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VENTURE CAPITALISTS IN THE DEFENCE INDUSTRY  
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Elke Schwarz
January 16, 2025
The Conversation
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_ 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. _

Palmer Luckey CEO Anduril, Anduril Industries Inc.

 

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
[[link removed]] 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
[[link removed]]
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
[[link removed]]
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
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(DoD), as well as the UK Ministry of Defence
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(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
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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
[[link removed]],
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 emerging military financialisation

The military AI industry and global defence spending are both booming.
At current estimates
[[link removed]],
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
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reached a record level of just over US$ 2 trillion in 2023. With US$
877 billion, the US accounted
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nearly 40% of global defence spending in 2023. The NATO alliance
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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
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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
[[link removed]], and
since 2021, the defence technology sector has seen an injection
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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
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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.

The venture capital-military-Silicon Valley nexus

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
[[link removed]] 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
[[link removed]]. 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
[[link removed].],
then named Arpanet.

Many Silicon Valley firms remained entangled with the military sector
over the decades and, as the anthropologist Roberto Gonzales has
written
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almost “all of today’s tech giants carry some DNA from the defence
industry, and have a long history of cooperating with the Pentagon”.
So, venture capital’s DNA is folded into this relationship.

But, it is worth stressing that traditionally it was the needs of the
military organisations and the governments that largely dictated the
pace, structure and process for technological innovations.

Now, the pace and focus for military technology and innovation is
increasingly set by a progressively vocal and powerful technology
startup industry and their funders who have unleashed a raft of
“Patriotic capital
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initiatives, such as American Dynamism
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Project [[link removed]], Rebooting the Arsenal of Democracy
[[link removed]] and America’s Frontier Fund
[[link removed]]. These enterprises were
conceived by a handful of prominent companies and individuals in the
new defence tech domain to shape defence and military priorities and
make good returns while doing so. Propped up by vast amounts of
venture capital, unicorn companies are proliferating in the defence
space, including new military technology unicorns like Anduril
Industries [[link removed]], Shield AI [[link removed]],
Skydio [[link removed]], Scale AI [[link removed]] and
Palantir [[link removed]] (Palantir is technically no
longer a startup since it went public in 2020, but it is still part of
a cohort of new military technologies).

This is a recent development. In the two decades from the mid-90s to
2014 the venture capital sector focused its efforts on a thriving
civilian technology landscape, where the sky was the proverbial limit
for returns from technology startups like Google, Microsoft, Facebook
and PayPal.

The defence market, in contrast, was considered mature and
consolidated, with strict acquisitions rules and regulations, and too
little opportunity for outsized returns on investments. For a
government contract to come to fruition, it would often take many
years. Defence was also dominated by a handful of key industry players
– the so-called primes which include Lockheed Martin, RTX
Corporation, Northrop Grumman, Boeing, General Dynamics and BAE
Systems.

These primes divvied up the lion’s share in the defence market
between themselves and there seemed to be little opportunity for
technology startups to get a foot in the door without major efforts.
For example, companies like Space X and Palantir sued the US Airforce
and US Army in 2014, respectively, for the opportunity to bid for
certain contracts. Using the law to break open defence for military
startups has since become more widespread.

In addition to these structural hurdles for VC investment in the
defence sector, there was a greater nominal moral cost associated with
the idea of profiteering from war. Since venture capital investors are
often endowments, foundations, insurance companies, universities and
pension funds, there was an outward reluctance to be seen as investing
in “a defence portfolio” – or in other words, in instruments of
death. European venture capital investors
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particularly cautious.

However, the speed with which these trepidation seems to have subsided
in less than a decade, is remarkable, suggesting either that the
investors propping up venture capital firms come from different
backgrounds
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which might have less hesitation when it comes to benefiting from the
business of war, or, that it was always primarily simply a matter of
maths rather than morals.

Unicorns and hypergrowth

Today, everyone wants to invest in a unicorn because it has the
potential to skyrocket in valuation.

But in order to get a foot in the door with an unproven product or
concept, some startups can be motivated to make big, bold claims about
the revolutionary, change-making nature of their products. And even
once a company has secured funding, the ethos of overpromising often
remains enshrined in order to sustain success toward hypergrowth.

In the worst case scenario, overpromising is done at such scale that
it amounts to criminal fraud, as it was the case with the notorious
blood testing startup Theranos, which went from being one of the most
exciting healthcare startups, valued at US$ 10 billion at its peak in
2015, to a complete bust in four short years.

In the Theranos case, the company’s charismatic founder had wildly
overpromised the technology’s capabilities, claiming that it would
enable a whole raft of tests which could be done from just one small
drop of blood. This ground-breaking technology “could revolutionise
medicine and save lives the world over
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It was a future-oriented promise – the technology could not do what
was promised yet – nonetheless the company claimed to already have a
functioning testing device, which turned out to be a lie. Theranos
folded in 2018 and the charismatic founder, Elizabeth Holmes, went to
prison.

Selling a fantasy

There are many other, less dramatic stories that play out in a
similar, although not fraudulent way: companies that promise
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to revolutionise the way we do mundane things with ground-breaking
technology, which turn out to be unsustainable, unworkable, or simply
fizzle out.

But the upshot is that investors lose money, and, more importantly,
that people who have come to rely on the technology’s promise come
to harm.

In the defence context, the promises of new military technology
revolves around selling powerful deterrence
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of protecting democracy [[link removed]], of being able to have
comprehensive, accurate, real-time knowledge
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and, first and foremost of a clean, swift and decisive victory
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with smooth and effortless connectivity.

This can foster, at worst, a fantasy of omniscience and omnipresence
and, at best, it stokes a desire for an impossible revolution in
warfare that is too attractive to resist and ultimately draws in an
ever wider audience into its wake. These narratives are often
underwritten by a general hype that a future with AI is inevitable.
This makes for a powerful storyline which mythologises and valorises a
technology that may never deliver what is promised. It is a potent mix
that often resists more sober voices that urge caution
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The claims made by defence unicorns may often seem plausible, but they
are usually unverifiable, because they address the future. And often
that future reflects a vision shaped by fiction
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and science-fiction
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which is always some degrees removed from the social and political
challenges of reality.

This temptation of overpromising and the mythologising of possible
technology is shaping programmes that work toward realising global
transparency and global reach at speed. The Joint-All-Domain Command
and Control (JADC2) programme is one such effort initiated by the
Pentagon. It aims at connecting all domains – land, air, sea, space
and cyber – into a single network for “predictive analysis” and
“high-speed battle
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To make the programme palatable to Congress, JADC2 is often likened to
the ride-sharing
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Uber, promising seamless interaction between systems and platforms for
speedy interventions. This refocuses attention on AI as an
infrastructural necessity for all military assets and platforms.
Without expanding military AI, this vision will be impossible. It is
here where the opportunity for military startups resides.

Two prominent military tech companies are contractors for JADC2 –
Anduril
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and Palantir
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Both companies make little secret of their ambitions to disrupt the
defence sector, unseat the current primes and carve out a monopoly
slice of the market in order to secure increasing gains.

Palantir has set its eyes
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on “becoming the central operating system for all US defense
programs”; Anduril has declared that it will be going “after
everything that’s on the [Defense Department’s] list
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in order to dominate in the sector. For both companies, this is the
battle – the battle for growth.

As Anduril’s Luckey says: “you have to fight and win across
multiple areas
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(He means that in terms of corporate strategy, not actual
battlefields). Similarly, CEO and co-founder of Palantir, Alex Karp,
acknowledged that, in order to break defence as a market wide open, he
is proud to “have dragged and kicked and cajoled and humiliated
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policymakers and government to help further this goal. Move fast and
break things.

Making a unicorn requires a concerted effort, and an aggressive
posture, on the part of those who stand to gain the most, financially,
in this domain. This is best done in alliance with like-minded others.
In the current defence venture capital landscape there is a close
entanglement of founders and funders.

Peter Thiel, for example, is co-founder of Palantir, he also runs the
Founders Fund VC outfit which has investments in Space X, Anduril and
Scale AI, among others. The VC company Andreessen Horowitz also funds
SpaceX, Anduril, Shield AI and Skydio. The managers of these VC
companies have long-standing ties with one another. Similarly, there
is interlacing between companies. Anduril, for example, was started by
former Palantir employees who took their experience from Palentir and
applied it at Anduril. Palmer Luckey, formerly of Oculus Rift, was
installed as its charismatic and outspoken CEO.

Peter Thiel and Eric Schmidt (formerly CEO of Google and Chair of the
US National Security Commission on Artificial Intelligence) are
investing
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in the America’s Frontier Fund, and so on. There is a tightly knit
and very well connected network of financiers and startups that all
work to double down on the key driving message: the defence sector is
in need of disruption and we are the ones to shake things up.

At a recent panel giving evidence
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to the US Armed Services Committee were representatives of five
military startup companies. Every single one of the five was either
funded by the VC firm Andreessen Horowitz or otherwise affiliated with
the firm.

At the US Armed Services Committee hearing, Palantir’s Chief
Technology Officer, Shyam Sankar, gave evidence
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crazy” and for “letting chaos reign” in the military acquisition
and procurement process, so that the necessary incentives can be
fostered for innovation through inter-departmental competition.

Regulatory limitations, he thinks, “constrains you to oversight”
and he “would gladly accept more failure if it meant that we had
more catastrophic success”. What kind of success this might be, or
what the implications are for failure, remains unaddressed but it is
clear that Palantir’s CTO speaks with a venture capital logic in
mind. And, according to a recent US Defense Innovation Board report
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it seems the government is ready to embrace more risk and provide top
cover for such “mavericks”.

The ‘crisis’ narrative

Besides cultivating startups with high potential, there are a number
of ways to bend the defence sector to the needs of Silicon Valley
contractors and their VC backers. The power of narratives goes a long
way here too. Venture capital managers and their startups often pen
high-profile op-eds in which the poor state of (US) defence is
lamented
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in which the need for accelerated innovation
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is emphasised, and in which the possibility that the US might “very
likely” become embroiled in “a three-front war with China, Russia
and Iran” is conjured up.
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short, a story of urgency is spun which helps valorise those companies
that are seen to address the imminent crisis.

A second pillar in the structural overhaul of defence is to employ an
intricate network of former government employees who serve either as
lobbyists or as advisers with close links to government.

Former Republican Congressman Mike Gallagher
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for example, became Palantir’s Head of Defense operations in August
2024 and former National Security Advisor H.R. McMaster
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Shield Capital. There are many more such “revolving door
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moments in which credible experts lend their authority to the new
startups. The military tech startup scene, like most Silicon Valley
creations, holds a certain reputational cache and the money is
attractive too.

Anduril, having learned from Palantir, hired a slew of lobbyists in
the first week
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spending more money on “lawyers and lobbyists than engineers
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as Luckey noted in a recent interview with The Economist.

With this, Anduril adopts a relatively traditional way of shaping the
defence landscape, which is also employed by prime defence contractors
which have, as the Anduril acknowledges in a 2022 blog post
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an incentive “to spend heavily on teams of lawyers and lobbyists to
shape program requirements in line with the company’s existing
technology”.

Anduril, and its backers, are now doing the very same, tailored to
their own suite of technologies. The lawyers are often employed not
only to oversee mergers, acquisitions and partnerships, but also as a
way to use the law as an instrument to force reform.

The primary goal of the SpaceX and Palantir lawsuits against the US
army and airforce which I mentioned earlier was not necessarily to win
(Space X lawsuit was not successful, Palantir’s was), but to pry
open space for acquisitions overhaul and both lawsuits achieved just
that.

A strategy of creating a sense of urgency, doubling down with
lobbyists and creating the structural possibility for a defence
overhaul is now well underway. To be clear, I am not arguing that the
defence sector would not benefit from modernisation or restructuring.
Nor am I arguing that all military startup products are irrelevant or
unsustainable. I am also not seeking to pit the primes against the new
venture capital dynamics and their focus on growth.

But what I think is worth examining is the dynamics at play with these
new companies and their implicit priorities and interests, because
they will shape practices and priorities. And where disruption is at
work, some level of breakage is to be expected. And this takes on a
different tone in matters of life and death.

Disruption debris

The defence sector disruption is well underway and efforts to shape it
in the image of Silicon Valley have borne fruit in recent years with a
number of concrete results. The JADC2 programme mentioned earlier is
one. Others are evident in programmes like the US Department of
Defense’s Replicator Initiative [[link removed]],
which incorporates the aims, timelines and products that Silicon
Valley military startups have to offer.

High-level defence officials
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are repeating the talking points of the venture capital industry and
various acquisition programmes have adjusted to accommodate
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the speed and scale needed. These companies have the ear of
policymakers
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and the demands for a quasi-spiritual “Defense Reformation
[[link removed]]” are finding a growing audience.

So what are the possible consequences?

When Uber disrupted the private transport industry, it left in its
wake a raft of eroded labour laws
[[link removed]], worker’s rights and
healthcare provisions for drivers. When AirBnB shook up the
accommodation industry, it resulted in increased rental prices
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in popular tourist destinations. When you try to create a monopoly,
there are always social and political consequences. Often these
consequences are foreseeable, sometimes they are not.

Disrupting the defence acquisitions process comes, at the very
minimum, at the expense of greater oversight to the acquisitions
process. The technology sector is not known for its appreciation of
regulatory boundaries. Quite the contrary. Some of the most prominent
funders of the new military startup landscape are most vocally opposed
[[link removed]] to any type of
regulation
[[link removed]].

VC heavyweight Marc Andreessen, for example, famously penned a
Techno-Optimist manifesto
[[link removed]] in which he names
risk management, trust and safety measures and the precautionary
principles as “the enemy”.

Less regulation means less oversight and accountability, not only in
spending but also in how and where certain technologies are used and
with what effects. This much is evident.

But there are many other highly plausible consequences we might
foresee with the accelerated acquisition and rollout of military
technologies for battle. One is the refocusing on risk and
experimentation.

The current crop of military startup technologies, like AI-enabled
drones and AI decision support systems, are being tested and improved
live and during ongoing conflicts, such as in the Russia Ukraine war,
but also in Gaza. This is a form of prototyping
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which is becoming increasingly prominent and which needs an active
battlefield for effective testing, iteration and optimising of the
technologies.

This also means that it is possible that technologies will be fielded
that are not fit for purpose, only to test them and improve as you go
along. It normalises, if not promotes, the launch and sale of flawed
and possibly inadequate AI products, which will inevitably cause harm
to innocent civilians caught in the crosshairs of conflict.

We can observe this right now with the push by technology companies to
sell their large language models to military organisations. Scale AI,
for example, has teamed up with Meta to sell an LLM product, Defense
Llama [[link removed]], for defence purposes.
The company says that human involvement is “absolutely necessary”
for the system.

But given the well-known fact
[[link removed]]
that LLMs are prone to what are known as hallucinations, the chances
that such technologies will work exactly as advertised are slim for a
context so complex and dynamic as warfare. This could cause harm to
those caught in the middle of this experimentation, fine-tuning and
live testing. It is a key concern that the technology might not be
suitable for the unexpected, for the less calculable or less
foreseeable elements in warfare. That includes potential emerging
terror threats or moves by those states that are often considered as
irrational; like North Korea, for example.

Anduril CEO, Luckey, admitted as much in the interview I opened with.
He acknowledged that the logic on which his weapons are built falls
apart with potential enemies that eschew the game’s theoretical
approach on which much of the AI logic for defence rests: “It’s
very hard to engage in game theory with people who pursue the non-game
theory optimal strategy…It’s like playing monopoly with the person
who is going to drop out and give all their money to somebody else.”
A serious limitation for something so riddled with chance as warfare.

There are also second and third order effects that emanate from this
shift toward venture capital logics. By conjuring up an imminent
threat, the broader global risk and security landscape might change;
by prioritising weapons technologies, funding for other ways to
address conflict might be curtailed, by dedicating an increasing
amount to technologies that remain untested and that may not have
permanence, significant amounts of money which would be better
allocated elsewhere might be wasted.

But this is a land of make-believe and unicorns, where such
considerations are as speculative as the much-hyped promises of AI
weapons as the defenders of democracy.

In Silicon Valley the “move fast and break things” motto implies
that problems that arise in the roll out of the tech can always be
addressed and solved later. In the world of defence and war, the harm
produced by this kind of risk-taking cannot so easily be undone.

_The Conversation put the points raised in this article to the tech
and venture capital firms named. They did not respond to our request
for comment._

Elke Schwarz
[[link removed]]

Reader in Political Theory, Queen Mary University of London

Disclosure statement

Elke Schwarz is affiliated with the International Committee for Robot
Arms Control (ICRAC).

* artificial intelligence
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* military industrial complex
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* venture capital
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