At Andreessen Horowitz’s recent American Dynamism summit, Hadrian founder and CEO Chris Power painted a picture of the country in peril. “I’m here to talk to you about an existential risk to the future of the Republic and how Hadrian is trying to solve it,” he began.
His words – a mix of rationalism and Marcus Aurelius – were not out of place at the event, which brought together a blend of investors, founders, policymakers and other Washington officials to discuss issues facing the country. A notable number of talks were related to defense and national security, in line with the American Dynamism team’s investment portfolio, which includes bets on defense tech startups like Hadrian, Anduril and Shield AI.
Just a few years ago, many investors thought that cutting a check for a defense-first startup was a proposition that simply didn’t make sense. The tides have clearly shifted: a16z is one of many firms that’s taken a stronger interest in defense and national security. PitchBook data supports this warming to defense tech. From January to October last year, VC-backed firms injected $7 billion into aerospace and defense companies, a massive growth that stands in sharp contrast to the relative sluggishness in other sectors. Some deals in recent months include Anduril’s $1.4 billion Series E; Shield AI’s $225 million Series E; and Vannevar Labs’ $75 million Series B.
There are many reasons for this uptick in interest in defense tech, but driving all of them is a new, realist vision that’s spread among some technologists and venture capitalists. It sees global antagonisms threatening the stability of Pax Americana; it sees the United States rotting from the inside out due to bloat and lethargy. As a result, the Silicon Valley mentality has returned to its defense roots, embracing the role that venture-funded startups can play in maintaining America’s military dominance and technological supremacy around the world.
“If you believe in democracy, democracy demands a sword,” a16z general partner David Ulevitch said in a recent interview with TechCrunch. And Silicon Valley will be where it is forged.
The changing nature of war
Defense and venture are old bedfellows; Silicon Valley’s roots are defined by close approximation and collaboration with the U.S. Department of Defense. But as the contemporary instantiation of “Silicon Valley” formed out of the dot-com boom in the early ’00s, investors focused mostly on industries like consumer and SaaS, which can generate steep returns for LPs. In comparison to these sectors, which are capex light and have a lower barrier to entry, defense startups had a lot to contend with: the market monopolization of well-funded major contractors like Raytheon Technologies and Lockheed Martin, behemoths that seemed to crush competition, as well as the difficulties and expense of hardware.
Much has changed in the past few years, however, and a small group of investors is rethinking the value of defense startups. The U.S. government has never been more willing to work with startups to speed technological development and adoption, a willingness that’s been driven in part by growing tensions with Russia and China. Startups like True Anomaly, which is led by a team of U.S. Air Force veterans, is developing technology with the government in mind from the outset. “[True Anomaly] exists to provide the means by which the US and its Allies compete in the space domain, to pursue adversaries wherever they fly, and to provide the tools of accountability: build, orbit, pursue, adapt, repeat,” company CEO Even Rogers tweeted last year.
One of True Anomaly’s investors is Space.VC, a seed-stage fund operating out of Austin, Texas. As the name suggests, the fund focuses on the space sector, and True Anomaly is one of many companies it’s chosen to invest in that has a strong or even overt emphasis on defense. Jonathan Lacoste, Space.VC’s founder, told TechCrunch that the fund has a lot of companies in its portfolio that are actively involved in wartime engagements and would continue to be if more global conflict occurred.
He said that the fund doesn’t “invest in companies that need conflict to make money,” but “at the same time, we recognize that the U.S. government has a really, really difficult technology race on its hands that, the more I learn about it, the more I’m genuinely scared about the gap that exists between us and some of our geopolitical adversaries.”
Those adversaries, China in particular, have been developing and implementing new technologies at an extremely fast rate. Keeping pace with that speed of development is part of the motivation behind the DOD’s interest in working with startups, said Andrew Penn, space industry analyst and principal at the consulting firm Oliver Wyman.
The changing nature of war itself can also explain some of the shift toward venture-backed companies. The role satellite imagery and Starlink continue to play in Russia’s war with Ukraine is a recent example. But it seems all but certain that war will get even more high tech — in some ways, perhaps, more bloodless: defined not by the number of warfighters on a battlefield but the strength of each side’s automation, AI, cybersecurity and space-based technologies. DFJ Growth, a venture firm that invested in Vannevar’s Series B, suggested that the “enemies of the future” will be very different from those that defined America’s 20-year war on terror. Along these lines, Alexandr Wang, CEO of Scale AI, elaborated a future of war in which “AI-powered targeting and autonomous drones will define warfare.” America, Wang writes on his Substack, is falling badly behind on AI.
Like Power, he uses existential language to make his point: “We must recognize that our current operating model will result in ruin.”
Investing, divesting
It’s not a stretch to imagine that some of these startups will eventually make, or contribute to, weapons. If Hadrian truly wants to revitalize America’s defense industrial base, that will presumably include building armament components. Last year, Anduril debuted a new “loitering munition capability” for its drone platform, a type of single-use weapon that “loiters” in an area before identifying and attacking a target.
But the kill chain is long and opaque. In many defense tech deals, VCs are ultimately considering how proximal to the kill they are comfortable with being.
Some investors take a more formalized approach to this issue, weaving their ethics into their governance. London-based Seraphim Space has developed an internal tool it uses to determine whether a potential investment could be involved in weapons or anything that has a purely military application. If a startup’s technology has both military and commercial applications, Seraphim works with the startup to develop what Seraphim COO Sarah Shackleton called “negative covenants”: agreements that allow Seraphim to sell its block of shares should the company decide to take its technology in a different direction.
“You can’t really invest into space without really having some exposure to the defense and intelligence market,” Mark Boggett, Seraphim CEO, told TechCrunch. “But we’re making a very clean line of what is acceptable and what isn’t acceptable to us.”
“Everybody has their own moral compass, an ethical compass,” Ulevitch said. “My view is, we want to have the best technology to be able to always make the best decisions and take the best course of action with the least risk to innocent people possible. That pursuit is a noble pursuit.”
When the government is the customer (some things to keep in mind)
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