Published: 16:54, June 22, 2023 | Updated: 16:54, June 22, 2023
Silicon Valley venturing into battlefield technology
By Heng Weili

NEW YORK – The names of the major US defense contractors are well known, from Raytheon and Lockheed Martin, to Northrup Grumman and General Dynamics. Now a new wave of defense contractors is emerging, this time out of Silicon Valley.

The defense tech market is expected to swell to $184 billion by 2027, driven by the US government's growing demand for innovative technologies to meet its national security goals, according to research from Pitch-Book, a database for global capital markets.

In 2022, venture capital firms invested $34.3 billion in defense technology startups, twice the amount of investment in 2019, Pitch-Book data showed.

The New York Times identified at least 30 new products manufactured by mostly small tech start-ups in the United States that have been used on the front lines in Ukraine in its military conflict with Russia or by allies.

In the past, Silicon Valley investors had been reluctant to invest in defense technology, due to profitability and reputation concerns over how the technology would be used, along with the daunting challenge of dealing with the Pentagon bureaucracy.

According to interviews by the Financial Times with more than 15 investors and founders, that former wariness in Silicon Valley has given way to a notion that start-ups are lining up to grab a significant chunk of the US' massive defense budget, which will reach a record $886 billion in 2024.

Large venture capital firms such as Andreessen Horowitz and Sequoia Capital have begun to invest in companies that build defense products as well as, for the first time, "kinetic "weapons systems, a military term for warfare including lethal force.

There is a major modernization effort underway to advance the US defense technology and build a new generation of military systems.

Shaun Maguire, Partner, Sequoia

"We are seeing more VCs saying they are comfortable investing in start-ups doing … tech that can have a kinetic effect used purely for the military," Mike Brown, a partner at Shield Capital in San Francisco and the former director of the defense innovation unit at the Pentagon, told the FT.

Defense start-up Mach Industries has raised $5.7 million in a seed funding round led by Sequoia, the first defense tech investment in the VC giant's history, according to the two companies.

Sequoia's funding of a technology that aims to use hydrogen creation on the battlefield is a sign of the latest interest from Silicon Valley investors in backing defense technologies and working with the US Department of Defense.

"There is a major modernization effort underway to advance the US defense technology and build a new generation of military systems," Shaun Maguire, a partner at Sequoia who co-led the deal with partner Stephanie Zhan, told Reuters.

Founded in 2022 by Ethan Thornton, a Massachusetts Institute of Technology dropout and Thiel Fellow, Mach Industries is working to create a weapons system that uses the chemical reaction of oxygen and hydrogen to fuel unmanned aerial vehicles and other aerial devices, Reuters reported.

Mach, headquartered in Austin, Texas, said the funding will be used for product development, hiring and expanding facilities.

Sequoia, which just announced it has cut ties with its China and India investment franchise to focus on tech start-ups in the US and Europe, is looking to support founders who are working on wider defense applications, Reuters reported.

"The future of defense technology will be shaped by many of the advancements we're seeing today in artificial intelligence, autonomous systems and space-based capabilities, among other areas," Maguire said.

"The appetite has changed significantly since we started in 2015," Brandon Tseng, co-founder and president of ShieldAI, a start-up valued at $2.7 billion that makes artificial intelligence-powered fighter pilots and drones, told the FT. "That year we pitched to 30 seed investors and got 30 'no's'". After the Russia-Ukraine conflict, "suddenly everyone is taking a look. The funds who thought it was taboo no longer do."

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