VC Investing in Defense Tech Continues Under Trump, Though Some Doubt the Hype Matches Reality
Venture capitalists are actively supporting defense technology as the Trump administration enacts policies to revamp defense acquisitions and modernize the military with advanced technologies. Over the past two years, investor momentum in defense technology has grown, with VC investments in defense-related companies surging in 2024 by 33% year-over-year to $31 billion. The first quarter of 2025 has already seen a significant increase, with 27 venture-backed defense tech deals totaling $1.4 billion, compared to 12 deals amounting to $200 million in the same period last year, according to PitchBook data.
Significant recent deals include maritime startup Saronic Technologies raising $600 million in a Series C round at a $4 billion valuation led by solo-capitalist Elad Gil, drone company Epirus securing $250 million in a Series D round led by 8VC and Washington Harbour Partners, and Shield AI raising $240 million at an over $5 billion valuation led by L3 Harris and Hanwha Aerospace. Early-stage rounds are also progressing well; military systems company Castelion Corporation raised $70 million in a Series A round led by Lightspeed Ventures Partners.
Investors who missed initial funding opportunities are now aggressively bidding on the secondary market, particularly for shares of defense tech firm Anduril. However, some VCs have expressed concerns regarding Trump's tariffs, which are increasing hardware startup costs and complicating cash deployment. Yet for some start-ups, the necessity of re-onshoring manufacturing is a goldmine of opportunity.
VCs are hopeful that the Trump administration will introduce innovations in the Pentagon itself and take efforts to accelerate contracting, streamline the federal procurement process, and collaborate with nontraditional defense companies. Growing public-private partnerships will also hopefully reduce barriers for startups aiming to work with government customers. Such policies are expected to further boost capital flow into the sector.
Over the past couple of years, the enthusiasm surrounding Defense Tech’s boom has attracted the interest of broader generalist investors. Some “established” defense tech investors claim that this is likely to inflate valuations and negatively impact the sector. Furthermore, generalist investors may lead to numerous defense startups failing to achieve meaningful scale, creating a market flooded with underperforming companies.
The rise of Defense Tech has laid bare the too often contradictory mandates of supporting essential national security technologies, while also meeting investors’ expectations for returns. Some VC’s have sought to capitalize on what they view as the latest trend, fundamentally ignoring the sector’s essential role. Recently, some of the most successful names in venture capital, have drawn scrutiny over their significant financing of Chinese technology start-ups with potential military applications. Russia’s invasion of Ukraine, conflict in the Middle East, and the rising threat posed by China has brought an end to the idea that tech investing is inherently global.
Despite the growing interest in Defense Tech, only a core group of VC funds focus solely on the sector, although this number may increase as more investors raise money from limited partners. While deal competition remains manageable, it is expected to intensify soon, with institutional LPs favoring large, established funds. Given the tariff impact and rising competition, investors are proceeding carefully. What is certain is that while the defense tech space is having a moment, it will not, as some investors claim, “reach maturity” over the next year. The very nature of defense tech’s purpose and its dual-use application will ensure the sector's long-term viability and resilience.
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