Y Combinator Breaks New Ground: Backing its First Weapons Firm

In a move that signals a shift in Silicon Valley's stance towards the arms industry, Y Combinator, the renowned San Francisco start-up incubator behind giants like Airbnb, Reddit, Stripe, and Coinbase, has boldly ventured into uncharted territory by backing its first-ever weapons company.

Ares Industries, a fledgling company that recently emerged from stealth mode, is making waves with its audacious pitch of "low-cost cruise missiles" tailored for a potential conflict between the US and China in the Taiwan Strait. The start-up claims that US weapons stockpiles would be rapidly depleted in such a scenario, highlighting that "recent conflicts in the Middle East and Ukraine have exposed our weapons as too large and too expensive for modern warfare."

Ares's founders, Alex Tseng and Devan Plantamura, are confident that their ￡240,000 anti-ship cruise missiles "will be 10x smaller and 10x cheaper" than existing alternatives. Tseng's biography on the YC website succinctly states: "Missiles are cool."

This foray into the weapons industry marks a significant departure for Y Combinator, which has traditionally championed software start-ups, e-commerce businesses, and financial technology companies over its illustrious 19-year history.

Against the backdrop of escalating conflicts in Europe and the Middle East, technology investors have shed their reservations about investing in military hardware. They have also been spurred on by the emergence of a new breed of fast-growing companies eager to modernise America's arsenal in exchange for a share of the colossal annual defence budget, which stands at roughly $800bn.

The US defence industry is currently dominated by a handful of established contractors like Raytheon and Boeing, who secure the lion's share of government contracts.

Anduril Industries, the most prominent defence tech start-up, recently raised a staggering $1.5bn to ramp up the production of autonomous weapons for the US military and its allies. This investment was spearheaded by Peter Thiel's Founders Fund, one of the first major venture capital firms to embrace defence technology.

Since then, venture investment has poured in from mainstream players like Andreessen Horowitz and General Catalyst. In the past year, Sequoia Capital, a Silicon Valley titan, made its first forays into defence and weapons, backing Mach Industries, a hydrogen weapons manufacturer, and Neros, a drone-maker focused on supplying quadcopters to Ukraine for data gathering, mine clearing, and offensive missions.

The founder of a start-up in the same YC-funded cohort as Ares noted, "There's a fascinating situation where geopolitical tensions and the end of zero-interest rate policies have prompted a more pragmatic approach." They added that the response to the weapons company among other founders in the group had been overwhelmingly positive, with "people supporting builders tackling cool, challenging projects."

Rather than focusing on massive, intricate weapons systems, these start-ups are prioritising the development of more affordable weapons and drones that can be rapidly produced at scale. Anduril's newfound funds will be channelled into a network of weapons factories, which the company claims will emulate Tesla's manufacturing techniques to boost production.

Jared Friedman, a partner at YC, revealed that the company began actively encouraging defence tech start-ups to apply earlier this year. "Why now? It's not that we wouldn't have funded this before, but this is simply the first time a great company like this has applied," he explained.