The Silicon Valley venture capitalists who want to ‘move fast and break things’ in the defence industry

Elke Schwarz

I’m a propagandist, I’ll twist the truth, I’ll put forward only my version of it if I think that’s going to propagandise people to believe what I need them to believe. This is not a soundbite from a particularly ebullient moment in the hit television show Mad Men. These words were uttered by Palmer Luckey, the CEO of Silicon Valley’s hottest military technology startup. Luckey’s company, Anduril Industries, specialises in artificial intelligence-enabled systems, including autonomous weapon systems. With a valuation of US$14 billion, Anduril is one of the darlings of the defence startup scene and its newly emerging venture capital (VC) ecosystem where big promises, big bets and a tendency toward propaganda are a staple necessary for success.

The integration of artificial intelligence (AI) into defence programmes, let alone weapon systems, remains controversial. The UK Artificial Intelligence in Weapon Systems Committee has urged caution over procurement processes for AI-enabled weapons, yet – as is so often the case when it comes to Silicon Valley products – the development, procurement and roll out of AI defence programmes has sharply accelerated in recent years.

Founded only in 2017, Anduril has already been awarded multiple multi-million dollar contracts by the US Department of Defense (DoD), as well as the UK Ministry of Defence (MoD). Against the background of the ongoing Russia-Ukraine war, the war in Gaza and rising global tension, this may not seem a surprising development.

In my latest research on military AI, I identified that one of the key drivers of the accelerated procurement of military startup products, such as autonomous drones and other AI-enabled systems, is the influx of enormous sums of venture capital money and influence. These venture capital companies need defence organisations to adopt the technology industry’s ethos of speed and scale and the venture capital world’s appetite for risk and revolution. This makes these firms not only financial players but also political ones.

My research, published in Finance and Society, suggests that this trend toward shaping defence in the image of Silicon Valley, motivated by venture capital interests, is likely to become more pronounced and widespread. With this in mind, it’s worth looking more closely at the dynamics in play when venture capital sets its eyes on matters of life and death.

The military AI industry and global defence spending are both booming. At current estimates, the global military AI market was worth US$ 13.3 billion in 2024, with a projected growth to US$35 billion in the next seven years. These numbers vary, depending on the market data services consulted, but they have been revised upward on a regular basis in the last 12 months. Global defence budgets have also ballooned against the backdrop of ongoing conflicts and a general shift toward militarisation in the last 24 months.

Global defence spending reached a record level of just over US$ 2 trillion in 2023. With US$ 877 billion, the US accounted for nearly 40% of global defence spending in 2023. The NATO alliance will be spending US$ 1.47 trillion in 2024. These are big, attractive numbers for big tech and finance companies with intentions to gain a foothold in the defence market.

Meanwhile, defence organisations are starting to spend more money on cutting edge technologies, including, inevitably, AI. A 2024 Brookings Institute Report found that defence contracts for AI-related technologies increased in value by nearly 1200% in the 12 months from August 2022 to August 2023.

For most new AI products, civilian or otherwise, some form of venture capital funding is often involved, especially if the AI venture in question might prove to be too risky to be funded through bank loans or other financial instruments. Venture capital is willing to take bets on innovation that other funders would be unwilling, or unable to take.

In the past two decades, this type of funding has primarily focused on Silicon Valley products for the civilian market, where the dynamics have allowed for extraordinary gains to be made for investors. But as the defence market is growing, and the opportunities for extraordinary venture capital returns in the commercial spheres wane, those with large amounts of capital to invest see a new opportunity for huge gains in defence within their grasp.

It is unsurprising, then, that in the past five years, venture capital investment in defence technologies has surged. From 2019 to 2022, US venture capital funding for military technology startups has doubled, and since 2021, the defence technology sector has seen an injection of US$130 billion in VC money.

Venture capital spending is also at an all-time high for the European defence sector; private VC investments are projected to reach a record US$ 1 billion, driven mostly by US venture firms. There is a palpable buzz in the air about the possibilities for VC backed endeavours and the possibility to reshape the defence landscape.

Venture capital has always been connected to the military sector in some way. In fact, the current boom in venture capital defence investing could be seen as a return to its early days. The origins of venture capital are typically traced back to the American Research and Development Corporations (ARDC) founded in 1946, just after the second world war in which the US was buoyed by a victory achieved, at least in part, by cutting edge technologies.

ARDC was one of the first companies to systematically raise capital from institutional investors to finance start-up type companies with high potential but which were too risky for bank loans. With this approach ARDC was the first venture capital outfit to create investment portfolios which often relied on one or two extraordinary successes in order to offset the majority of companies which only made very modest returns or indeed losses. In this way, ARDC was the first so-called “unicorn” company.

Unicorns are young companies that receive a valuation of US$ 1 billion or more (up until recently an exceedingly rare occasion for a startup and something every investor covets in their portfolio). This is at the heart of venture capital investing: it is risk capital with potentially very high rewards.

In the early days especially, just after the second world war, many investments went toward supporting startups that would deal in military innovation and technologies. This brought about various analytical instruments, high-voltage generators, radiation detection technology, as well as early mini-computer companies, like the Digital Equipment Corporation.

The digital landscape, as we know it today, has its roots in the military. Innovations in communications theory were purposed for military missile technology in the 1950s, the grandfathers of AI almost all worked on mid-century military projects and even the internet itself emerged from a military project, then named Arpanet.