In 2023, I attended a deep tech dinner hosted by Pete Mathias, a partner at Alumni Ventures. After finding my seat, I was immediately struck by the diverse backgrounds at the table: a Lockheed Martin venture investor, a former Navy SEAL turned private equity partner, an active-duty aircraft carrier commander, and a nuclear submarine officer now financing defense startups.
Over the course of the evening, conversations spanned nuclear microreactors, space manufacturing, and the technologies poised to reshape modern warfare. Underpinning it all was a shared conviction that venture capital would play a central role in rewriting the future of national security. Looking back, those conversations offered a glimpse of a broader shift in venture capital aimed at transforming an outdated defense model.
Recent geopolitical upheavals have exposed weaknesses in America’s defense industrial base, heightening the urgency for next-generation capabilities ranging from autonomous systems to space-based technologies. Pentagon leaders are confronting decades-old procurement processes to embrace the commercial innovation needed for modern warfare.
This shift has opened the floodgates for venture capital, with defense tech emerging as one of the asset class’s strongest growth theses. As of Q2 2025, venture capital activity in defense tech reached $28.1 billion, already surpassing 2023’s total and setting the sector on course to exceed 2024’s funding levels.
Silicon Valley’s roots trace back to collaboration between government, private industry, and academia focused on advancing national security during World War II and the Cold War. Some of the earliest venture-backed companies, like Fairchild Semiconductor, played pivotal roles in advancing groundbreaking microchip technology for NASA, the Pentagon, and more.
However, as conflicts slowed in the 1970s and 1980s, the Department of Defense adopted a more structured approach emphasizing predictive schedules and stricter cost controls. Since then, the DOD’s technology acquisition strategy has been built on the belief that future military needs can be anticipated and met through long-term planning.
This system largely relies on a cost-plus business model, where the government reimburses contractors for development costs and contractors earn a fixed profit, usually between seven to ten percent. By shifting financial risk from contractors to the government, this structure has drawn criticism for creating a bureaucratic defense technology development ecosystem that maintains the status quo and deters innovation.
Whether those criticisms are valid or not, necessity is the mother of innovation and current defense needs are underscoring the imperative to move quicker. Rising geopolitical tensions coupled with extreme on-the-fly battlefield adaptations during the war in Ukraine have highlighted the need for accelerated technological advancement to protect the US, its allies, and values.
The Pentagon has begun reconsidering its dependence on high-value military platforms like aircraft carriers, advanced fighter jets, and major warships amid growing concerns that these exquisite assets may create strategic vulnerabilities. The lengthy development cycles and enormous costs associated with these platforms have prompted the DOD to pursue a hybrid approach, integrating smaller, more affordable autonomous systems alongside traditional “exquisite” assets.
This strategic pivot reflects a broader global trend. As militaries worldwide increasingly embrace autonomous and artificial intelligence-driven technologies, demand for tech-enhanced defense systems is accelerating across international markets. The shift signals a fundamental rethinking of military doctrine, moving away from platform-centric warfare toward more distributed, technology-intensive force structures.
These dynamics have opened the door for venture-backed companies to significantly drive impact alongside the more capital-intensive projects needed to build new nuclear submarines or F-35s. A wave of new defense startups has emerged, successfully demonstrating that a market-driven approach where companies fund their own research and development can yield powerful results.
Julia DeWahl, Co-Founder and President of Antares Industries and serial angel investor, noted that the defense tech category has grown over the last decade as the DOD has realized the value it can get from products built by smaller, nimbler companies than the traditional primes. The DOD has developed programs and funding to nurture the startup pipeline, recognizing how quickly they need to advance their technology to remain dominant vis-a-vis other global powers.
Anduril offers a prime example of how this new, innovative approach can transform defense technology, blending software and hardware to accelerate military advancements. The company has played a crucial role in modernizing US military tech capabilities, notably contributing to rapid technology deployment to support the war in Ukraine.
In just 31 months, Anduril turned blueprint sketches into a contract with the US Special Operations Command and a $1 billion DOD program. The company’s meteoric rise demonstrates how fast defense innovation can take off when companies are incentivized to deliver the best solution at the lowest cost under the shortest timeline.
Rather than adhering to the rigid, specification-driven contracts typical of defense contracting, Anduril leverages first principles, prioritizing mission needs over predefined requirements. This flexible approach has fostered incredible adaptability and interconnectedness across its products, setting it apart from traditional contractors that often have siloed software stacks.
Some of Anduril’s products include:
Venture capitalists aren’t eyeing defense just to disrupt outdated procurement processes. From an investment standpoint, the sector offers several appealing characteristics. Governments worldwide allocate substantial budgets toward defense and security.
The US alone spent $997 billion on military expenses last year, and liberal democracies globally also provide willing customer bases. Capturing even a small share of this eye-popping market size presents a lucrative opportunity for emerging defense startups. Securing defense contracts provides sticky, long-term revenue streams akin to SaaS, services an end market resilient to economic downturns, and offers plenty of options for contract expansion down the line.
What’s more, the DOD is not a typical customer and often plays an active role in product refinement and development, frequently providing additional non-dilutive funding sources via grants. DeWahl’s Antares Industries, a startup building kilowatt-scale nuclear microreactors for both defense and commercial applications, offers a prime example of this dynamic, raising seed capital from a cohort of venture investors and supplementing that with non-dilutive funding from the DOD and DOE.
These appealing investment opportunities have prompted a wave of venture capital firms to prioritize defense as a strategic sector in their portfolios. Lux Capital’s “Securing Life and Environment,” General Catalyst’s “Global Resilience,” Alumni Ventures’ “US Strategic Technology” thesis, and Andreessen Horowitz’s high-profile “American Dynamism” strategy are just a few examples of firms betting on defense to support US national interests. Importantly, investments under these strategies span far beyond the battlefield, encompassing sectors like aerospace, supply chain management, and cybersecurity.
“Critical infrastructure is the backbone of our nation’s security – without it our resources by which we defend ourselves, both weapons and people, are rendered useless. At face value, it’s a bit of an unsexy category, but recognition of its importance has occurred in the wake of Covid, the Ukraine-Russia conflict, and even the [recent] hurricanes in the Southeast, and I’m glad to see more people interested in working and investing in our nation’s infrastructure.”Julia DeWahl, Antares Industries
“Critical infrastructure is the backbone of our nation’s security – without it our resources by which we defend ourselves, both weapons and people, are rendered useless. At face value, it’s a bit of an unsexy category, but recognition of its importance has occurred in the wake of Covid, the Ukraine-Russia conflict, and even the [recent] hurricanes in the Southeast, and I’m glad to see more people interested in working and investing in our nation’s infrastructure.”
However, while defense presents attractive investment opportunities, it also comes with notable challenges. Sales cycles to secure government contracts can stretch over several years, and navigating this valley of death is often bogged down by approval processes and bureaucracy.
To succeed, startups must develop commercially viable solutions that address real military needs and deliver strategic impact. Understanding these dynamics and which products can be practically applied is complex and often non-obvious. While the DOD has made progress in recognizing the tech sector’s role in defense innovation, considerable work remains to overcome regulatory and procurement barriers.
Despite the hurdles, the partnership between venture capital and national security is likely here to stay. Innovation has always been key to safeguarding democracy, and venture capital’s risk-taking model, focused on identifying home runs but accepting write-offs gracefully, aligns well with the risk profile taken on by these startups and their bold experimentation.
Get updates in your inbox
Learn how Chronograph can streamline your private capital investment monitoring and diligence