- Arsenal of Tomorrow
- A Quick Rollup of YTD 2023 VC Investment
A Quick Rollup of YTD 2023 VC Investment
(And we do mean quick)
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.
Financial Times and PitchBook Data as of June 15, 2023
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)
Colossal Laboratories & Biosciences, $150M - biotech - 1/31 (Link)
Q-CTRL, $52.4M - quantum - 1/30 (PitchBook)
Paragraf, $51.65M - graphene (materials) - 4/18 (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…
The Term Sheet
A rollup of defense industry mergers, acquisitions, capital raises and notable contract wins
Notable M&A or Investments
NewSpring Holdings acquired Bridge Core, a provider of visual intelligence, cybersecurity, and other technical solutions to the U.S. govt and intelligence communities - 7/26 (Link)
RSC2 acquired Navigant Systems, a provider of C5ISR platforms, in order to add offerings - 7/25 (Link)
Inpixon acquired XTI Aircraft Company, a developer of the TriFan600, a fixed-wing, vertical takeoff and landing (VTOL) aircraft - 7/25 (Link)
Thales acquired Imperva, a provider of cybersecurity solutions and applications, for $3.6Bn at 17.0x EBITDA - 7/25 (Link)
Bridger Aerospace acquires Bighorn Airways, a specialty aviation company with a fleet of 12 aircraft that are used for wildfire smoke jumping and DoD logistic deliveries, for $39M - 7/24 (Link)
Ampaire acquired Talyn Air, a developer of electric vertical takeoff and landing (eVTOL) aircraft systems - 7/20 (Link)
Notable Contract Wins and Opportunities
Dynetics was awarded a repeat prototype hypersonic missile contract for $428.2M. The contract covers the development of Common-Hypersonic Glide Body (C-HGB) prototypes - 7/26 (Link)
Perpetua Resources receives $24.8M in DoD funding for Stibnite Gold Project - 7/26 (Link)
DARPA kicks off design, fabrication for DRACO Experimental Nuclear Thermal Rocket Vehicle - 7/26 (Link)
Lockheed Martin awarded contract for nuclear-powered spacecraft - 7/26 (Link)
BAE Systems awarded $15M Navy contract for digital interrogator for maritime vessels - 7/26 (Link)
Redwire awarded $12.9M NASA contract to develop trailblazing systems to build landing pads, roads and other forms of infrastructure on the moon - 7/25 (Link)
SAIC awarded a $91M US Navy contract to support NAVAIR V-22 Logistics Information Technology Product Line (LOG-IT) - 7/25 (Link)
ASRC Federal awarded $90M contract for NIEHS data management and reporting - 7/25 (Link)
HII awarded $528M contract for aircraft carrier maintenance in San Diego - 7/24 (Link)
Teledyne FLIR Defense awarded $94M IDIQ contract from US Army for Black Hornet 3 Nano-Drones - 7/24 (Link)
DoD established Assistant Secretaries of Defense in the Office of the Under Secretary for Research and Engineering - 7/24 (Link)
Notable Capital Raises
Horizon3.ai, a cybersecurity automation platform, raised $38M from undisclosed investors - 7/31 (PitchBook)
Astrobotic, developer of space robotic technology, received $34.6M in grant funding from NASA - 7/26 (Link)
Blue Origin received $35M in grants from NASA to process silicon from lunar regolith - 7/25 (Link)
Red Team Update
Andersen AFB, Guam
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)
From: WSJ, American Security Project, National Snow and Ice Data Center, NGIA
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
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.