Top startup accelerator Y Combinator recently updated its request for startups, noting its specific interest in backing defense-tech startups. Silicon Valley was born as a research-and-development area for the U.S. military in the early 20th century, and now is the "the time to return Silicon Valley to these roots," YC wrote in a blog post.
YC's increasing focus on defense tech follows venture-capital giant Andreessen Horowitz's investment thesis of "American Dynamism," which involves backing founders and companies that "support the national interest," like defense. Over the past three years, venture-capital firms have invested more than $100 billion in defense-tech startups, with Andreessen Horowitz writing more checks than any other investor.
"Broadly speaking, there’s definitely a lot of energy," in defense-tech startups, said Ali Javaheri, an analyst for VC data firm PitchBook. "There's a big cultural shift."
Last year, investors pumped $33 billion into defense-tech startups, according to PitchBook, roughly the same amount of capital that was invested in the sector in 2022 and 22% below the record high numbers in 2021.
PitchBook keeps a broad definition of defense-tech startups. It includes firms like Anduril, which makes advanced defense technologies, but it also includes companies like OpenAI. The ChatGPT maker isn't a defense-focused firm, but it does have a contract with the U.S. Department of Defense to apply its artificial-intelligence technology for cybersecurity.
Below are the top 10 VC deals in defense-tech startups since 2016, according to PitchBook.
Companies like Anduril and Palantir, a firm that creates software for the U.S. military, are among the most well-known defense-tech firms. But newer startups have launched in recent years to bring new innovations to the defense industry.
Ghostdog, a military intelligence startup from Olive AI founder Sean Lane, raised nearly $4 million for its secure web browser that allows U.S. intelligence agencies to collaborate. Match Industries, founded by MIT dropout Ethan Thornton in 2022, raised $79 million last year to "replace gunpowder" for the defense industry.
Among the top investors in defense-tech startups are Andreessen Horowitz, the CIA's VC fund In-Q-Tel and New Enterprise Associates.
Here are the top 10 investors backing the most defense-tech startups since 2016.
As entrepreneurs and startup investors find new energy for defense tech, the Department of Defense has been less enthusiastic.
VC-backed startups received less than 1% of the $411 billion Defense Department contracts awarded in the government’s fiscal year through September, according to The Wall Street Journal. The DoD also recently opted to no longer fund Shift, a $2 million fellowship program that boosted the Pentagon's relationship with startups and venture capitalists, according to Forbes.
"It comes down to the fact that the DoD doesn’t really know how to purchase these technologies in a way that fits with Silicon Valley's ethos of 'move fast and break things,'" PitchBook's Javaheri said.