Over the last several weeks many of you have seen the WSJ article, published at the end of January, that gave a bleak outlook on the Defense Tech VC space due to lack of action by the Pentagon.
Investors Are Betting on Defense Startups. The Pentagon Isn’t: In the last several years, Defense Tech investing has become a very popular industry for VCs to pursue. In the last three years, Venture Capitalists have invested over $100 billion into Defense Tech startups. This investment was spurred by the Pentagons interest in modernizing military technology however, the process for these startups to sell to the Pentagon remains extremely challenging with only a small number of startups receiving significant government orders. The bureaucratic hurdles that startups have to jump through combined with the Pentagons unwillingness to invest in un-proven technologies make building a successful Defense Tech company an uphill battle.
This stance will surely cause VCs to hesitate and eventually avoid investing in Defense Tech startups. Once the money dries up, growth in Defense Tech will grind to a halt and the Pentagon will be forced to live with its process of taking so long to implement new technology, that by the time it does, the tech is already outdated. This issue becomes more and more acute as the pace of innovation continues to increase. Something must change and soon, our adversaries will be able to field a more technologically advanced fighting force.
The Pentagon is addicted to its procurement process, here is our six-step rehab program:
Increase Funding: Allocate a larger portion of the $411 billion defense budget for contracts with startups, this will demonstrate a commitment to fostering innovation and supporting emerging technologies.
Streamline the Procurement Process: Simplify and expedite the bureaucratic procedures for startups to compete for contracts, scale back the red tape and administrative burden until they reach a certain level of growth.
Establish Dedicated Programs: While DIU and Replicator are great starts, the Pentagon must continue to collaborate with startups and provide them with opportunities to showcase their technology, interact with military leaders and procurement officers and receive funding.
Facilitate Technology Integration: Provide support and resources to help startups integrate their technologies into existing defense systems and infrastructure to ensure compatibility and interoperability.
Flexible Contract Terms: To accommodate financial constraints and development, offer flexible contract terms like phased payments or milestone-based funding to support startups as they scale.
Collaborate on R&D: Establish partnerships between startups and military research institutions to jointly explore and develop cutting-edge technologies.
Over the next several episodes we will lay out the details of our 6-step program.
If you know any Defense Tech/Dual Use startups we should interview, please reply to this email and let us know!
Recent Fundings:
Albedo: a four-year-old startup that offers aerial quality imagery from outer space, enabled by its constellation of very low earth orbit (VLEO) satellites raised a $35M Series A1 led by Booz Allen Ventures, Shield Capital, Breakthrough Energy Ventures, Republic Capital, Cubit Capital, and others. BusinessWire has more here.
Aldoria: a seven-year-old startup that provides space situational awareness, enabling users to track satellites and space debris along with collision risk raised a $11M Series A led by Starquest Capital, Expansion Ventures, European Innovation Council Fund and others. SpaceNews has more here.
Cyber Sainik: a three-year-old startup that leverages AI/ML to provide cybersecurity services intended to rapidly detect and repair cyber threats raised a $6.35M Seed.
GYFT Labs: a five-year-old startup that developed an emergency power solution using sustainable technologies intended to be used by first responders, the military and humanitarian agencies when responding to natural disasters, or conflict raised a $4.5M round.
Lightbeam.AI: a four-year-old startup that operates a data security and privacy platform intended to allow clients to integrate with data sources across industries and produce actionable data insights raised a $17.8M Series A led by Vertex Ventures, Dropbox Ventures, 8VC and others. SiliconAngle has more here.
Lyten: a ten-year-old developer and manufacturer of lithium-sulfur batteries designed to be used in the automotive, aerospace and defense industries was awarded a $4M Grant from the Department of Energy. Design and Development Today has more here.
Manetu: a five-year-old startup that uses cryptographic, biometric and machine learning mechanisms to authenticate customer identities raised an $814k round.
Nano Nuclear Energy: a three-year-old startup that develops microreactor technology designed to provide their clients with economical, efficient and safe nuclear energy raised a $2.17M round.
Quindar: a two-year-old startup that provides satellite mission management, testing facilities, schedule and orbit optimization and collision avoidance services to monitor, track and operate satellites throughout their lifecycle raised a $6M Seed led by Fuse and existing investors Y Combinator and Founders Fund. SpaceNews has more here.
Reken: a one-year-old startup that built a cybersecurity platform using AI products to protect against generative AI threats will enable users to identify malicious content raised a $10M Seed led by Greycroft, FPV Ventures, Firebolt Ventures and others. SecurityWeek has more here.
Silent Arrow: a twelve-year-old startup that designed and manufactures autonomous cargo drones and aerospace vehicles (gliders) designed to deliver critically needed supplies and equipment anywhere in the world raised a $600k round.