Venture capital funding in defense technology surged to $31 billion globally in 2024, driven by rising global security concerns and advances in AI, drones, and cybersecurity. Here’s why VCs are investing heavily in this space:
- Massive Market Opportunity: The U.S. alone spends $842 billion annually on defense, with $59 billion allocated to IT and cybersecurity.
- Dual-Use Technologies: Innovations in defense tech often have commercial applications, increasing profitability.
- Geopolitical Tensions: Growing global conflicts and competition in areas like AI and quantum computing are fueling demand for advanced defense solutions.
- Government Support: Programs like DIU and SBIR encourage private-sector innovation by awarding contracts and funding prototypes.
Defense tech startups like Anduril and Shield AI are attracting billions in funding, while veterans play a key role in bridging military expertise with cutting-edge tech. With a 15.9% CAGR through 2027, the sector offers significant potential for both innovation and returns.
Why VCs Invest in Defense Tech
Military Spending and Contracts
Defense spending represents a massive opportunity for venture capital. Together, the U.S. and its partner nations spend about $1.6 trillion annually on defense, with the U.S. alone contributing roughly half of that total. This creates a lucrative environment for investors, offering the potential for high returns. In fiscal year 2021, the U.S. government allocated $400 billion to contractors and directed $117 billion toward critical technologies. However, established defense companies dominated the market, securing 99% ($406 billion) of contracts, while VC-backed firms captured just 1% ($4 billion). This disparity highlights the untapped opportunities for venture capital to bring fresh ideas to the table.
“Meaningful and consistent contracts are the capitalist signal that more production and more production capacity are necessary.” – Michael Brown, Partner at Shield Capital
Global Security Needs
Ongoing geopolitical challenges are fueling demand for advanced defense technologies. For example, the $220 billion U.S. CHIPS and Science Act supports initiatives in quantum computing, semiconductors, and advanced communications. These investments underscore the urgency of staying ahead in defense innovation.
The Defense Innovation Unit (DIU) plays a critical role in bridging the gap between government and private investment. For every $1 awarded in prototype contracts by DIU, venture capitalists respond by investing 10–20 times that amount in equity funding. This demonstrates how government backing can significantly boost private-sector involvement.
Commercial Tech Applications
Defense tech with dual-use potential is especially appealing to VCs because it unlocks additional revenue through commercial markets. These technologies can serve both military and civilian purposes, expanding their profitability. Here are some notable examples:
| Company | Focus Area | Commercial Applications | Investment Highlight |
|---|---|---|---|
| Samsara Networks | IoT Solutions | Defense logistics and supply chain management | |
| Rocket Lab | Space Technology | Defense and commercial space missions | |
| Darktrace | Cybersecurity | Advanced cybersecurity for critical infrastructure |
“The critical question is not whether the technology industry should participate in the defence sector, but how we do so ethically.” – Trae Stephens, Co-Founder and Chairman of Anduril Industries, Partner at Founders Fund
SpaceX is a prime example of how government support can propel a company to commercial success. These trends create opportunities for startups and veteran-led initiatives to thrive in this evolving landscape.
Top Defense Tech Areas
AI and Machine Learning Systems
AI is becoming a key part of defense strategies. The Pentagon’s AI budget request jumped by 105% between 2022 and 2024. Military spending on AI is also expected to climb from $8.8 billion in 2023 to $22.6 billion by 2032, growing at an annual rate of 11%.
A standout example is Helsing, which raised $489 million in July 2024, reaching a $5.4 billion valuation. Their AI software boosts the capabilities of drones and jet fighters while improving decision-making on the battlefield. Palantir is another major player, with its U.S. government revenue increasing 40% year-over-year to $329 million in Q3 2024.
“Today’s emergent technologies have the potential to shift the global superpower balance. The startups of today that bring those technologies to bear will be the defense primes of tomorrow.”
– Dan Gwak, Point72 Private Investments
The next big area of focus is drones and other unmanned systems, which are reshaping defense capabilities.
Drones and Unmanned Systems
The drone market is growing fast, with projections estimating it will hit $33 billion by 2030. Military spending on drones alone is expected to grow 13% annually, surpassing $34 billion by 2030. Advances in autonomy and cost-efficiency are positioning drones as competitive alternatives to traditional defense systems.
| Company | Recent Achievement | Value/Impact |
|---|---|---|
| AeroVironment | U.S. Army Contract (Aug 2024) | $1 billion for Switchblade loitering munitions |
| Lockheed Martin | DARPA Contract (Oct 2024) | $6 million to upgrade Black Hawk helicopters with drone-like capabilities |
| Safe Pro Group | Ukraine SSTS Request | $5 million for AI-powered drone demining packages |
As these technologies evolve, digital security remains a critical area for defense.
Digital Defense and Security
Cybersecurity is a growing priority in defense budgets. The U.S. has increased its spending on cyber activities by 15% from fiscal year 2023 to 2025. This reflects the rising importance of digital security in both warfare and national defense.
Startups are making waves in this space. Saronic raised $175 million in Series B funding at a $1 billion valuation in July 2024, led by Andreessen Horowitz. Chaos Industries also secured $145 million in Series B funding in Q4 2024, focusing on protecting critical infrastructure.
“Defense investing is the ultimate form of mission investing. Defense investors from decades ago are the reason why this article isn’t being written in Russian. It’s a great thing that the category has new entrants.”
– Josh Manchester, Champion Hill Ventures
These advancements show how different technologies can work together, as seen with Hidden Level‘s $65 million Series C funding in March 2025 and Castelion‘s $100 million investment in long-range hypersonic strike weapons.
New Focus for Venture Capitalists – Defense and Aerospace Startups
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Defense Tech Startup Guide
Startups in the defense tech space must navigate contracting, compliance, and team-building while capitalizing on tech trends and venture capital interest.
Working with Government Contracts
Securing defense contracts requires understanding the complexities of government procurement. The U.S. Department of Defense (DoD) actively supports small businesses through programs like Small Business Innovation Research (SBIR) grants. Two key contract types to know are:
- Cost-plus contracts: These reimburse contractors for incurred costs, plus a fee.
- Firm-fixed contracts: These have a set budget, with contractors assuming responsibility for any cost overruns.
Collaborating with a DoD advocate can make a significant difference. Programs like Utah’s APEX Accelerator are designed to help small businesses navigate the process.
“Government contracting may not be sexy, but it’s good business”
After securing contracts, startups must meet strict security standards to remain compliant.
Security Rules and VC Requirements
Defense startups need to juggle federal security regulations alongside investor expectations. Key frameworks include the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS). Staying informed through the Federal Register and the DoD Acquisition & Sustainment site is essential. For deeper expertise, consider training courses at the Defense Acquisition University.
Building Defense Tech Teams
Having veterans in leadership roles can be a game-changer. Their firsthand experience helps identify critical needs and drives innovation. Beyond operational insights, veteran founders often attract venture capital interest. For instance:
- Shield AI, co-founded by Navy veteran Brandon Tseng, achieved a valuation of $2.7 billion as of October 2023.
- Shift5, founded by Army veterans Josh Lospinoso and Michael Weigand, is projected to surpass a $1 billion valuation by 2024.
“As veterans transition from military service to civilian careers in defense companies, they bring with them a wealth of knowledge, skills, and insights that can drive innovation in remarkable ways”
Veterans bring more than just expertise – they offer established DoD connections, leadership, and practical problem-solving skills. Their contributions have a measurable impact: veteran-owned businesses add $179.9 billion to the economy annually, and veteran founders are twice as likely to launch cybersecurity companies compared to non-veterans.
Career Paths for Veterans
Military Skills in Tech Jobs
Veterans bring a wealth of experience from their military careers that aligns seamlessly with roles in defense technology. Their operational background, security clearances, and familiarity with military protocols make them ideal candidates for positions like project management, systems integration, and security analysis. These roles are essential in defense tech companies and rely heavily on the expertise veterans already possess.
| Military Background | Defense Tech Career Opportunities |
|---|---|
| Intelligence/Signals | Cybersecurity Analysis, Threat Detection |
| Communications | Network Architecture, Systems Engineering |
| Logistics | Supply Chain Tech, Operations Management |
| Combat Operations | Project Management, Training Systems |
This skill set not only boosts job opportunities but also provides a strong foundation for veterans interested in starting their own defense tech businesses.
Starting a Defense Tech Company
Veterans looking to launch a defense tech company can use their military experience to solve real-world challenges. Here’s how they can get started:
- Market Research: Use your military knowledge and connections to pinpoint gaps in the market that need addressing.
- Technical Training: Build on your expertise by attending coding bootcamps or earning certifications in specialized areas.
- Funding Options: Seek out funding through programs like SDVOSB contracts, Veterans Business Outreach Centers, or initiatives from the Defense Innovation Unit (DIU).
By combining their firsthand experience with targeted training and funding strategies, veterans can create solutions that resonate with the defense tech industry and attract investor interest.
Support for Veteran Founders
Veterans transitioning into defense tech entrepreneurship can benefit from a range of support resources. Platforms like the Veteran Professional offer valuable guidance, including tips on securing defense tech sales roles and navigating the industry as a veteran. By tapping into these resources and building strong professional networks, veterans can effectively merge their military background with the latest tech trends, staying ahead in this competitive field.
Conclusion
Venture capital investment in defense technology is on the rise, with nearly $35 billion poured into the sector in 2023 and an additional $9 billion in early 2024. This surge highlights a growing focus on advancing technologies that serve both government and commercial markets.
Dual-use technologies are a key driver here. These innovations allow startups to cater to both sectors, making them an attractive option for investors seeking versatility and broader market potential.
Veterans play an important role in this space, offering firsthand battlefield knowledge that theory alone can’t replicate. As PitchBook analyst Ali Javaheri points out:
“An understanding of what problems are actually on the battlefield”, instead of just “sitting in Silicon Valley and theorizing”
The evolving defense tech industry also opens new career paths for veterans. Chris O’Donnell, a former Navy SEAL and director of Franklin Venture Partners, highlights this shift:
“A few years back you would have gone to be executive vice president at Lockheed Martin – totally not sexy”
With strong government backing and consistent venture capital funding, the defense tech sector is poised for growth. Veterans who blend their military experience with tech expertise are uniquely positioned to make a lasting impact in this rapidly growing field.
Related Blog Posts
- Top 5 Career Paths for Veterans in Tech Industry
- How Veterans Can Get a Job in the Defense Industry
- 8 Veteran-Friendly Companies Hiring in Tech
- How To Land a Defense Tech Job as a Veteran
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Disclaimer: Past performance is no guarantee of future results. All averages presented are based on historical data and may not reflect individual outcomes. Actual results may vary based on specific circumstances.
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