Aerospace is taking flight—investors should pay attention

Venture investing in aerospace and defense presents a unique generational opportunity, allowing investors to capitalize on three interconnected macro mega-trends: increased global threats, the ongoing technological evolution, and the incumbents' struggle to keep up with technology. These elements, coupled with an increased urgency to stave off burgeoning global rivals, have the market taking notice.

Recent conflicts in regions like Ukraine, Syria, and the Red Sea underscore the significant role of cheap drones in modern warfare. As a result of these conflicts, the global demand for drones has skyrocketed, but our traditional aerospace manufacturers do not have products or meaningful drone manufacturing capacity to supply the market.?According?to RUSI, Ukraine loses approximately 10,000 drones per month. The only global company that has the products and capacity to meet this demand is the Chinese drone manufacturer – DJI. Needless to say, that is not an option. The Department of Defense has taken notice, launching initiatives like the Replicator program to attract new players to the industry and foster the development of the domestic drone industry.

The defense industry's slow-moving incumbents present a ripe opportunity for disruption. With a massive market backed by substantial government funding, there's a huge opportunity to capture significant market share through the development of new products. The formula is simple – embrace autonomy. A portfolio of companies enabling autonomy has the potential to deliver attractive returns to investors. It is not often that investors find a?$315 billion market ready for fundamental disruption and an opportunity to deploy large amounts of capital.

Looking back at history, we see how advancements in defense technology have spurred broader industrial growth. The Apollo program, for instance, catalyzed developments in integrated circuits, and innovations like cordless tools and solar panels. Similarly, companies like SpaceX and Palantir have leveraged government contracts to fuel their growth and development before expanding into commercial markets. This pattern is likely to persist, with defense needs driving innovations like point-to-point cargo delivery via rockets, new materials for aerospace components, deep-sea robotics, etc.

RGIT's Robotics Club , Anduril Industries , Palantir Technologies , and others are inspiring the next generation of entrepreneurs. The flow of talent into the industry is accelerating, new companies are being created, and the pace of change is accelerating. Aerospace-focused venture funds are raising capital. In a nod to Peter Thiel's famous quote, while we may not have flying cars yet, the convergence of technology, talent, and investment in this space suggests that we are closer than ever, and investors should take notice.

Mislav Tolusic is a managing partner at Marlinspike Partners, a venture capital firm investing in companies focused on U.S. national security and commercial markets.