As the war with Iran stretched past 106 days and artificial intelligence (AI) and unmanned weapons proved their reliability and efficiency, venture capital (VC) money around the world is pouring into the defense technology market. VCs are investors who provide early capital to startups with strong growth potential and take profits when the company's valuation rises.
According to the Financial Times (FT) of the U.K. and global market research firm PitchBook on the 22nd (local time), defense technology startups worldwide have raised $12.3 billion (about 18.8 trillion won) from VCs so far this year. That is nearly double the same period last year. They surpassed the full-year total investment of $9.95 billion in less than half a year.
Until now, the leading players in the defense industry were large hardware corporations such as Lockheed Martin and Boeing that make fighter jets and missiles. Investment also flowed to them. But as the war in Ukraine and conflict in the Middle East dragged on, demand exploded for weapons that can be produced cheaply, quickly, and at scale. These include unmanned aerial vehicles (drones), Autonomous Driving surface vessels, and battlefield AI. They are so-called "asymmetric weapons" that inflict heavy damage on the adversary at low expense. As Silicon Valley-style software and autonomous weapons proved their capabilities on the battlefields of Ukraine and the Middle East, money moved quickly toward software.
The United States is also showing overwhelming dominance in defense technology investment. PitchBook data show that U.S. startups captured $11.4 billion, or 93%, of the $12.3 billion in total defense technology investment in the first half of this year. Nearly half of that went to Anduril Industries. Known for designing drones and tower-based surveillance systems, Anduril Industries was founded in 2017 by Palmer Luckey, who created the Oculus Virtual Reality (VR) device. The company raised an additional $5 billion just last month, nearly doubling its valuation in a year to $61 billion. The investor list includes Thrive Capital, which led investment in OpenAI, and Andreessen Horowitz, one of the world's largest VCs.
Anduril is a corporations with strength not in finished goods weapons but in software design that powers weapons. Based on an AI platform called "Lattice," it supplies unmanned drones, Autonomous Driving submarines, and intercept systems to the U.S. military and allied nations. In March, the U.S. Army signed a consolidated 10-year contract worth up to $20 billion with Anduril to build weapon systems to counter drone threats. It is viewed as a mega-contract bundling 120 procurement processes into one. Last month, it also signed an agreement to supply at least 3,000 units over three years of the low-cost cruise missile "Barracuda-500M," which is launched from a container. Anduril said, "This missile can be assembled in 30 hours with about 10 tools, and 70% of its parts are available off the shelf," adding, "It is a completely different weapon from existing missiles that are expensive and hard to make."
In the United States, beyond Anduril, autonomous surface vessel specialist corporations Saronic Technologies and drone maker Shield AI have also secured large funding rounds. Saronic unveiled the unmanned surface vessel "Marauder," which conducts reconnaissance and operations via Autonomous Driving. The corporations plans to complete "Port Alpha," a next-generation shipyard capable of operating unmanned surface vessels, by the end of this year. Saronic revealed a goal to asymmetrically boost maritime military power by securing military technology that enables long-duration sea operations without people onboard.
Europe, which has faced off against Russia for years, is also increasing investment in defense technology corporations. European defense startups have secured $460 million (about 710 billion won) in funding this year. Including major deals now under negotiation, the final year-end total is likely to far exceed that, FT reported.
A leading player among European defense startups is Germany's Helsing, backed by Spotify founder Daniel Ek. The corporations currently holds a valuation of $18 billion (about 27.7 trillion won) and has already raised $1.2 billion. Helsing makes software that fuses sensor-collected data with AI to analyze battlefield conditions in real time and assist autonomous strikes. It has agreed to supply an additional 6,000 units of the HX-2 loitering munition drone, with a 100-kilometer range, to Ukraine, and is operating its first factory in southern Germany that produces more than 1,000 units a month. In February, the German parliament initially allocated 269 million euros (about 470 billion won) for HX-2 procurement, giving Helsing a boost. The contract could grow more than fivefold over the next seven years to as much as 1.46 billion euros. Another German startup making loitering munitions, Starck, is valued at 2.5 billion euros (about 4.37 trillion won) and is negotiating to raise at least 300 million euros.
The front line has expanded into space and the sea. Technology that uses satellites to grasp battlefield information in real time has emerged as a key defense asset through the war with Iran. ICEYE, a Finnish satellite manufacturer leading with synthetic aperture radar (SAR) satellite technology, raised 1 billion euros this month. SAR is an ultra-precise radar that analyzes distance and terrain by assessing tiny time differences when radar waves are fired at land and sea. ICEYE's valuation is currently estimated at around 10 billion euros. It quadrupled in just six months from its fundraising in December last year. At sea, U.K. startup Kraken Technology, after being selected to supply the Royal Navy's autonomous minehunting boats for deployment in the Strait of Hormuz, is pursuing a $100 million raise at a $1 billion valuation.
Daniel Rudnicki Schlumberger, head of security and resilience for Europe, the Middle East, and Asia at JPMorgan, said, "We are witnessing the most important change in the history of how wars are waged," adding, "As investors realized there is long-term demand in this institutional sector, valuations have risen steeply." In particular, Europe is likely to continue investing in defense startups after the war in Ukraine under the banner of boosting national defense capabilities. Mikolaj Firlej, a partner at Expeditions, one of Europe's largest defense VCs, told the FT, "If early investment focused on rebuilding Europe's arsenals, now the emphasis is on securing the supply chain from the front line down to the smallest chip," adding, "In every area—sensors, electronic warfare, advanced AI models—Europe must stand on its own."