Venture Capital's Bold Move into Military Tech
02/07/2024, 12:00
4 minutes
In the heart of Silicon Valley, a new breed of defence innovators is emerging, backed by billions in venture capital. This shift represents a fundamental reimagining of how military technology is developed and deployed.
VC's Calculated Assault
The defence sector, once anathema to venture capitalists, has become a hotbed of investment. In 2022, VCs poured a record $16.4 billion into aerospace and defence startups globally, according to Pitchbook data. This marks a significant increase from the $7 billion invested in 2021.
Leading the charge is Founders Fund, co-founded by Peter Thiel. The firm has been instrumental in backing defence tech unicorns like Anduril Industries and Palantir Technologies. Another key player is In-Q-Tel, the CIA's venture capital arm, which has invested in over 200 companies since its inception in 1999.
Defence Tech Unicorns
| Company Name | Description | Financing |
|---|---|---|
| Anduril Industries | founded by Palmer Luckey in 2017, epitomises the new wave of defence tech startups. The company, which specialises in autonomous systems and AI-powered battlefield management | raised $1.48 billion in its Series E funding round in December 2022, reaching a valuation of $8.48 billion. |
| Shield AI | founded by Brandon Tseng and Ryan Tseng in 2015, focuses on AI pilots for military aircraft. Shield AI's autonomous F-16 programme, in partnership with the US Air Force, demonstrates the potential of AI in combat aviation. | The company raised $225 million in its Series E round in June 2022, achieving a $2.3 billion valuation. |
| Epirus | directed energy systems and power management solutions provider, The company's Leonidas directed energy system has garnered significant interest from the US Department of Defense. | secured $200 million in Series C funding in April 2023, reaching a valuation of $1.35 billion. |
Specific VC Contributions to Defence Tech
| Contribution | Company Name | Description | Financing |
|---|---|---|---|
| Hypersonic propulsion | Hermeus | developing Mach 5 aircraft | backed by Khosla Ventures, the company secured a $100 million Series B round in March 2022 and has contracts with the US Air Force to develop hypersonic platforms. |
| Quantum sensing | ColdQuanta now Infleqtion | The company is working on quantum atomic clocks and sensors for ultra-precise navigation. | supported by Foundry Group and Global Frontier Investments, raised $110 million in Series B funding in November 2021. |
| AI-driven battlefield analysis | Scale AI | valued at $7.3 billion after a $325 million Series E round in April 2021, is partnering with the US Army to apply machine learning to satellite imagery analysis. | |
| Autonomous drone swarms | Skydio | The company's AI-powered drones are being tested by the US Army for reconnaissance missions. | backed by Andreessen Horowitz and Linse Capital, raised $170 million in Series D funding in March 2021 at a valuation of over $1 billion. |
| Cyber warfare tools | Rebellion Defense | founded by former Google CEO Eric Schmidt, . The company is developing AI-powered cybersecurity systems for the US and UK defence departments. | raised $150 million in Series B funding in October 2021 |
Novel VC Strategies in Defence Tech
| Contribution | Fund | Specialisation |
|---|---|---|
| has pioneered a "national security technology SPAC" approach | Lux Capital | founded by Joe Lonsdale. They not only provide capital but also assist portfolio companies in navigating complex government procurement processes and connecting with key decision-makers in the defence sector. |
| adopted a "full-stack" approach to defence tech investing | 8VC | The company raised $225 million in its Series E round in June 2022, achieving a $2.3 billion valuation. |
| launched the American Dynamism practice in 2022 | a16z | Founded by Andreessen Horowitz and led by Katherine Boyle, This initiative focuses on backing startups working on critical national issues, including defence and aerospace. |
Challenges and Future Outlook
Despite the influx of capital, defence tech startups face unique challenges. The US government's Foreign Investment Risk Review Modernisation Act (FIRRMA) of 2018 has increased scrutiny of foreign investment in critical technologies, potentially limiting funding sources for some startups.
Moreover, the ethical implications of AI-powered weapons systems have led to internal conflicts at tech giants like Google, where employee protests resulted in the company's withdrawal from Project Maven, a Pentagon AI initiative, in 2018.
Nevertheless, the trend of VC investment in defence tech shows no signs of abating. As geopolitical tensions persist and the pace of technological change accelerates, the fusion of Silicon Valley's innovation ecosystem with the defence sector promises to reshape national security paradigms and potentially alter the global balance of power.
This venture capital-driven transformation represents a paradigm shift in military innovation, challenging long-held assumptions about warfare and national security. As this trend unfolds, it will undoubtedly play a crucial role in shaping the future of global security and defence technology.
In my opinion, venture capital's significant investment in military technology has the potential to revolutionise national security, driving rapid innovation and creating cutting-edge defence solutions. If done properly, this not only propels our technology to new levels and areas but also makes our world safer, providing the security we need in an increasingly uncertain world. With strict oversight and adherence to ethical standards, this trend could lead to advanced technologies that enhance military capabilities, generate new jobs, and spur economic growth, ultimately contributing positively to global security and stability.
Venture capital is not just investing in business, its investing in our safety.