Sizing up the boom in defense tech
Recent wars and rising tensions with China have highlighted the Pentagon's ongoing need to retool its arsenal with the latest technologies. VCs increasingly believe startups will play a meaningful role in these innovations.
VCs weren't always comfortable investing in defense tech. For years, the sector was plagued by double whammies: It was seen as a morally controversial investment, and the process of securing government contracts was too lengthy and uncertain to justify venture funding.
But this has changed in recent years. National security became a priority amid the technological arms race with China. Many startups in the sector have also found ways to generate revenue from commercial applications while waiting for their shot to sell their products to the lucrative military markets. Leaders like Anduril, Palantir and SpaceX have further boosted confidence with a roadmap to success in military applications and multibillion-dollar valuations.
As a result, investor interest surged in startups developing satellite imagery, artificial intelligence, space tech, cybersecurity and autonomous robotics and other defense tech. US-based companies in the category collected nearly $100 billion in VC funding from 2021 to now, a figure that's about 40% higher than what was invested in the seven prior years combined, according to PitchBook data.
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