Venture funding for defense tech startups grew last year, but despite some large and notable funding rounds the total amount invested was lower than some might have anticipated.
Funding to VC-backed startups in defense — defined here as the industries of military, national security and law enforcement — hit $3 billion in 102 deals, per Crunchbase data. That’s only an 11% uptick from 2023, which saw $2.7 billion raised in 100 announced rounds.
The $3 billion may seem low to many, considering in August, Costa Mesa, California-based Anduril Industries — perhaps the poster child for defense tech startups — locked up $1.5 billion of that in a Series F co-led by Founders Fund and Sands Capital Ventures that valued the company at $14 billion.
Upswing for defense
Still, defense tech had a good year in 2024, with an increase in both dollars and deals. That’s somewhat of a surprise, given that in the not-too-distant past, defense tech and the general venture and tech cultures haven’t always gotten along. Many investors used to stay away from defense tech because of ethical concerns or pressure from their limited partners.
However, it appears that attitudes began to shift when Anduril raised a substantial $1.5 billion Series E in 2022 that propelled the startup to a valuation of $8.5 billion.
Since then, the defense tech industry has experienced a shift in the investor landscape and how those VCs deploy their money.
“Investors have become far more intelligent about defense in the last few years and as a result dollars are being deployed more efficiently,” said Ethan Thornton, CEO of Mach Industries — an Austin, Texas-based defense tech firm creating aerial protection devices fueled by hydrogen.
“I think that investors have become better at assessing product market fit, the important team characteristics for success, and which problems are worth attacking,” he said.
Those changes in the space led to some big raises last year. While Anduril’s may have been the largest, it was far from the only big defense tech round last year. Other massive rounds in 2024 included:
The rise in defense tech spending can be attributed to multiple factors, said Daniel Ateya, president and managing director at RTX Ventures, the venture arm of aerospace and defense giant RTX, formerly Raytheon. Those reasons include an increasingly fraught geopolitical landscape and heightened demand from defense customers and Congress to support new firms.
Among the technologies that have seen strong interest from defense tech investors are artificial intelligence, autonomous systems, advanced propulsion technologies and space tech, Ateya said.
Building up
The growth of defense tech shows no signs of slowing down, partly because “defense tech” often has multiple applications. AI and cybersecurity, for instance, have uses in both defense and commercial industries such as manufacturing and energy.
Many people involved in the industry also expect defense spending to increase further under the new White House administration, which will further boost investor interest in the space. In addition, the recently proposed U.S. sovereign wealth fund — if it becomes reality — almost certainly would look at defense tech as an area in which to invest.
Lastly, several big-name firms such as Andreessen Horowitz, Alumni Ventures and 8VC 1 all have shown significant appetite in defense tech, making dozens of investments in the space, while others such as Founders Fund, Sands Capital Ventures, General Catalyst and Thomas Tull’s US Innovative Technology Fund have led or co-led big rounds.
In fact, Andreessen’s newly established “American Dynamism” practice focuses on investing in sectors tied to U.S. national security, including aerospace, defense, safety, education and manufacturing.
Already this year there have been some good-sized rounds going to defense tech startups.
Earlier this month, Syracuse, New York-based radar startup Hidden Level raised a $65 million Series C led by DFJ Growth. A week earlier, El Segundo, California-based Castelion, a defense manufacturer developing long-range hypersonic strike weapons, raised a $100 million Series A in a mix of debt and equity. Lightspeed Venture Partners led the equity portion.
Considering the current geopolitical tensions around the world, it is unlikely defense tech investment will slow.
“We are in a global competition with China for economic, military and technological dominance,” said Josh Manchester, a general partner at Champion Hill Ventures and a defense tech investor. “The preservation of our way of life is dependent upon winning this competition. Fear of failure is the primary driver.”
Methodology
Defense tech is defined by the industries of military, national security and law enforcement, according to Crunchbase data. Most announced rounds are represented in the database; however, there could be a small time lag for rounds reported late in the quarter. It does not include incubators or accelerators due to the fluctuations their investment numbers can have.
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Illustration: Dom Guzman
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