A Quick Rollup of YTD 2023 VC Investment

In the spirit of our fast and furious VC investment rollup for YTD 2023, we’re diving straight into this week!

This week’s post:

• 💸💰 Tracking the Surge in Venture Capital Investment

• 🤝 Term Sheet

• 🚩 Red Team Update

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Tracking the Surge in Venture Capital Investment

You only have to read our Red Team Updates each week to understand that there is an urgency in the US government due to war in Ukraine and increasing tensions with China. The defense sector continues to be a hotbed for venture capital investment - these geopolitical events impel us to develop cutting-edge technology with a large national defense budget. Despite its history working with DoD, Silicon Valley has recently tended to shy away from defense technology, spooked by association with controversial overseas conflicts and wary of the Pentagon’s notoriously slow and risk-averse procurement process. However, since 2019, there's been a noticeable surge in venture capital investment in defense.

In just the first five months of 2023, US venture capitalists closed over 200 defense and aerospace deals worth nearly $17bn — more than the sector raised during the entirety of 2019, according to data from PitchBook.

The motivations for the surge in venture funding were nicely caputred last year by Lux Capital’s Josh Wolfe:

• Increased geopolitical tensions: see Red Team Update each week!

• Growing confidence in government contracts: the belief that startups are poised to secure a significant share of the US’ defense budget

• Role of emerging technologies: Cutting-edge tech is shaping new tactics and strategy

• Asymmetrical warfare: cheap and effective off-the-shelf technologies as demonstrated by friend and foe alike is forcing the US to invest and keep pace

The impact of this funding has led to defense tech unicorns such as ShieldAI, HawkEye 360, Anduril, Rebellion Defense, Palantir, Epirus - some names which have grown large enough to spill outside niche defense tech circles.

While this private investment from venture firms, hasn’t fixed the DoD procurement processes, it’s a positive sign that American economic dynamism is helping to keep our nation’s defense on firm footings.

With that in mind, let’s recap YTD 2023 and see where some of that nearly $17bn went - and who spent it. We’re fortunate to have a diverse readership representing diverse roles within defense tech. So we hope it’s a nice high-level rollup for the entrepreneurs, practitioners, and government - and maybe a reminder of some top deals for our VCs and investors.

Who are the major VCs investing in defense and what have they invested in 1H 2023?

First, some disclaimers:

• The deal sizes can be misleading when viewed by VC firm. For instance, the a16z SpaceX investment was a total raise of $750M, not $750M from a16z alone.

• We chose the top three largest deals since 1 Jan, but given first the disclaimer, these rankings aren’t holy writ. Not to mention the fact that we tried to constrain the investments to dual-use tech, so sometimes a firm invested in bigger deals but maybe those were in consumer tech, for instance.

Even still, we think it’s interesting to consider how some of the big players have invested in various defense tech verticals.

Andreessen Horowitz (a16z)

1. SpaceX, $750M - space - 1/3 (Link)

2. OpenAI, $300M - AI - 4/29 (Link)

3. Skydio, $230M - UAS - 2/27 (Link)

Decisive Point

1. SCOUT Space, $undisclosed - space - 6/21 (Link)

2. Radiant, $40.72M - nuclear reactor we covered here- 4/18 (PitchBook)

3. Asylon, $2.2M - UAS - 3/24 (Pitchbook)

Founders Fund

1. OpenAI, $300M - AI - 4/29 (Link)

2. NewLimit, $60M - biotech - 5/16 (Link)

3. Impulse Space, $45M - space - 7/24 (Link)

General Catalyst

1. Adept, $350M - AI - 2/23 (Link)

2. ArriVent Biopharma, $155M - biotech - 3/21 (Link)

3. Vannevar Labs, $75M - AI - 1/18 (Link)

In-Q-Tel

1. Colossal Laboratories & Biosciences, $150M - biotech - 1/31 (Link)

2. Q-CTRL, $52.4M - quantum - 1/30 (PitchBook)

3. Paragraf, $51.65M - graphene (materials) - 4/18 (PitchBook)

Khosla Ventures

1. OpenAI, $300M - AI - 4/29 (PitchBook)

2. Cobot, $30M - robotics - 7/26 (Link)

3. Mojo Vision, $22.4M - micro-LED (wearables) - 4/5 (Link)

Lux Capital

1. Aera Therapeutics, $193M - biotech - 2/16 (Link)

2. Enveda Biosciences, $119M - biotech - 4/20 (PitchBook)

3. Impulse Space, $45M - space - 7/24 (Link)

Point72

1. Vannevar Labs, $75M - AI - 1/18 (Link)

2. EliseAI, $35M - AI - 5/23 (Link)

3. Prospective, $6M - data visualization - 7/18 (Link)

Promus Ventures

1. The Exploration Company, $42.41M - space - 1/2 (Link)

2. Fernride, $33.36M - autonomy - 6/13 (Link)

3. Chef Robotics, $8M - robotics - 3/19 (PitchBook)

Sequoia Capital

1. OpenAI, $300M - AI - 4/29 (Link)

2. AMP Robotics, $99M - robotics - 5/9 (PitchBook)

3. Graphiant, $65.5M - networking - 3/28 (Link)

Shield Capital

1. Vannevar Labs, $75M - AI - 1/18 (Link)

2. Unstructured,$29.92M - AI - 6/21 (Link)

3. Apex Space, $16M - space - 6/22 (Link)

Space Capital

1. Impulse Space, $45M - space - 7/24 (Link)

2. Tilebox, $1.7M - space (cloud platform) - 8/1 (Link)

3. Pano AI, $1.5M - AI - 4/20 (PitchBook)

Not a survey that would stand up to scientific scrutiny, but as they say: “good enough for government work.” Interesting how many deals were in space and AI (and to a lesser extent, biotech).

If you’re building the next hardware generation of flux capacitors, maybe you should pivot to AI. Or send them into orbit at least…

Red Team Update

US Hunts Chinese Malware That Could Disrupt American Military Operations

• The New York Times published an article over the weekend covering the warning from American Intelligence Officials that malware could give China the power to disrupt or slow American deployments or resupply operations, including during a Chinese invasion of Taiwan

• Key Points: The malware was planted by China within critical US infrastructure networks controlling power grids, communication systems, and water supplies, including those serving military bases

• The malware could give China the ability to cutoff power, water and communications to American military bases and possibly impact civilian infrastructure

• China has denied engaging in hacking activities and accused the U.S. of being a larger offender in cyberattacks (which is classic deny, deny, counter-accuse tactics)

America’s Military Trails Russia and China in Race for the Melting Artic

• The Arctic's strategic value is growing as sea ice melts and new shipping routes open between Asia and Europe. The Northern Sea Route, claimed by Russia, has become a key trade route for transporting liquefied natural gas from Russia to China. Both Russia and China view the Arctic as crucial to their strategic interests and are investing in ice-hardened ships and military bases in the region

• Russia and China have been increasing their military and research activities in the Arctic region. Russian warships and Chinese research vessels are becoming more active in Arctic waters. Russia's Northern Fleet, which includes nuclear-armed submarines, is gaining strategic importance, and more Russian-flagged commercial and government vessels are operating in the area. Meanwhile, China is sharing satellite and electronic intelligence from the region with Moscow

• Arctic Cooperation and Rivalries: The Arctic is becoming a contested territory, reminiscent of great-power rivalries seen in other regions. Russia and China have formed a partnership in the Arctic, heightening tensions with the U.S. and its NATO allies. While China plays a supporting role to Russia in the Arctic for now, it is seeking to expand its military presence in the region. The U.S. is also closely monitoring China's intelligence-gathering activities near its shores and the Arctic

About Us

Our team has 30+ years of combined experience as military officers using the end products. We’ve worked in both government and industry. From MIT to Wharton, Wall Street to biotech, and DARPA to the flightline, we offer you a unique perspective on how to navigate America’s defense tech industry.

The opinions expressed in this newsletter are solely those of the authors and do not necessarily reflect the views of DoD, our employers or any affiliated organization. This newsletter is for informational purposes only and is not intended to provide legal, financial or professional advice.