Defense tech is no longer just an arena for contrarian VCs. Plus, the White House’s upcoming AI executive order and more tech news this week

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When Oculus VR creator Palmer Luckey launched the “controversial” defense AI startup Anduril Industries in 2017, after his unceremonious exit from Facebook , many shunned him.

“There were a lot of people who believed that spending time on building weapons for the U.S. and our allies was a waste of my time or irrational or unethical,” he said, speaking at the WSJ Tech Live summit in Laguna Beach last week. “They said, ‘What you’re doing is morally irreprehensible, it’s totally wrong, and I cannot be associated or affiliated with it.’”

Sentiment appears to have shifted. As the world now grapples with major conflicts in the Israel-Hamas and Russia-Ukraine wars, and tensions between the U.S. and China continue to simmer, defense tech has become less of a hot-button issue among venture capitalists and more of a booming sector.

“A lot of people that weren’t as comfortable with the military dynamics of American superiority post the Cold War are now much more cognizant of a world where there are massive credible threats,” said Kyle Harrison , general partner of VC firm Contrary , which is also an investor in Anduril. “That has changed the landscape.”

Venture investment in defense tech startups is climbing, expected to be worth nearly $185 billion by 2027. Annual defense and aerospace investment in the U.S. was three times higher in 2022 and 2021 than in 2019, and had surpassed $17 billion in the first five months of 2023, per PitchBook .

Anduril – with its massive $1.5 billion Series E round late last year and recent reports of additional convertible notes financing – is the most visible example of a broader trend of defense tech startups getting a larger swath of investors to back them.

And they’re also delivering results. The Information just reported that Anduril is on track to book $625 million in new government contracts this year, while Shield AI , another startup that builds autonomous defense systems, told investors last month that it expected revenue to grow more than 90% this year to about $165 million.

It “shows that investing in defense tech can generate big growth and strong returns,” said Ben Lamm , co-founder and CEO of Colossal Biosciences .

Here are some more recent examples:

• Last month, German defense tech company Helsing raised the equivalent of $223 million from General Catalyst ; while Shield AI was reported to be raising $150 million, following a $225 million Series E round last year.
• This summer, defense startup Mach Industries raised $5.7 million in a seed round led by Sequoia Capital – the first-ever defense tech investment by the storied venture capital giant. The firm also led a $6 million investment in military parts manufacturer Senra Systems .
• Andreessen Horowitz has also set up what it calls the “American Dynamism” team, whose investment portfolio includes defense tech startups like Hadrian , Anduril and Shield AI.
• The nonprofit VC firm IQT (In-Q-Tel) has invested and seen success in companies that dabble in “dual-use technologies” like Hypergiant , or technologies that can be used for both civilian and military applications. Similarly, Thomas Tull ’s fund, the U.S. Innovative Technology Fund, has investments in the likes of Anduril and Shield AI, among others.
• Perhaps the most prolific VC investor in the category is Lux Capital , which has 19 defense tech bets, according to The Information, including Hadrian and Anduril, as well as satellite company Kymeta Corporation and autonomous boats startup Saildrone .

Besides geopolitical factors, technological advances in data, space, cybersecurity and AI have also broadened the scope of defense tech and contributed to the growing number of startups and investors in the space. As a result of technological progress, it’s no longer as capital intensive to participate, so startups can address a gamut of defense use cases without having to build massive manufacturing operations, Contrary’s Harrison added.

One such upstart betting specifically on the rise of AI is Austin-based Modern Intelligence , which is building foundational targeting AI technology for defense. Its technology uses vision, infrared, radar and other sensors to detect, track and share data and help identify threats, co-founder John Dulin told LinkedIn News. The company aims to be for modern defense hardware companies what OpenAI has been for Microsoft, he said.

“We need to transform the manned military apparatus like planes, ships, submarines and tanks we inherited from the Raegan era to thousands of unmanned apparatus that are 10 times more efficient, like drones, satellites and radars,” Dulin said. “Defense that relies on manpower is cumbersome, expensive and unreliable – AI is the fundamental technology necessary to automate it.”

A shift within the Pentagon has also helped. What was once a slow and risk-averse bureaucracy that relied mostly on a few incumbents like Boeing , Lockheed Martin and Northrop Grumman , the United States Department of Defense has been getting friendlier with upstarts in recent years.

In 2021, for example, the department greenlit the National Security Innovation Capital program to back dual-use hardware startups, noted Lamm. And this April, it appointed former 苹果 executive Doug Beck as head of its Defense Innovation Unit to oversee a group focused on adopting innovations from the commercial sector, pointed out Nathan Benaich, general partner at VC firm Air Street Capital .

Some of the credit for blazing the path goes to tech billionaire-backed companies like SpaceX and Palantir Technologies , investors said. SpaceX’s Starlink, for example, has played a critical role for frontline Ukrainian troops since the early days of Russia’s invasion. Since then, other startups in the space have snagged multi-million and multi-billion dollar contracts.

“Prior to these companies, it was very monolithic in a way that very few companies attracted all of the attention, press and funding in terms of government contracts,” said Harrison. “Palantir is the quintessential example of having made that breakthrough.”

While these developments have ensured that defense tech is no longer just an arena for contrarian VCs, new players still have to contend with many of the challenges that have always persisted. More often than not, success still relies on government relationships, and startups can’t always compete on contracts without the right contacts.

“Procurement is the silent killer, unfortunately,” Air Street’s Benaich said.

But startups like Modern Intelligence, hoping to ride the momentum, remain unfazed.

“All of the challenges – the unique customer, the long contract timelines and large capital requirements – are all still there,” Modern Intelligence’s Dulin acknowledged. “However, now is the first opportunity we’ve had in a generation for ambitious founders to take a swing at a big problem.”

Here’s where we bring you up-to-speed with the latest advancements from the world of AI.

• The White House is expected to unveil a sweeping AI executive order next week, multiple outlets reported. The order would require advanced AI models to undergo assessments before they can be used by federal workers and ease barriers to entry for highly skilled workers, according to The Washington Post . Relatedly, more than half of workers don't know how their employers are leveraging AI, per a new survey by workforce tech firm UKG .
• Members of the Senate and AI leaders convened for the second educational forum focused on AI this week. The first forum, held this summer, saw 15 large tech companies sign up to voluntary AI safety commitments brokered by the White House. The next forum is set for Nov. 1, focusing on high-impact AI and workforce issues. Here’s what went down in the closed-door discussions this week, per VentureBeat .
• AI “godfathers” including Geoffrey Hinton and Yoshua Bengio warned of the technology’s risks and laid out the new AI safety framework. In a new set of policy proposals, two dozen experts suggested that companies and governments assign a third of their research and development funds to "safe and ethical use of systems,” arguing that AI could easily go rogue since "no one currently knows how to reliably align AI behavior with complex values."
• Eager to cash in on the AI gold rush, some undergraduates are impatient to found their own startups. Several college dropouts have joined startup accelerator Y?Combinator to build conversational artificial intelligence programs like ChatGPT, The Wall Street Journal reported.
• 英伟达 is extending its tentacles beyond its monopoly of GPUs powering AI, and is coming after personal computers. The tech company has quietly begun designing central processing units (CPUs) that would run LinkedIn parent 微软 ’s Windows operating system and use technology from Arm Holdings, Reuters reported.
• Meanwhile, 苹果 is scrambling to respond to competitors' rapid progress in AI. Though the tech giant has a large language model known as Ajax and an in-house chatbot, it's been slower than 谷歌 and Microsoft to incorporate generative AI into its popular products. The company is gearing up to spend about $1 billion annually integrating AI into Siri, iOS, development tools like Xcode and apps such as Apple Music, according to 彭博资讯 .
• AI deals, investments and product rollouts continued unabated over the past week. Some highlights: OpenAI is reportedly in talks with potential investors including Joshua Kushner ’s Thrive Capital about selling shares in a tender offer at a valuation of $86 billion. Perplexity , whose AI search engine competes with OpenAI’s ChatGPT and Google’s Bard, is raising around $50 million in funding from IVP at a valuation of $500 million, according to The Information . SoftBank Investment Advisers is looking at leading a $75 million to $100 million round for Norway-based robotics startup 1X Technologies at a $375 million pre-investment valuation, per The Information.Leading Chinese tech companies including 阿里巴巴集团 , 小米科技 and 腾讯 have collectively invested $340 million in Zhipu AI, an emerging AI company that’s positioning itself as a rival to OpenAI. 思科 has unveiled new AI capabilities for Webex, including real-time text, audio and video insights for users. YouTube is seeking rights from major music companies to develop an AI tool that would let creators record audio using the voices of famous musicians. Square has unveiled 10 new generative AI features, including a ‘Menu Generator’ for restaurants to enhance customer content creation and onboarding.
• ICYMI: Universal Music Group and other music companies are suing Anthropic for distributing copyrighted song lyrics via its LLM Claude 2, in what is the latest copyright lawsuit in the space. And last week, OpenAI brought its image generator DALLE-3 to ChatGPT, giving ChatGPT Plus and enterprise users the ability to craft unique images from a simple conversation.

• Looking for a job in AI? The companies posting the most generative AI job roles include Chegg Inc. , Meta , Capital One , Pacific Northwest National Laboratory and 亚马逊 , according to labor market analysis firm Lightcast .

Catch up on the tech headlines you may have missed this week and what our members are saying about them on LinkedIn.

• Tech earnings season is back with a bang. Here are some highlights:? 微软 beat analyst expectations, reporting revenue of $56.5 billion in its fiscal first quarter on Tuesday. The stronger-than-expected earnings and revenue were buoyed by Microsoft’s Intelligent Cloud division, particularly a 29% revenue jump in its Azure public cloud computing platform.On the other hand, while 谷歌 notched 11% revenue growth in its third quarter, sales from its cloud business came in at $8.41 billion, below analysts' $8.64 billion forecast. Meta , meanwhile, reported its biggest revenue growth since 2021 on Wednesday, with revenue hitting $34.15 billion and profit jumping to $11.6 billion, fueled by accelerating demand for advertising. Snap Inc. also posted better-than-expected third-quarter sales as digital advertising continued to rebound, but the resulting double-digit stock bump was short-lived. Spotify also posted a quarterly profit Wednesday – its first since 2021 – beating Wall Street's expectations by a comfortable margin and sending its shares higher.
• A coalition of dozens of states has sued Meta , alleging Facebook and Instagram intentionally harm kids with features that are meant to be addictive — and illegally collect data from kids under 13 without parental consent. The lawsuit comes two years after whistleblower and former Facebook employee Frances Haugen leaked the company’s internal research showing Instagram's negative effects on teens' body image and overall mental health.
• There’s more DOJ trouble for Tesla . The U.S. Department of Justice has widened its investigation into the company, which it has already subpoenaed over driver assist features. Now the government is requesting information about the range of the company's electric cars, "personal benefits" and "personnel decisions," Tesla said in a quarterly filing with the Securities and Exchange Commission.
• Corporate cybersecurity company Okta has seen its market valuation plunge more than $2 billion since Friday, when it disclosed a hack by an unidentified group that could access client files. The identity management company has more than 18,000 customers, including big names such as Zoom .
• Move over Silicon Valley; Seattle has the most advanced tech talent. Based on The Burning Glass Institute 's latest ranking, which evaluated 60 million of the highest-paying and highest-demand postings and job histories, Seattle beat San Francisco and Silicon Valley, both synonymous with tech. Boston and Austin rounded out the top five.

Here’s keeping tabs on key executives on the move and other big pivots in the tech industry. Please send me personnel moves within emerging tech.

• Web Summit co-founder and CEO Paddy Cosgrave , who faced massive blowback because of his comments about the Hamas-Israel war, resigned on Saturday.
• Meta policy lead for fairness and equity Miranda Bogen and AI policy director Kevin Bankston have joined the Center for Democracy & Technology as the founding director of its new AI Governance Lab and senior advisor on AI governance, respectively, they announced on LinkedIn.
• Prominent AI voice and Meta VP and chief AI scientist Yann LeCun has been named the inaugural chair of the Courant Institute's Jacob T. Schwartz Chaired Professorship in Computer Science.
• Fatima Y., who was most recently the head of Shopify's ecosystem business, has founded a new startup called ImagineCreate AI, which uses AI to refresh product pages.
• Daniela Rus , director of 美国麻省理工学院 's Computer Science and Artificial Intelligence Laboratory, has joined the board of SymphonyAI .

• Chris Meserole , formerly the director of the AI and Emerging Technology Initiative at The Brookings Institution, has joined the AI industry body Frontier Model Forum as executive director. FMF members include Microsoft, Anthropic, Google and OpenAI.

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