Investing in Veterans in Defense Tech: A Strategic Advantage
by Veteran Ventures Capital
Introduction
The intersection of national security and technological innovation presents a secular investment opportunity that is likely to last at least another decade, likely longer. With geopolitical confrontation continuing to grow, dramatic changes in battlefield technology, and the rapidity at which adversaries evolve, the U.S. Department of Defense (DoD) is prioritizing investments in nimble start-ups that produce cutting-edge technologies in space, artificial intelligence, cybersecurity, autonomous systems, and dual-use capabilities. Importantly, the way the DoD is contracting for these capabilities is shifting as well, using Other Transactional Authorities and firm-fixed pricing, which negates the built-in advantages large, established defense primes have enjoyed for decades. As a result, the start-up defense technology ecosystem is experiencing rapid growth, attracting substantial venture capital and government funding.
One key but often underappreciated group driving this innovation is military veterans. The US deployed nearly 2.8M servicemen and women between 2011 and 2018 to Iraq and Afghanistan in our enduring war on terrorism, with 37% of those individuals serving more than one tour. This created a cohort of leaders with knowledge and experience that they are now putting to use. With firsthand experience in operational environments, intricate knowledge of defense procurement processes, and a deep understanding of national security challenges, veterans have started over 162,000 businesses since 2001. This brought the total number of companies run by veterans to 1.7M, employing just over 3.3M people, and contributing $179.9 billion to the economy annually.
While impressive, that represents only 5.8% of returning veterans starting a company—down from 49% of those returning from World War II and 40% of Korean War Veterans. While there are myriad reasons for this, one of the major reasons is that US veterans attract a lower percentage of investment capital as compared to non-veterans. We at Veteran Ventures Capital look at that as a major opportunity. At a time that the Defense Department is fundamentally changing its methods and procedures to procure goods and services in a way that levels the playing field for small companies, the time to support Veteran start-ups is now.
Veteran Founders: A Competitive Edge in Defense Tech
At our core, Veteran Ventures believes that veteran founders make great entrepreneurs due to their unique combination of skills, experience, and mindset honed through military service:
1. Domain Expertise and Operational Insight — Veterans have firsthand experience with defense technologies and operational needs, allowing them to develop solutions that address real-world challenges. Their deep understanding of military procurement processes and regulatory environments accelerates adoption and reduces the friction often faced by non-military founders.
2. Proven Leadership and Decision-Making Skills — Veterans are trained to think strategically, plan for contingencies, and execute complex operations—key skills for scaling a startup. Veterans excel at assembling and leading high-performing teams, fostering mission-driven company cultures.
3. A Healthy Relationship with Risk — Veterans live with risk—they explore it, understand it, mitigate it, or avoid it. Veterans can operate successfully in higher-risk situations while simultaneously protecting against the downsides of risk.
4. Adaptability and Resilience — Military service requires adaptability to rapidly changing circumstances, a critical trait for startup founders who must pivot in response to industry shifts.
5. Strong Work Ethic and Discipline — The military instills a culture of discipline, time management, and accountability—qualities that are crucial for managing a growing company.
6. Network Access and Government Relationships — Veterans often have established relationships within the DoD, defense contractors, and policy makers, providing startups with strategic advantages in securing contracts and funding.
Historical Context of Defense Spending
The DoD has played a pivotal role in expanding the nation's industrial base through strategic investments and policies aimed at fostering innovation and ensuring military readiness. In the 1950s, defense spending constituted over 10% of the U.S. Gross Domestic Product, reflecting a robust commitment to building military capabilities.
Despite these efforts, the defense industrial base faces challenges such as consolidation, with the number of prime contractors decreasing from 51 to fewer than 10 over recent decades. To address these issues, the DoD has implemented initiatives to rebuild and modernize the industrial base, including a quicker and more efficient contracting process, more opportunities for small businesses, and importantly, more focus on firm, fixed-priced contracts that reward delivery and efficiency.
The DoD Budget Focus on Innovation, Research and Development
The DoD has experienced significant budgetary growth in recent years, particularly in areas that foster innovation within the defense technology sector. Fiscal Year 2025: The DoD's budget request stood at approximately $900 billion, reflecting a commitment to maintaining and enhancing military capabilities.
The growth in RDT&E budgets was coupled with visionary leaders at the Pentagon who believed the private sector had more to offer the nation than just prosperity—it could contribute security. The DoD made "innovation" a cornerstone, and promoted organizations to court the start-up community, and by extension, the private capital markets.
Strong Investment Returns in Defense Startups
Venture capital investment in the defense sector has surged over the past four years, rising from $2 billion in 2020 to a projected $6 billion by the end of 2025. Deal count in the aerospace & defense sector reached new heights, with an estimated 333 deals in 2024, beating 2021's record, and the number of exits reached its highest in seven years. Deal value rose 37% year-over-year to $36.7 billion.
Success Stories: Veteran-Led Defense Tech Unicorns
The legacy of pioneering firms like FedEx, Nike, Walmart, Enterprise, GoDaddy and Remax demonstrate a history of veteran entrepreneurs transforming the economic landscape. Notable examples include Shield AI ($2.7B valuation), Anduril Industries ($8.5B), Shift5 (over $1B), SailPoint Technologies ($12.8B), Huntress Labs ($1.56B), ID.me (over $1.5B), L3Harris Technologies (over $40B), and C3 AI (over $4B).
Conclusion
The defense technology industry is at the forefront of national security and economic growth, and veteran entrepreneurs are playing a pivotal role in driving innovation within this space. For investors, backing veteran-led defense tech firms is more than just a patriotic endeavor—it is a strategically sound business decision. The combination of government funding, strong exit potential, and the growing importance of national security technologies makes this sector an attractive, high-impact investment landscape.
