Not too long ago, collaboration between Silicon Valley and the Pentagon was exceedingly rare. Procurement red tape, cultural divides, and artificial intelligence’s stagnation kept the two worlds apart. Today, due to a confluence of factors this picture is radically different.
The Pentagon’s posture on leveraging Silicon Valley for AI has shifted dramatically. Defense leaders are leaning into partnerships with tech innovators, propelled by rapid advances in generative AI, the reimagining of warfare via emerging technologies, and rising geopolitical tensions. The result is a deepening partnership between the Department of Defense and venture capital, making the Pentagon one of Silicon Valley’s most significant backers. This alignment has accelerated Defense Tech’s maturation as an asset class.
Today, we’ll highlight major opportunities in Defense Tech for GPs and share actionable insights to leverage.
Key Legislative and Pentagon Initiatives
- The One Big Beautiful Bill Act (OBBBA) and FY2025 NDAA – Injected hundreds of billions into innovation programs and streamlined startup contracting benefitting dual-use technologies like drones.
- The FORGED and SPEED Acts – Proposed within the FY2026 NDAA to loosen acquisition red tape, prioritize rapid procurement, and expand startup access.
- Capital Formation Programs — OSC and SBICCT – The Office of Strategic Capital provides direct loans and guarantees to defense startups, while the SBIC Critical Technologies Initiative licenses billions in fund capacity for VC and PE managers targeting DoD-priority technologies.
- DIU’s Replicator Initiative – Accelerating the fielding of autonomous systems, drone swarms, and other cutting-edge technologies.
- The Pentagon’s AI Action Plan – Driving rapid adoption of generative and agentic AI through large-scale partnerships with Silicon Valley firms.
- The Fulcrum IT Modernization Plan – Transforming DoD’s digital infrastructure and expanding demand for commercial cyber and software innovation.
- The Army’s Fuze Program – Applying a venture-capital mindset to sourcing and scaling new technologies through competitions and rapid prototyping, signaling a structural shift in how the military engages innovation.
- The Army’s Fuze Program – Applying a venture-capital mindset to sourcing and scaling new technologies through competitions and rapid prototyping.
- DIU Software Acquisition Reform – Expanding flexible pathways like OTAs and CSOs to make it easier for startups to compete.
- Executive Order on Modernizing Defense Acquisitions – Cutting duplicative regulation, leaning on commercial solutions, and accelerating procurement.
- Innovation OnRamp Hubs and University Accelerators – Building nationwide infrastructure to lower entry barriers for startups and academic teams developing dual-use technologies.
Big Players in the Defense Tech Capital Stack
Private Equity
- Arlington Capital Partners: Washington, D.C.–based middle-market specialist in aerospace, defense, government services, and software; known for building buy-and-build platforms in the defense industrial base.
- Godspeed Capital: Focused on lower middle-market defense and government services, with roll-up strategies across cyber, intelligence, and national security.
- AE Industrial Partners: Florida-based firm investing across aerospace, defense, space, and specialty industrial markets; strong presence in aviation and space supply chains.
- Veritas Capital: One of the largest PE firms focused on government and defense technology; scales large contractors and tech-enabled national security platforms.
Venture Capital
- In-Q-Tel (IQT): The U.S. intelligence community’s venture arm, backing dual-use technologies in AI, cyber, autonomy, biotech, and space.
- Founders Fund: Silicon Valley heavyweight investing in frontier tech such as autonomy, AI, and space (e.g., SpaceX).
- Andreessen Horowitz (a16z): Global VC leader with an “American Dynamism” practice investing in defense, aerospace, AI, and critical infrastructure.
- Lux Capital: Deep-tech fund with strong dual-use exposure across robotics, energy, sensors, and advanced science.
- General Catalyst: Multi-stage VC with a growing defense and resilience practice, active in AI, autonomy, and cyber.
- Harpoon Ventures: Early-stage fund bridging startups with DoD customers, focused on software, AI, and dual-use platforms.
- Shield Capital: Defense-first VC investing in AI, autonomy, space, and cyber, with leadership from former DoD officials.
- DCVC (Data Collective): Frontier tech investor active in robotics, space, advanced manufacturing, and other capital-intensive sectors.
Private Credit
- Donovan Capital Group (DCG): Provides private credit and structured equity to defense and government services firms, specializing in growth financing and recapitalizations.
- HPS Investment Partners: One of the largest global alternative credit platforms, active in aerospace and defense supply chain financing.
- Oaktree Capital: Leading alternative credit investor, active in distressed and special situations including defense-related industrial base financing.
Implications for GPs
- Capital Tailwinds: OSC, SBICCT, and NDAA reforms provide unprecedented levels of government-aligned funding and leverage, multiplying the effect of private capital.
- Faster Pathways to Market: New contracting reforms (OTAs, CSOs, Fuze, acquisition modernization) shorten the “valley of death” and make it easier for portfolio companies to land DoD contracts.
- Government as Strategic Partner: The DoD is no longer just a customer but an active co-investor and ecosystem builder, reducing commercialization risk.
- Portfolio Diversification: Defense tech exposure balances traditional venture and PE allocations by tapping into resilient, countercyclical demand driven by national security priorities.
- Exit Optionality: The combination of prime contractors, defense integrators, and newly capitalized PE platforms creates a more robust M&A environment for scaling startups.
For GPs, the convergence of policy reform, Pentagon demand signals, and capital formation programs marks an inflection point. Defense Tech is no longer peripheral, it is emerging as one of the defining asset classes of the decade.
The future of national defense is venture capital and advanced tech. Those ready to capitalize on this major development will flourish in our everchanging capital markets and free enterprise system.
