The convergence of Silicon Valley and the Pentagon is becoming increasingly evident as venture capitalists invest in defense tech startups and recruit veterans and ex-Department of Defense officials. This shift in hiring strategy provides these firms with a distinct advantage, as these individuals possess firsthand knowledge of the challenges faced on the battlefield, rather than relying solely on theoretical concepts developed in Silicon Valley. Matt Shortal, an ex-fighter jet pilot, now serves as the chief of staff at Andreessen Horowitz, while Tony Thomas, former head of U.S. Special Operations Command, has joined Lux Capital as an advisor. Raj Shah, managing partner at Shield Capital, brings his experience from the Air Force to his role at the firm.
The decision to hire ex-military personnel aligns with the ongoing trend of increased investment in defense tech. In 2023 alone, Silicon Valley injected nearly $35 billion into defense tech startups, with over $9 billion invested thus far this year. Notable fundraises include Shield AI’s $500 million raise for their AI-powered drone pilot system and Anduril’s recent infusion of $1.5 billion in funding. Despite a slight decrease in funding this year, the defense tech sector has shown resilience amidst a challenging overall fundraising landscape.
However, it is important to acknowledge the obstacles faced by startups in the defense sector. The Department of Defense acquisition process is often slow and cumbersome, with startups sometimes waiting years to secure a contract. This delay can strain their finances and leave them with little to show investors. Venture firms that have connections to ex-military personnel can offer startups a significant advantage in securing deals. The network of these individuals allows them to connect with program officers responsible for specific military budgets, as the military operates within a highly network-driven environment.
For ex-military personnel, joining the defense tech industry offers a lucrative second career that combines their expertise with cutting-edge technology. In the past, these individuals may have pursued executive roles at traditional defense contractors like Lockheed Martin, which were perceived as less exciting. However, the landscape has shifted, and defense tech now offers an opportunity to work with innovative companies.
Despite the attractiveness of the defense tech sector, there is a limited number of exits available. Apart from Palantir’s public offering in 2020 and Anduril’s recent acquisitions, there have been few notable exits. The current IPO market is not conducive to tech companies, and PitchBook’s Ali Javaheri predicts that acquisitions by existing defense contractors are more likely outcomes for these startups. As a result, venture capitalists should consider their investments as potential acquisition targets.
Nonetheless, the defense tech hype continues to thrive for now, allowing veterans and Department of Defense officials to transition into well-funded careers. This trend is reminiscent of Silicon Valley’s historical roots, as the region’s tech industry emerged from the intersection of university research and defense spending. San Francisco’s Presidio area now hosts numerous VC offices, including Founders Fund, which supports defense tech startups. Javaheri suggests that Silicon Valley has returned to its origins, collaborating closely with the Pentagon in an increasingly competitive geopolitical landscape.
