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 it’s 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.
Their ability to assess risks, allocate resources efficiently, and implement long-term strategies gives them an edge in competitive markets.
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.
Veterans are accustomed to facing challenges head-on and overcoming obstacles with determination.
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.
Veteran founders set high standards for themselves and their teams, fostering a culture of excellence.
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.
Many veteran founders leverage defense-focused accelerators, such as AFWERX, DIU, and NSIN, to gain early traction.
Empirical evidence underscores the strategic advantage of investing in veteran-led defense technology startups. A 2019 report by the Center for a New American Security (CNAS) [[i]] highlighted that veterans possess personal characteristics and experiences conducive to successful entrepreneurship, particularly in technology-based startups. The report emphasized that veterans' leadership skills, adaptability, and mission-focused approach are instrumental in navigating the challenges of the tech startup landscape.
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. This substantial investment led to the establishment of a strong defense industrial base, supporting advancements in various sectors.[[ii]]
More recently, the DoD focused on strengthening the industrial base. The release of the National Defense Industrial Strategy underscores the department's recognition of the critical link between a healthy industrial base and U.S. military power.[[iii]] While we love the saying “Amateurs talk tactics, experts talk to logistics”, in today’s world, experts talk industrial base and supply chains.
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. The large prime contractors enjoyed a competitive bidding process and compliance requirements that simply swamp small businesses in costs; they also grew comfortable with a “cost plus fixed fee” contracts, which guaranteed profits, and provided an unintended incentive to avoid cost-cutting. All of these trends led to decreased competition, potential vulnerabilities in supply chains, bloated costs, and slower successes.
To address these issues, the DoD has implemented initiatives to rebuild and modernize the industrial base. The department's detailed plans involve significant investments aimed at enhancing production capabilities and fostering innovation within the defense sector. This includes 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 (see figure 1). This expansion has been instrumental in stimulating increased investment and development in defense tech areas. Consider the following statistics:
Overall Budget Growth:
Fiscal Year 2025: The DoD's budget request stood at approximately $900 billion, reflecting a commitment to maintaining and enhancing military capabilities.[[iv]]
Research, Development, Test, and Evaluation (RDT&E) Investments:
Fiscal Year 2024: The DoD emphasized the importance of prioritizing science and technology innovation to maintain the U.S. military’s edge, leading to a record RDT&E budget request.[[v]]
Fiscal Year 2025: The budget continued to prioritize science and technology, with a focus on advancing capabilities in areas such as artificial intelligence, hypersonics, and quantum science.[[vi]]
The growth in RDT&E budgets was coupled with visionary leaders at the Pentagon, such as Dr. Robert Work, who believed the private sector had more to offer the nation that 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. For example, the Defense Innovation Unit began in 2015, and is now on “DIU 3.0”, focusing on scaling innovation in a meaningful way. The Small Business Innovation Research and Small Business Technology Transfers programs awarded $54.6B in awards through 2019; the Navy awarded $1.5B to 433 companies in such grants in 2022 alone. Several of the Services now have a “WERX” program, designed to help bridge the gap between the Services and innovation: SOFWERX, SPACEWERX, AFWERX, FATHOMWERX, etc. all have dozens of events a year to bring small businesses to the fight.
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. This trend is mirrored in Europe, where VCs have deployed $5.2 billion into defense companies—a 24% increase from 2023.
Over the past five years, the defense technology sector has seen approximately 1,000 mergers and acquisitions (M&A) in private markets. In 2022 alone, there were 433 transactions in the Aerospace, Defense, and Government sectors, with private equity accounting for 47% of these deals.[[vii]]
Deal count in the aerospace & defense sector reached new heights last year, countering the sluggishness in the broader PE industry. The annual deal count stood at an estimated 333 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.[viii]
Despite economic challenges, the defense sector's M&A activity has remained robust compared to other industries, largely due to increased global defense spending and heightened geopolitical tensions.
Impact on Defense Technology Investments:
The substantial allocations toward RDT&E have had a profound impact on the defense technology industry:
Encouragement of Private Sector Collaboration: The increased funding has fostered a closer relationship between government agencies and the private sector, encouraging startups and established companies to invest in defense-related technologies.
Focus on Emerging Technologies: Significant investments have been directed toward emerging technologies, including artificial intelligence, hypersonics, and quantum science, ensuring that the U.S. maintains its technological superiority.
The expansion of the DoD's budget, particularly in RDT&E, is a driving force behind heightened investment and innovation in the defense technology sector, reinforcing strategic priorities to safeguard national security and maintain technological dominance. When combined with the unique expertise and leadership of veteran entrepreneurs, this creates a powerful formula for strengthening national defense while delivering strong returns for investors.
How Veteran-Founded Defense Firms Differ in Innovation
Veteran-founded defense firms are on the rise (see Figure 3 below):
These firms show some notable differences in innovation compared to non-veteran-founded firms:
1. Cybersecurity focus: Veteran-founded companies are twice as likely to start businesses in the cybersecurity field compared to non-veterans.[[ix]
2. Innovation approach: Some veteran-founded defense startups, like Anduril, represent a shift in the traditional approach to defense innovation:
They place software at the heart of their defense philosophy, leveraging cutting-edge technologies like AI, machine learning, and computer vision.[[x]]
These companies build products from first principles, focusing on mission requirements rather than rigid specifications, allowing for greater adaptability and innovation.
3. Technological expertise: Veteran-founded defense startups often demonstrate:
Greater spending on R&D relative to their size compared to average defense contractors.
Top-tier software capabilities and a new generation of STEM talent fluent in digital technologies such as AI, quantum computing, and advanced microelectronics.[[xi]]
4. Business model: Veteran-founded defense firms tend to have:
Product-oriented business models that are faster, cheaper, and more innovative.
A focus on commercially priced, scalable products and services.
5. Dual-use potential: Veterans naturally gravitate toward businesses that support the national security space, many of which have dual-use applications and represent significant commercial opportunities.
The number of start-ups that have US veterans on the leadership team is significantly larger, with veterans assuming COO, CTO, CGO and other critical roles in start-ups. Over half of the 2.7M eligible veterans used their Post 9-11 GI Bill, with business and STEM degrees being the top programs of use. This strongly suggests the pipeline of future Veteran-led startups is strong.
Call to Action
While a good start, this is simply not enough. The US’s private capital markets are the deepest in the world—it is a strategic advantage we have over all of our adversaries. We believe there is an entire second defense budget available, year-over-year, in the private capital markets, ready and able to fund defense transformation.
Veteran Ventures focuses on Veteran-led businesses for specific reasons:
Early Market Validation: Startups led by veterans often develop products based on direct operational experience, leading to faster validation and product-market fit.
Government Funding and Non-Dilutive Capital: Veteran-founded companies frequently secure SBIR/STTR grants, OTAs, and DoD contracts, reducing risk and minimizing dilution for venture capital investors. Additionally, US Veterans often have a disability rating, and are given preferential Service Disabled, Veteran-Owned, Small Business contracting opportunities.
Exit Potential: Major defense primes and government agencies actively seek to acquire or partner with startups that address critical national security challenges, creating strong exit pathways.
Success Stories: Veteran-Led Defense Tech Startups Unicorns
The legacy of pioneering firms like FedEx, Nike, Walmart, Enterprise, GoDaddy and Remax demonstrate a history of veteran entrepreneurs transforming the economic landscape of the US and even on a global scale. The legacy continues; we are seeing a strong crop of veteran-founded firms in the post 9/11 era leading a new wave of unicorns. Here are a few examples:
1. Shield AI
Valuation: $2.7 billion (as of October 2023)
Founders: Brandon Tseng (Navy veteran), Ryan Tseng, and Andrew Reiter
Overview: Established in 2015, Shield AI focuses on developing artificial intelligence and autonomous systems for defense applications. Their flagship product, the Nova drone, is designed for reconnaissance and combat assistance. The company has secured contracts with the U.S. Department of Defense and has been recognized for its innovative contributions to military technology.
Valuation: $8.5 billion (as of December 2022)
Founders: Palmer Luckey, Trae Stephens (Air Force veteran), Matt Grimm, Joe Chen, and Brian Schimpf
Overview: Founded in 2017, Anduril specializes in autonomous systems and artificial intelligence for defense applications. The company has developed a range of products, including autonomous surveillance towers and unmanned aerial vehicles, and has secured significant contracts with the U.S. Department of Defense.
3. Alliant Healthcare Products
Valuation: Surpassed $1 billion in federal government healthcare sales (as of October 2024)
Founder: Bob Taylor (Air Force veteran)
Overview: Founded in 2002, Alliant Healthcare Products is a veteran-owned small business that provides medical devices and equipment to federal healthcare facilities, including those within the Department of Veterans Affairs and the Department of Defense. The company has achieved significant milestones in federal healthcare sales, underscoring its commitment to serving veterans and active-duty military personnel.
4. Shift5
Valuation: Over $1 billion (as of 2024)
Founders: Josh Lospinoso and Michael Weigand (both Army veterans)
Overview: Founded in 2019, Shift5 is a cybersecurity company that focuses on protecting operational technology in transportation systems, including planes, trains, and tanks. The company provides solutions to monitor and defend the digital components of these vehicles against cyber threats.
5. SailPoint Technologies
Valuation: $12.8 billion (as of February 2025)
Founder: Mark McClain (Air Force veteran)
Overview: Founded in 2005, SailPoint is an identity security company that provides solutions to help organizations manage user access and protect digital identities. The company serves major clients, including General Motors and Hershey, and has seen increased demand due to stricter data privacy regulations and rising cybersecurity threats.
6. Huntress Labs
Valuation: $1.56 billion (as of July 2024)
Founder: Kyle Hanslovan, (Air Force veteran)
Overview: Founded in 2015, Huntress Labs specializes in cybersecurity, providing threat detection and response services primarily for small and medium-sized businesses. The company's platform focuses on identifying persistent threats and vulnerabilities that often bypass traditional security measures.
Valuation: Acquired by Forcepoint in 2017 for an undisclosed amount, estimated to be over $1 billion
Founder: Guy Filippelli (Army veteran)
Overview: Founded in 2011, RedOwl developed analytics software to detect insider threats, serving clients in defense and finance sectors.
8. ID.me
Valuation: Over $1.5 billion (as of 2021)
Founder: Blake Hall (Army veteran)
Overview: Founded in 2010, ID.me provides secure digital identity verification services, widely used by government agencies and businesses to authenticate users.
Valuation: Over $40 billion (as of 2025)
Co-founder: Frank Lanza (Navy veteran)
Overview: Formed through the merger of L3 Technologies and Harris Corporation in 2019, the company provides advanced defense and communication technologies to military and government agencies.
10. C3 AI
Valuation: Over $4 billion (as of 2025)
Founder: Thomas M. Siebel (Army veteran)
Overview: Founded in 2009, C3 AI provides enterprise AI software solutions, including applications for defense and intelligence agencies to enhance operational efficiency and decision-making.
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. With unparalleled domain expertise, established government networks, and the leadership acumen gained through military service, veterans bring a unique competitive edge to the defense startup ecosystem.
The U.S. government's continued emphasis on modernizing its industrial base, coupled with rising venture capital interest in dual-use technologies, creates an opportune environment for veteran-led startups. These companies are not only capable of generating significant financial returns but also contribute to the broader mission of maintaining U.S. technological superiority.
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. As the defense technology ecosystem evolves, veteran entrepreneurs will continue to play an essential role in shaping the future of innovation and security.
[i] https://www.cnas.org/publications/reports/veteran-tech-entrepreneurial-ecosystems
[iii] https://tnsr.org/2024/01/shining-a-light-on-the-defense-departments-industrial-base-problems/
[iv] https://www.cbo.gov/publication/61017
[vi] https://www.nationaldefensemagazine.org/articles/2023/3/13/new-budget-prioritizes-science-technology
[vii] https://www.highergov.com/reports/year-end-ma-review-2022/
[viii] https://pitchbook.com/news/reports/q4-2024-aerospace-defense-report
