Due to the Ukraine War and US-China Tensions... US Silicon Valley Sees a Boom in Defense Industry Investment

US VC Invests $17 Billion in Defense Startups This Year
Ukraine War as a 'Game Changer'

Major investors in Silicon Valley, USA, have significantly increased their investments in defense industry technology startups. The importance of military technology has been highlighted due to concerns over conflicts arising from the Ukraine war and US-China tensions, drawing attention to advanced defense startups.

According to market research firm PitchBook on the 20th (local time), US venture capital (VC) has signed over 200 investment deals worth $17 billion with defense and aerospace industry-related startups from the beginning of this year through May.

Investment in defense startups surged from $16 billion in 2019 to $33 billion in 2022. The investment amount in the first quarter of this year alone reached a record high of $14.5 billion. At this pace, the annual investment amount this year is expected to easily surpass last year's level. This contrasts with reduced investments in other technology sectors except artificial intelligence (AI) due to the economic recession.

Until now, Silicon Valley VCs have avoided investing in defense startups. Funding military technology was considered taboo due to ethical concerns, and the conservative US Department of Defense preferred contracts with established companies, leaving little room for startups to enter. Additionally, the US public procurement contract system is known for its arduous process, often called the "death valley," from prototype development by startups to signing contracts with the government, which was also a problem.

However, the situation has changed as the US-China hegemonic war accelerates and the Ukraine war breaks out. Expectations are spreading in Silicon Valley that the military will sign procurement contracts with startups developing advanced defense systems. The US has set a defense budget of $886 billion for the 2024 fiscal year, more than 3% higher than this year. This is the largest ever and is aimed at China.

Mike Brown, partner at Shield Capital, said, "More and more VCs feel comfortable investing in startups that develop technology solely for military use," describing the atmosphere.

Defense startups signing procurement contracts with the US government are also emerging one after another. Anduril, a Los Angeles (LA)-based drone surveillance equipment developer, secured a $1 billion contract last year from the US Special Operations Command. It leads the development of an integrated system that identifies, tracks, and intercepts enemy drones.

In Silicon Valley, the Ukraine war is regarded as a "game changer." As advanced scientific technologies such as drones are deployed in actual combat, the US military has begun to take interest in commercial technology, leading to increased investment in defense startups. As a result, there are six defense unicorn companies with valuations exceeding $1 billion, including Shield AI, HawkEye 360, and Anduril.

Brandon Tseng, founder of Shield AI, a military drone startup integrating AI pilots with drones, said, "When we started the business in 2015, if we asked 30 people for investment, all of them rejected us, but now the situation has changed. Since Russia's invasion of Ukraine, suddenly everyone is watching us. There is no longer funding that forbids investment in defense startups." Teresa Carlson, advisor to Silicon Valley VC General Catalyst, emphasized, "We are at war, and this is reality. We now have to think about how to use technology in different ways."

This content was produced with the assistance of AI translation services.