in 2019 to $33 billion in 2022. In the first quarter of this year alone, a record $14.5 billion was invested in such start-ups.
For years, Silicon Valley had been hesitant to embrace defense technology due to its association with controversial overseas conflicts and concerns about the Pentagon’s slow and risk-averse procurement process, which favored established defense contractors.
However, interviews with over 15 investors and founders reveal that this hesitation has given way to a belief that start-ups are now in a position to secure a significant portion of the US’s massive defense budget, which is projected to reach a record $886 billion for 2024.
Notable venture capital firms like Andreessen Horowitz and Sequoia Capital have begun investing in companies that develop defense products, including “kinetic” weapons systems, which refers to military technology capable of active warfare and lethal force.
Anduril Industries, a defense tech company valued at $9 billion and backed by Andreessen Horowitz, has announced plans to develop its first weapons by creating “loitering munitions” versions of its autonomous drones — aerial weapons systems that can passively wait for a target and then launch an attack.
Last year, Anduril won a $1 billion contract from US Special Operations Command to lead the integration of systems that can identify, track, and intercept hostile drones.
According to Teresa Carlson, former leader of Amazon’s efforts to sell its AWS cloud computing service to the US government, the need to utilize technology in different ways has become imperative due to the current state of warfare. She stated, “We are at war, it is real.”
Recognizing this need, General Catalyst, which manages $33 billion, launched a “global resilience” practice earlier this year to support defense and intelligence companies.
The Russian invasion of Ukraine has served as a “game changer,” generating increased interest from the US military in commercial technology. The conflict in Ukraine has witnessed a combination of traditional trench warfare and high-tech systems such as satellite communications, data intelligence, and autonomous drones.
Private companies like HawkEye 360 and SpaceX have provided Ukraine with satellite radar imaging and internet connectivity that is resistant to Russian jamming efforts, enabling the detection of movement by Russian convoys.
As a result, the investment flood has led to the emergence of several defense tech unicorns, including ShieldAI, HawkEye 360, Anduril, Rebellion Defense, Palantir, and Epirus.
Despite the positive developments, some defense tech founders caution that while the public procurement process has improved, it is still sluggish. The time gap between developing a prototype and receiving a government defense contract can present significant challenges for young companies.
The awarding of large contracts to companies like Anduril and ShieldAI remains the exception rather than the norm, as the founders of one defense unicorn who now work as investors at a San Francisco-based venture firm have noted. They stated, “Founders are up against a stack of unfair advantages and lobbyists for the major defense contractors.”
To overcome these obstacles, the key is to directly sell services to the individuals carrying out the mission, as emphasized by Vannevar Labs founder Brett Granberg. He believes that cracking this code can unlock lucrative contracts worth eight or nine figures.
Vannevar Labs experienced significant revenue growth in recent years, thanks to an increase in government contracts. The company, which analyzes global communications to provide military intelligence, raised $75 million in January from investors, including Felicis Ventures.
In order to encourage private sector development of technology with national security applications, the US government established several agencies, such as the Defence Innovation Unit and Afwerx, which facilitate the sale of innovative tech to the US air force.
In addition, the establishment of the Space Force in 2019 has incentivized a new wave of private capital flowing into defense tech focused on space warfare. Companies like SpaceX have secured major contracts to assist in the construction of communication and missile-tracking satellites.
Now, many investors believe that recent advancements in artificial intelligence have further emphasized the role of Silicon Valley in supporting US defense efforts. “The last time that happened was with the atom bomb,” said Dan Gwak, managing partner at Point72 Private Investments. “Finally we’re seeing the government taking steps to win the tech race.”
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
