April 17, 2025
The defense market is no longer just for government contractors—it’s becoming the launchpad for the next wave of venture-scale technologies.
In this article, you will learn:
- How defense has evolved into a trillion-dollar market ripe for venture investment
- Why government procurement isn’t the obstacle most VCs imagine
- Where to find the most promising opportunities across AI, biotech, and space technologies
Why Defense Now (A Trillion Dollar Market)
Health, wealth, and common sense are all things you must defend—and in today’s world, that’s more evident than ever. Geopolitical pressures from China, Ukraine, the Red Sea, and Taiwan reshape how nations project strength, protect assets and pursue stability.
Defense starts with diplomacy. When that fails, we see economic coercion—as with the April 2025 tariffs. And when that fails, violence.
But modern conflict isn’t just missiles and metal. It’s AI models, supply chains, biotech, and trust infrastructure. The future of warfare—and of resilience—is software-defined, sensor-enabled, and venture-backed.
For investors, this isn’t a niche category. It’s the next wave of general-purpose technology, with trillion-dollar upside and national security urgency.
This market map answers one core question:
Where do we invest to promote human flourishing—and– defend against the Terminator?
Government as Customer: Procurement 101
The U.S. defense budget exceeds $850 billion, with over $100 billion earmarked annually for tech-adjacent spending. DARPA, the Department of Defense’s R&D arm, operates on a budget of $4.3 billion, while HHS has allocated $20 billion over the next five years specifically for biodefense.
So how do startups break in? Here are three common onramps:
- Subcontracting: Partner with a prime or integrate into existing defense programs—especially effective for early-stage or dual-use companies. The best way to learn subcontracting is to become your DOGE (Defense Orientated Growth Engineer). Go to usaspending.gov and research potential customers who need your startup product.
- Agency-Led Programs: Leverage SBIR, STTR, DIU, AFWERX, or OTA pathways to get early funding and traction. In addition to reaching out directly to reps at these organizations you can use many AI writing tools to help you win grants, RFPs, and awards.
- Political Support: Congress is the “power of the purse” (read more here about their process). Build relationships with local representatives and defense-focused congressional staffers—especially if your product has a district impact. You can look for a relevant committee and congress person by clicking here.
Breaking into the government isn’t about hacking procurement—it’s about understanding the mission, building credibility, and aligning with long-term priorities.
Defense Investing – What Most VCs Get Wrong (and What Great Ones Get Right)
Many investors shy away from defense because they assume:
- One customer (the government) = concentrated risk
- “Defense tech” = slow-moving research projects
- Their portfolio companies could never sell to the government
But the great ones know where to look.
They back:
- Second-time founders who know how to commercialize complex technology
- Teams with government ties—especially veterans or former DoD engineers who speak the language
- Novel platforms with a clear dual-use pathway (e.g. defense-first, commercial-follow or vice versa)
Case Study: Seed Investing in Allen Control Systems
When we invested in Allen Control Systems, three things stood out:
- The founders had previously exited a robotics startup to DoorDash
- Two founders were former Navy nuclear engineers—with deep technical credibility with operational experience.
- Their robotic gun system had immediate military applications and commercial potential in the growing field of autonomous security and industrial robotics.
This wasn’t a defense-only bet—it was a wedge into one of the world’s hardest (and highest-leverage) markets.
Market Map – Where I see opportunities
Three Technologies Shaping the Future of Defense
Over the next decade, AI, bio/health, and space will be the most consequential technologies in reshaping how nations defend, deter, and deliver.
AI: The New Warfighter
Over $100 billion of the FY2025 U.S. Department of Defense budget is allocated annually to tech-adjacent categories—including AI, autonomy, and cybersecurity. And we’re now at multiple inflection points:
- Geopolitics of compute: The race to build and control data centers is no longer a commercial play—it’s a national security imperative. As of March 2025, the U.S. hosts approximately 5,426 data centers, the highest number globally. It’s an American imperative to stay in front of the competition, so much so that there are export controls on Nvidia to China.
- Foundational models for bureaucracy: AI is transforming procurement, compliance, and intelligence analysis. Paperwork isn’t just admin—it’s operational tempo.
- Autonomous systems: Drones, robotic sensors, and automated targeting systems are shifting the frontline from boots to bots. With China making a kamikaze drone a minute, it’s more important than ever to have robotic supply chains and counter unmanned systems.
Bio/Health: The Invisible Battlefield
Defense doesn’t stop at the border—it extends into the body. In FY2025, DARPA requested $169 million for biomedical research, a $65 million increase from 2023. At the same time, HHS earmarked $20 billion over five years for biodefense, including $965 million in FY2025 for IT and infrastructure upgrades across IHS, NIH, and CDC. These investments are designed to modernize aging systems and strengthen national resilience.
- The brain is next frontier: Currently in biomedical research the brain is the most complex battlefield—and the next high ground in defense innovation. Cognitive enhancement will shift human performance in warfighting, intelligence, and decision-making. Neuro-monitoring can detect fatigue, stress, or deception—turning soldiers into more adaptive, self-aware operators.Neural interfaces promise faster control over drones, exoskeletons, and battlefield robotics—moving from hands to thought.
- AI-powered genetic discovery: Speeding up vaccine development, anti-aging, and enhancement.
- Pandemic prevention: COVID was a warning shot. Pathogen defense is now a defense mission.
- Food as infrastructure: Keeping a population healthy, resilient, and metabolically prepared is both a public health and a military priority.
Space: The New High Ground
The global space economy is expected to nearly triple, growing from $630 billion in 2023 to $1.8 trillion by 2035. This is no longer the domain of government agencies alone—private capital is unlocking orbital infrastructure, autonomous logistics, satellite intelligence, and next-gen launch systems.
- Space travel and logistics: From ISR (intelligence, surveillance, reconnaissance) to resupply missions, space is operational.
- Communications: Secure, resilient satellite infrastructure underpins everything from targeting to troop coordination.
- Missiles & motors: Rocket tech isn’t just about getting off-planet—it’s about speed, reach, and deterrence here on Earth.
Conclusion: Why We’re Investing in Defense
Defense is no longer just a government silo—it’s the launchpad for the next wave of general-purpose technologies. AI, biotech, and space aren’t just national priorities—they’re massive venture-scale opportunities.
This is where foundational technologies are stress-tested, de-risked, and often accelerated. From autonomous systems and neural interfaces to biosecurity and resilient communications, the innovations that win in defense don’t stay in defense—they define the future of industry.
We’re not investing in war. We’re investing in resilience, infrastructure, and the technical edge of national security.
The best technologies of the last century came out of defense.
The best returns of the next one might, too.
This is why we’re here early—backing the founders building what the future will demand.
Programs List
AFWERX
AFWERX is the innovation arm of the U.S. Air Force and Space Force, designed to connect startups with Air Force needs through SBIR, STTR, and open innovation challenges. It helps commercial companies rapidly prototype and deploy solutions in defense contexts.
Army Futures Command (AFC)
Army Futures Command leads the modernization efforts of the U.S. Army by integrating emerging technologies into future force development. It partners with startups, research institutions, and defense innovators to accelerate capabilities in AI, robotics, autonomy, and more.
Defense Innovation Unit (DIU)
DIU accelerates the adoption of commercial technology across the U.S. military by funding pilot projects and helping non-traditional vendors win defense contracts. Its mission is to strengthen national security through rapid tech integration.
Other Transaction Authority (OTA)
OTA is a flexible contracting mechanism used by DoD agencies to fund research, prototyping, and production outside traditional federal acquisition rules. It’s often faster, more agile, and more startup-friendly than FAR-based contracts.
Small Business Innovation Research (SBIR)
A competitive program that encourages U.S.-based small businesses to engage in federal R&D with strong commercial potential. SBIR provides phased funding to help startups develop and scale emerging technologies for government use.
Small Business Technology Transfer (STTR)
Similar to SBIR, STTR funds early-stage R&D but requires collaboration between a small business and a U.S. nonprofit research institution. It’s designed to bridge the gap between basic science and commercialization.