Some of their new hires might indicate that is the direction we are heading.
First up, from Responsible Statecraft, December 5, 2023:
These shrewd billionaire investors are jumpstarting today’s rising stars in defense. In a risky business, peace is against their bottom line
As conflicts ignite around the world, dragging on in Ukraine while sparking off in the Middle East, venture capital is banking on defense.
Indeed, United States-based venture capital investment in defense start-ups has doubled in four years. Only investing about $16 billion in 2019, U.S.-based VCs went on to seal over 200 defense and aerospace deals worth nearly $17 billion in the first five months of 2023 alone. Meanwhile, VC giant Sequoia invested in its first defense group, Mach Industries, earlier this year.
Who are the defense VCs?
Through their collective efforts, prominent venture capital firms including billionaire Peter Thiel’s Founders Fund, Andreessen Horowitz (a16z), and Lux Capital are upstarts among today’s rising stars in the defense sector, including Anduril, Hadrian, and Rebellion Defense. And in the process, VCs accrue not only high investment returns, but also growing influence over U.S. foreign policy.Moreover, VC-backed groups in the defense space are giving established defense contractors like Lockheed Martin and RTX (formerly Raytheon) a run for their money. As Jamie Martin noted on BookForum four years ago, Founders Fund-backed Palantir had beaten out RTX to secure an $800 million army contract, and Elon Musk’s VC-powered SpaceX had been gobbling up satellite sector funds, forcing Boeing and Lockheed Martin to develop their own venture capital operations, Horizon X and Lockheed Martin Ventures respectively, to compete.
Fast forward to 2023 and VC’s domination of the defense space has crystallized in a conflict-mired era. Newcomer machine-parts startup Hadrian was founded only in 2020, but has already soared to the defense industry’s forefront, raising almost $100 million in funding as of late 2023,
Likewise, venture capital has buoyed defense newcomer Rebellion Defense’s rapid rise to prominence, with Rebellion raising $63 million in 2019 through the likes of former Google CEO Eric Schmidt’s new venture capital firm Innovation Endeavors, Founders Fund, and angel investor James Murdoch, son of FOX News Founder Rupert Murdoch. Schmidt, Murdoch, and In-Q-Tel (the CIA’s venture capital firm) Trustee Ted Schlein sit on Rebellion’s Board.
“It doesn’t seem to be that working for the Pentagon is a dirty word anymore,” explains William Hartung, a Senior Research Fellow at the Quincy Institute for Responsible Statecraft. “It seems like a lot of these startups are very much seeking that, and then the VC companies are facilitating it.”
Defense VCs thrive on conflictMastering the influence game
At its heart, venture capital is a risky form of private equity financing. Despite the hundreds of billions of dollars U.S.-based VCs invest each year, about 75% of venture capitalist backed start-ups fail.Success in venture capital, therefore, depends on heavy-handed risk-taking in the hopes of big returns from a few investments. In the defense sector, however, high returns comparable to other VC-frequented industries, like tech, are uncommon, rendering VC investing choices complex.
Ultimately, these coveted, yet elusive returns become more plausible in periods of tension and conflict, when governments — which VC-backed defense groups “depend” on for business-sustaining contracts — have a greater appetite for weaponry and adjacent tech.
In any case, defense-focused VCs are gaming this primary client in their favor: like the U.S. government-defense contractor revolving door’s advocacy for perpetual conflict, VCs are now becoming major Washington influencers while simultaneously jumpstarting defense’s newest and biggest names.In this respect, billionaire VCs like Peter Thiel and Eric Schmidt are conspicuous for involvement in both sides of government-defense sector relations. While Thiel says he won’t fund candidates in the 2024 race, he’s previously supported a slew of successful Republican congressional campaigns. And after stints as Chief Financial Officer for Thiel’s now-defunct Clarium Capital Management and Chief of Staff at Thiel Capital, Michael Kratsios took White House and Defense Department positions in the Trump administration, giving Thiel closer proximity to power.
Furthermore Rebellion investor Schmidt is a member of the Defense Innovation Board, which advises lawmakers and the Pentagon on tech policies and, as the American Prospect former managing editor Jonathan Guyer writes, is “allocating resources toward the exact technology Rebellion [is] selling.”
Rebellion Defense obtained U.S. Air Force contracts worth up to $950 million in 2020.
According to Guyer, the arrangement suggests “no firewall between Schmidt’s work for the government and the private sector.” Two Rebellion Defense employees also served on the Biden Administration’s Presidential transition team....
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Interesting, no? I like having names close to hand, it was one of the reasons for having a publicly searchable blog.
Whereas the old-school revolving door would spin a four-star out of the Pentagon into one of the major defense contractors, the better to provide insight into the needs of what is essentially a one-buyer/many-seller monopsony, the latest trend seems to focus even more on the needs of the sellers.
And from the New York Times, December 30:
The Pentagon Road to Venture Capital
Here is a list of people who have jumped from the Pentagon and other government posts into jobs with venture capitalists that are backing defense technology startups.
For decades, national security personnel have moved from jobs at the Pentagon to positions at major military contractors. More recently, a growing number of senior Pentagon officials are leaving to take positions at venture capital or private equity firms that invest in a new generation of Silicon Valley-style defense tech startups.
The New York Times has identified at least two dozen venture capital, government contractor financing or private equity firms that are run by or have hired former Pentagon officials or retired military officers, with most of the hires having taken place in the last five years. They have also hired people with national security experience at the White House or other agencies.
The roster of people who have cycled out of government positions and into venture capital firms that are backing defense-oriented startups numbers at least 50, The Times found.
In many cases, these former national security officials continue to regularly interact with top Defense Department officials they used to work with, and with members of Congress.
Here is a look at some of the players hired as executives or advisers at these firms, and the year they left government service, based on information from the firms or PitchBook, a venture capital industry database.
Red Cell Partners: Mark Esper, former secretary of defense (2020); Paul Selva, former vice chairman of the Joint Chiefs of Staff (2019); Yisroel Brumer, former deputy director, cost assessment and program evaluation, Defense Department (2020); Raquel Cruz Bono, retired vice admiral (2019); William Lescher, retired admiral, former vice chief naval operations (2022); Gustave Perna, former commanding general of United States Army Materiel Command (2021). Defense-related investments: Defcon AI (military software), Epirus (counterdrone), Red 6 (military training), Reveal AI (intelligence gathering for frontline troops).
Scout Ventures: Ryan McCarthy, former Army secretary (2021). Defense-related investments: Tomahawk Robotics (robotics and automation), Voyager Space (space stations), Lonestar (aerospace software), Deepsig (A.I. wireless communications).
Shield Capital: Raj Shah, former managing partner, Defense Innovation Unit, Air Force F-16 pilot (2018); Michael Brown, former director, Defense Innovation Unit (2022); Sean Stackley, former assistant secretary of the Navy (2017); Letitia Long, former director, National Geospatial-Intelligence Agency (2014); H.R. McMaster, retired Army lieutenant general, former White House national security adviser (2018); Sumit Agarwal, former Air National Guard and deputy assistant secretary of defense (2015); David Rothzeid, Air Force reservist and former Air Force acquisitions executive (2021); Lisa Hill, former Defense Innovation Unit, U.S. Africa Command (2018). Defense-related investments: Elroy Air (autonomous cargo delivery), Rebellion Defense (mission management software), HawkEye 360 (satellite company), Vannevar Labs (defense software), Apex (spacecraft), Rangeview (robotics and data processing), Air Space Intelligence (military air traffic management), Albedo (space imagery), Overwatch Imaging (geospatial intelligence).
US Innovative Technology Fund: James Geurts, former assistant secretary of the Navy for research, development and acquisition, also acquisitions executive at Special Operations Command (2021); Hugh Wyman Howard III, retired rear admiral, former commanding officer of Naval Special Warfare Command (2022); Ryan McCarthy, former secretary of the Army (2021); Richard Spencer, former secretary of the Navy (2019). Sally Donnelly, former aide (2018) to former Defense Secretary James N. Mattis, serves as adviser to Thomas Tull, the founder of Innovative Technology Fund. Defense-related investments: Gecko Robotics (automated maintenance assessments), Saronic Technologies (autonomous naval vessels), Primer (A.I. software), Capella Space (satellites), Shield AI (A.I. pilot), Anduril (defense software/autonomous vehicles).....
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Now you assign your bright young researchers to see if there are any dual-use technologies that you can make a bucko or two from in the non-defense world and you are off into high-concept and/or deeptech moneymaking.
As I've said over the years, we like journalists, we get some of our best ideas from them.
