The distance between Silicon Valley and the Pentagon continues to shrink. As venture capitalists continue to invest in defense technology startups, they are turning to a new recruiting pool: veterans and former Defense Department employees.
Andreessen Horowitz hired Matt Shortal, a former fighter pilot, as its chief of staff; Lux Capital hired Tony Thomas, a former head of U.S. Special Operations Command, as an adviser; and Shield Capital managing partner Raj Shah served in the Air Force.
Hiring former military personnel can be a major advantage for companies, allowing them to “understand real problems on the battlefield,” rather than just “sitting in Silicon Valley and theorizing,” Ali Javaheri, an emerging technology analyst at PitchBook, told TechCrunch.
The rise in the number of former military personnel comes with a continued appetite for investment in defense technology. Silicon Valley is expected to pump nearly $35 billion into defense technology startups in 2023, and more than $9 billion so far this year, According to a report published last week by PitchBook, this trend is rooted in successful fundraising rounds. Shield AI, which produces an AI-powered drone piloting system, raised $500 million last year, and Anduril, Palmer Luckey’s defense technology startup, would have been secured a new $1.5 billion funding round last month. While funding in the sector has slowed this year, Javaheri said it has still shown “resilience” amid a brutal global fundraising environment.
But the industry isn’t always rosy. Javaheri described the Defense Department’s acquisition process as “cumbersome,” with startups sometimes taking years to land a contract. That’s a time that startups have to contend with financially and don’t have much to show investors in return for their efforts.
Venture capitalists that can offer startups the contacts of former military personnel have a huge advantage in competitive deals. “Their network allows them to talk to a program manager who is in charge of a budget line for a specific military office,” Javaheri said. “The military is a very network-driven kind of organization.”
For former military personnel, they have access to a lucrative second career in high-tech. “A few years ago, you would have been an executive vice president at Lockheed Martin, which was not sexy at all,” said Chris O’Donnell, a former Navy SEAL and principal at Franklin Venture Partners. The New York Times.
But time may be running out to land a comfortable job after the end of the military career. The sector has few exits, aside from Palantir’s IPO in 2020 or Anduril’s recent buying spree, which bought engineering firm Blue Force and rocket engine maker Adranos.
While the window for tech IPOs isn’t closed yet, Javaheri doesn’t see many IPOs in the future. He advises venture capitalists to view their investments as potential acquisition targets, likely the same unattractive companies these former military personnel are currently avoiding.
“There’s a good chance that existing defense companies will gobble up some of the smaller companies,” he said.
But for now, the excitement about defense technology is still going strong — and veterans and DOD officials can cap off their careers with a well-funded landing platform.
For those familiar with Silicon Valley history, this is a homecoming for the tech industry. The Valley’s tech industry began at the intersection of academic research and DoD tech spending, as the region has historically hosted a variety of military operations. Indeed, San Francisco’s Presidio neighborhood is now home to a number of venture capital offices, such as Founders Fund, a defense technology funder.
“Silicon Valley has returned to its roots and is working closely with the Pentagon in this increasingly tense and competitive geopolitical environment,” Javaheri said.
