Late last year, a software and hardware technology startup Anduril It made headlines when it closed a massive $1.5 billion Series E.
The funding is notable for its size alone, although it was the fourth-largest funding raised by a U.S.-based startup last year, it went to a defense and security firm. This also caught my attention.
Defense technology as a sector has historically not attracted the venture capital associated with many other technology industries.crunch base data Last year, U.S.-based defense tech startups invested just $2.1 billion in a total of 53 deals, including Anduril’s $1.5 billion.
For comparison, more than $10 billion was invested in US-based cybersecurity startups last year.
So far this year, 26 deals have paid less than $200 million to domestic defense tech startups, which seems to paint an even darker picture.
But industry insiders say times aren’t so bad, and while defense technology can have a complicated relationship with venture capitalists and investors, interest in the field is high.
culture war
Defense technology, venture capital, and general technology culture have not always been harmonious. Even though technology developed in Silicon Valley has been used by the military for decades, some investors have shied away from participating in the field for moral reasons, and technology companies have Be wary of technology being used for military purposes.
Perhaps the most recent notable example was just five years ago. Google Employees protested the company’s Pentagon drone surveillance contract, called Project Maven.
“I think there are now more LPs supporting this mission,” he said. Daniel AteyaPresident and Managing Director RTX Venturesthe venture arm of a major aerospace and defense company Raytheon.
“People understand that technology is important,” he added. “If you stay on the sidelines, the enemy will use it to their advantage.”
One thing that may be leading to that shift in thinking is the massive shift in thinking in terms of defense technology in the last decade or so, from tanks and missiles to space, cybersecurity, and AI.
thomas tull invested billions of dollars US Innovative Technology Fund last fall. The fund invests in startups such as Anduril. capella space and Shield AI.
Tal said there are signs that more investors are showing interest in the sector. Events such as the war in Ukraine have increased the “tension”, he said.
money talk
Of course, market size and exit success can also help push VCs and their LPs in certain directions.
if rock headAnd Raytheon’s combined market capitalization of $25 trillion alone isn’t enough to convince anyone to put money into defense, but there are recent success stories of venture-backed companies.
VC-backed companies like Shield AI and Anduril, as well as previously VC-backed companies, continue to grow Palantir — Interest is growing, Tal said.
Palantir went public in 2020, while Anduril was valued at $8.5 billion after raising capital in December. San Diego-based aerospace and defense technology company Shield AI, which has raised some of the largest funding in defense technology over the past few years, raised $60 million in December His valuation came to $2.2.
Just last week, a geospatial data visualization startup based in Austin, Texas huge Acquired by a private equity firm tribe capital. The company has a contract with the Department of Defense that will allow users to integrate multiple disparate data sources to make real-time decisions based on what’s happening in the real world.
ben ramThe HyperGiant founder said he has noticed a difference in investor attitudes in the space. “Defense tech certainly wasn’t all that appealing when I started,” he said.
Expand your use case
Apart from rising valuations for some startups, another reason why defense technology startups may be getting more love from investors is that , said it’s just that few companies can truly define defense technology.
For example, Hypergiant has use cases not only in defense but also in several different sectors for geospatial data platforms.
“Restaurant was one of the first areas we entered,” Lam said with a laugh.
Such a business model serves several purposes. It helps companies develop their platforms as they are used by more customers and in different ways. It also helps companies attract talent who may not want to work for a strictly “defense technology” startup.
There’s also the fact that government and defense contracts take time (surprisingly, the federal government doesn’t move quickly). Having a commercial arm of the business will help startups waiting to gain a foothold in the defense sector become profitable faster.
“It’s definitely safer to have a dual purpose,” says Ateya. “It could certainly make it more attractive to investors.”
investor interest
And the space appears to be attracting even more investors.
“I think 10 years ago there was very little investment in aerospace and defense,” said Ateya. “In the last five years, that amount has increased significantly.”
Ateya needs to look no further than his company, which was founded just last year. RTX has already made approximately 12 investments, including startups such as: impulse spacecyber company spider oak manufacturing startups and Strengthen.
Other technologies that pique his interest are innovations in aviation-focused advanced propulsion, edge computing, and electrification startups.
The technology and innovation may be there, but some would like to see more investors focus on this sector, just as there are investors who specialize in enterprise SaaS and direct-to-consumer startups. There is.
“I don’t think enough people are paying attention to this,” says Lam, who also co-founded a genetic engineering startup. huge life science. “It’s gotten better, but I think it should get better.”
But there are signs that investment in defense technology, and not just venture capital, is starting to take root deeper.
Just this spring, Doug Beck stepped down as vice president. apple become the new director of Defense Innovation Unitis helping. Department of DefenseAdoption of commercial technologies, such as those being developed by Silicon Valley and other start-ups.
Leaving such a role at Apple would seem to indicate that Beck, a Navy Reserve captain, understands the Department of Defense’s true commitment to embracing new technology.
It’s a commitment clearly recognized by other investors as defense technology moves away from bombs and missiles and toward space technology, AI and cybersecurity.
“I think investors are more pressed for that mission now,” said Ateya.
methodology
According to Crunchbase data, defense tech is defined by the military, national security and law enforcement industries. Most of the announced rounds appear in our database. However, there may be some lag for rounds reported later in the quarter.
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