Silicon Valley discovers the charm of military startups. 51 billion invested since the beginning of the conflict in Ukraine

Never so many investments in startups working on military technologies. 2023 is set to become the record year since venture capital operations in this sector have been monitored. This is confirmed by the data of a PitchBook report which recorded that in the first 5 months of the year more than 200 financing transactions were concluded for a value of 17 billion euro. More than what the sector raised in the whole of 2019. While in 2022 the total investments were 34.5 billion dollars.

The effects of the war between Russia and Ukraine

The reasons are immediately apparent. According to the report, it is the explosion of geopolitical tensions that has guided the operations of investors. The crisis between the US and China and the war that has been going on for over a year since Russia’s invasion of Ukraine have rekindled the race to invest in military technologies. Especially if they come from startups dealing with drones, artificial intelligence, machine learning and advanced robotics. A figure in stark contrast to those recorded by all other sectors. The other startups suffer a generalized drop in investments. The military ones, or those that develop technologies applicable to the military field, are not.

Because so far investors have been little attracted by military startups

Silicon Valley investors have so far avoided engaging in fields such as defense. There are too many risks in a sector which, in the event of war, could immediately be regulated and become a bad business in the medium to long term. Now something has changed. Perhaps also due to the idea that the research and development of new solutions could also be interesting for the budget of the States.

According to interviews conducted by the report, this mistrust has given way to the belief that startups are finally lining up to get a major share of the mammoth defense budget that, in the United States alone, has grown over two decades to reach a record $886 billion for 2024.

The investors most involved in the operations

Major venture capital investors, such as Andreessen Horowitz and Sequoia Capital, have begun investing in companies that produce defense products and, for the first time, “kinetic” weapons systems. “We’re seeing more and more investors who feel comfortable investing in startups that produce technology that can have a kinetic effect used exclusively for the military,” said Mike Brown, a partner at Shield Capital based in San Francisco and former Director of the Defense Innovation Unit at the US Department of Defense.

Sequoia Capital led an approximately $6 million seed round in Mach Industries earlier this year, according to the Financial Times. Mach was started last year by Ethan Thornton, an MIT alumnus who now develops hydrogen-powered weapons and defense systems.

Still. Anduril Industries, a $9 billion-valued defense technology company whose biggest backer is Andreessen Horowitz, recently revealed that it is in talks to develop its first weapons by creating a “munitions-in-waiting” version of its autonomous drones, systems of aerial weapons that can passively wait for a target and then attack. Last year, Los Angeles-based Anduril won a $1 billion contract from US Special Operations Command to lead the integration of systems that can identify, track and intercept hostile drones.

“We are at war.” Venture capitalists (and startups) supporting the war effort

“We’re at war, it’s real,” said Teresa Carlson, who previously led Amazon’s efforts to sell its AWS cloud computing service to the US government, and who recently joined the venture firm of Silicon Valley, General Catalyst, as a consultant. “Now we have to think about how to use the technology in different ways.” General Catalyst, which has $33 billion under management, launched a “global resilience” practice in April to bolster defense and intelligence firms.

It is the war between Russia and Ukraine that has changed everything. And to ensure that the American VCs align themselves with the new needs. It is a conflict that is being waged with a combination of traditional trench warfare and advanced technological systems, such as satellite communications, data intelligence and autonomous drones.

Involving large corporations, such as Elon Musk’s Virginia HawkEye 360 ​​and SpaceX. And they see billions ending up in the coffers of innovative new companies. Since the beginning of the conflict, six new startups valued at over a billion dollars have emerged, “unicorns”, as they are called in jargon: ShieldAI (autopilots guided by artificial intelligence), HawkEye 360 ​​(geospatial analysis of radio waves), Anduril (systems , robots and autonomous weapons), Rebellion Defense (big data analysis for national defense systems), Palantir (data analysis for intelligence) and Epirus (energy).

The United States has established a number of government agencies in recent years to encourage private sector development of technology with homeland security applications, including the Defense Innovation Unit in 2015 and Afwerx in 2017, which allows private companies to sell innovative technology to the United States Air Force. The conflict in Ukraine has seen this effort flourish, which has contributed to the creation of companies that today have billions in turnover, even before receiving others to become big.

“The key is to offer services directly to those engaged in field operations,” said Brett Granberg, founder of Vannevar Labs. “If you can figure out how to do it, you can get contracts worth millions of dollars.” Over the past year, Vannevar Labs’ revenue has grown from $3 million to about $25 million, thanks to an increase in government contracts, according to reports from two inside sources.The firm, which specializes in analyzing global communications to provide military intelligence, raised $75 million in January.