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Defense Speak Interpreted: The Impact of Venture Capital-backed Defense Contractor Firms

There are several nimble new Defense contractors exploding in size—Anduril Industries, Saronic, Shield AI, Mach Industries, Castellian, among them. Why are venture capitalists, the wizards of the financial future, backing these companies in an industry segment that they traditionally wouldn’t touch?

These specific companies are making enormous headlines in the Defense supply chain, but how much market share are these upstarts actually taking? Is this a permanent trend, or is it simply a feature of the rapidly expanding DoD budget of 2026?

First, let’s look at the Defense/War budget for all contracts to get a sense of the magnitude for evaluating the company's market share.

In June 2024, the Brookings Institution reviewed three decades of Defense contracting, from 1990 to 2020, which reflects the shrinking contractor base for various weapons systems.¹ This is the result of the 1993 instruction from former Deputy Secretary of Defense William Perry at the “Last Supper” meeting, telling Defense contractors they must consolidate. That reduction has enabled the new breed of venture-funded defense start-ups to flourish and grow rapidly.

What is the overall contractor base for weapon systems? The Department of Defense (DoD) obligated roughly $445 billion on total contracts in FY2024, with a large portion dedicated to weapons systems, procurement, and research.² I want you to understand the unique Defense Department accounting for these, and where these new, venture-backed companies are participating.

A standard Defense-speak term is RDT&E (Research, Development, Test, and Evaluation). How big is each, as the U.S. scrambles to modernize our weapons in the face of technology, drones, robots, unmanned vehicles, etc.? In the 2026 budget, the actual procurement of weapons was 53%, and the RDT&E was 47%.³  

Let’s make sense of this: Do you know any large factories producing weapons by any of these venture-backed defense contractors? Well, facilities are a key expenditure of these start-ups in their venture capital funding push. There is a new term to describe them called “neo-Primes.” These are either planned or are being built:

• Anduril Industries: Building a $1 billion manufacturing facility in Pickaway County, Ohio, for autonomous weapons systems, including aerial drones, fighter jets, and maritime drones
• Saronic Technologies: Investing $2.7 billion to build a shipyard and software-operated megafactory in Louisiana for tens of thousands of AI-powered autonomous naval ships
• Covenant Industries: Recently opened a 105,000-square-foot factory in Grand Prairie, Texas, to manufacture its Anthem long-range cruise missiles, aiming for 1,000 units in its first year
• Mach Industries: Expanding production capacity for its hydrogen-powered autonomous weapons platforms from its research base

Backed by multi-billion-dollar valuations from Silicon Valley VCs, these companies are building automated factories specifically designed to outpace the slow, multi-year “cost-plus” development cycles used by legacy defense giants like Lockheed Martin and Raytheon.⁴

So, just how big are the total contracts from these “Big 5” Primes within the Defense Department? A recent Defense Primes compilation gave these figures for contract values:

• Lockheed Martin: ~$60 to $64.7 billion
• RTX Corporation (Raytheon): ~$39.6 to $40.6 billion
• Northrop Grumman: ~$35.2 to $36.8 billion
• General Dynamics: ~$32.0 to $33.7 billion
• Boeing Defense: ~$32.7 to $34.2 billion

Before you jump on me and say the figures above do not match the total income of these companies, there are some more factors to consider. 

• This does not account for foreign military sales. These Primes are big contractors to foreign governments, mostly our allies in Europe and Asia
• They don’t factor in commercial sales, principally commercial airliners and operating systems. Boeing was $89 billion in 2025.

Consider that Defense contracts are almost always multi-year awards and are subject to further extension, based on performance in the initial year or so. Contract awards might mean 10–25% each year. 

A few venture-backed “defense unicorns” have broken through to win massive, program-of-record weapons and hardware contracts:

Anduril Industries
Anduril has successfully transitioned from a venture-backed startup to a recognized defense prime:

• $20 billion Army enterprise contract: The U.S. Army awarded Anduril a landmark, 10-year enterprise contract worth up to $20 billion. This massive vehicle consolidates over 120 separate procurement actions into a single framework for Anduril’s hardware, software, and autonomous weapons systems.
• TITAN Production Contract: The U.S. Army officially moved the Tactical Intelligence Targeting Access Node (TITAN), an AI-powered mobile ground targeting station, into the production phase. Anduril was awarded $65 million to build the hardware subsystems and mission shelters.
• Collaborative Combat Aircraft (CCA): Anduril won a highly competitive Tier-1 slot to build autonomous, weaponized wingman drones for the U.S. Air Force, beating out established giants like Boeing and Lockheed Martin.

Palantir Technologies
TITAN prime contract: Palantir serves as the prime contractor for the Army's next-generation TITAN targeting system. Alongside Anduril's hardware component, Palantir secured $127 million to lead overall software and system production.

Shield AI
V-BAT and Hivemind autonomy: Shield AI has secured multiple operational contracts with the U.S. Navy, Army, and Air Force to deploy its Hivemind autonomy software, enabling groups of drones to execute complex missions independently of GPS or human pilots.

The market has hit a major inflection point, driven by a massive surge in VC funding into defense tech (surpassing $16.8 billion in just the first half of 2026). However, much of it remains as “dreams” with only a small percentage of the total Department of Defense budget being awarded to the top 100 venture-backed defense tech companies.

In the face of this, why do venture capitalists continue to fund? Here are some possible reasons:

• Commercial crossover: Many start-ups build dual-use tech, where the software or hardware works for both regular civilian businesses and military needs.
• Lower risk: If a federal contract takes too long, start-ups can sell their products to commercial buyers.
• New software focus: Instead of building heavy physical weapons, modern start-ups focus on software, AI, cyber defense, and drones.
• Capital is flowing away from software-only defense bets and into companies that can physically manufacture at scale, such as factories, rocket motors, and satellite constellations, which are commanding valuations once reserved for pure software plays.

Are Defense Primes just sitting around and watching these newcomers steal the market? Nope. Their philosophy is, “If you can’t beat them, join them.”

How much capital has been raised through the Primes’ backing of start-up defense contractors? Traditional Defense Primes are increasingly using their corporate venture capital (CVC) arms to invest in the defense startup ecosystem, including both direct equity investments and commitments to dedicated national security venture funds.  Legacy contractors are backing early- to mid-stage defense tech startups to acquire new research, ensure technical interoperability, and accelerate manufacturing workflows. The strategic push by these legacy primes contributed to a record-breaking $4.1 billion (about 25% of total) in venture capital deals during the first seven months of 2026 alone, up from $3.1 billion across the entirety of 2025.

This includes Lockheed Martin (through Lockheed Martin Ventures), RTX Corporation (through RTX Ventures), BAE Systems, and Airbus Defense and Space. These companies are committing up to $1 billion for U.S. and UK defense innovations, from drones to compute frameworks.

Summary
Venture capitalists have been streaming to Defense contracting through new, nimble Defense start-ups, who take advantage of advances in AI, leading-edge research, and contracts based on developing new weapons based on aerospace technology. Dual-use in some areas gives these funds a safety net they could not count on in the past.

These investments are significant and timely, considering the breakneck speed of new weapons development. Would you have called out drones, robots, or autonomous vehicles even five years ago?

The public relations arms of venture capitalists are grabbing headlines, but are winning contracts where it seemed impossible five years ago. To speed up acquisition, new Defense procurement guidelines are helping the neo-primes. Publicity helps draw in talent in the labor market, one of the bottlenecks seen in the traditional “stogey” Defense sector. 

Traditional Primes are not sitting idly by, but are establishing their own venture funds to take advantage of the development speed shown by the start-ups.

Overall, the world of Defense procurement and supply chain management is changing.    However, will these neo-Primes run into the same supply chain material and manpower shortages as they transition from research/development into full-scale manufacture?   Time will tell.

References

1. Strengthening America’s Defense Industrial Base, by the Brookings Institution, June 2024
2. Defense Primer: Department of Defense Contractors, Congress.gov
3. DoD Fiscal Yaer 2026 Budget Estimate, Department of War FY2026 Weapons Systems Overview
4. GeminiAI

Denny Fritz was a 20-year direct employee of MacDermid Inc. and retired after 12 years as a senior engineer supporting the Naval Surface Warfare Center in Crane, Indiana.