“The United States needs to be focusing on the technologies that are going to win the next wars, not the ones that won the last wars. And the technology companies that should be solving these problems refuse to do so.”- Palmer Luckey, co-founder of Anduril

When Google pulled out of the Pentagon's "Project Maven" in 2018 after widespread protests from their employees, it seemed to highlight a massive cultural gap between the Pentagon and Silicon Valley. Concerned observers noted that U.S. adversaries, like China, had no such gap between their defense agencies and the private sector, giving them a massive leg-up in acquiring top technology for national security.

However, this hasn't stopped a new wave of "DefenseTech" startups from cropping up- companies leveraging hardware, AI, and big data explicitly, and sometimes exclusively, for U.S. government clients. Traditionally, VC's have been loath to back startups in this space- government acquisition cycles favored large incumbents building complicated hardware, and moved too slow for the average startup. In fact, in the past thirty years, only two non-cyber DefenseTech startups have gone on to billion dollar plus valuations. But the wars of the future will be fought digitally as much as they're fought physically, and the Pentagon is starting to spend billions on contracts for software projects- opening up massive opportunities for startups in this space, many of which have recently raised 100s of millions in venture funding. Could we see a breakout of DefenseTech unicorns in the coming years?

It's an important question, and that's why it's valuable to have an overview of the space. This post will take a look at some of the key companies and sources of funding in DefenseTech. Note that many of these companies are building products that are "dual-use", meaning the technology has both civilian and military applications.

The sector can broadly be broken down into six categories: military hardware, cybersecurity, predictive analytics, data analysis, combat simulation and training, and battlefield healthcare. The market map shown here displays companies in those categories that have contracts or funding from U.S./NATO national security agencies.

• Companies

The Categories

• Military hardware- A very broad category that encompasses everything from tiny surveillance bugs to drones to supersonic missiles. Traditionally dominated by "The Primes"- Lockheed-Martin, Raytheon, Boeing, Northrop Grumman, and General Dynamics. Despite this, startups have successfully broken into this category by focusing on speed and efficiency.
• Cybersecurity- Another category that could be split into several, cybersecurity startups have had a lot of success catering to the Pentagon and other government agencies while also offering services for private companies. Many startups in the space use AI and ML technologies to help patch the cybersecurity workforce gap in government.
• Predictive Analytics- Software specific to battlefield usage, in real time. Needs to be built with extremely stringent security standards, have the ability to adapt to poor communication conditions, make life-or-death decisions, and be able to integrate with existing software stacks.
• Big Data Analysis- Software for organizing and gleaning insights out of big data, like the information gathered by intelligence agencies. For the government, there's a big need for this within the civilian intelligence agencies (CIA, NSA, etc.), as well as for groups that track financial information.
• Combat simulation and training- Startups in this narrow category are developing software used to improve the speed and efficacy of training soldiers on complicated weapons systems, like fighter jets, and nuclear submarines. Other players are creating advanced simulation systems to help generals conduct war games and war planning.
• Battlefield healthcare- Companies using both software and hardware solutions to coordinate care and save lives in intense battlefield conditions, far from a traditional hospital setting. Focus is often on trauma care.

Major Players

These are some of the biggest successes in DefenseTech today, and model what startups in this space look like. Each has secured contracts from different government agencies as well as millions in VC funding. In most cases, their founders approached the problem from the perspective of the government first, rather than developing technology for civilian use then working with the national security apparatus.

• Anduril- The biggest name in defensetech right now, Anduril works unabashedly with the U.S. government on surveillance hardware and drone technologies. For example, one of their recent projects is a drone named "Anvil" that flies around and hits other drones out of the sky. Founded in 2017 by Palmer Luckey (of Oculus fame) and a team of engineers from Palantir (also named after a Lord of the Rings reference), Anduril has contracts with a dozen agencies within the Department of Defense and the Department of Homeland Security, and even has contracts with the UK Royal Navy. This, as well as tens of millions in funding from big names like Founders Fund and a16z, propelled them to a 1B+ valuation as of 2020, crowning one of the few unicorns of the space. Co-founder Matt Grimm explains what allowed them to compete with the big incumbents:

  "Historically, defense technology has been purchased before it’s developed, with high-cost contracts paid out regardless of whether the product works. Instead, we sell our technology when it’s ready, and we only get paid when we deliver a working product. This gives us a strong and urgent incentive to innovate, and we wouldn’t have it any other way."

• Shield AI- **Founded in 2015 by a team of mostly Army and Navy veterans, including an ex-Navy SEAL, Shield AI builds AI software that integrates with unmanned battlefield systems to provide them with vastly improved computational abilities. With Shield AI, users can quickly gather valuable intelligence in areas that would otherwise require civilians and service members to risk their lives to obtain. Security compliance and achieving integration on older systems is often a major challenge defensetech startups face. Shield AI's innovative modular software architecture allows them to achieve compliance with a variety of different standards and integrate into any hardware product's existing software stack.