VCs are pouring billions into defense tech under Trump — but some worry the hype is outpacing reality

Venture capitalists are throwing their weight behind defense tech as the Trump administration settles into Washington, energized by a flurry of executive orders to revamp defense acquisitions and the Department of Defense’s push to modernize the military with cutting-edge tech.

Investor momentum has only increased in defense tech over the past two years, with VC investments in defense-related companies surging in 2024, up 33% year-over-year to $31 billion.

2025 is already off to a rollicking start. In the first quarter alone, there were 27 venture-backed defense tech deals, up from 12 in the same quarter last year, according to data firm PitchBook. Those funding rounds totaled $1.4 billion, up from $200 million in the first quarter of 2024.

Some recent deals are massive. Maritime startup Saronic Technologies raised a $600 million Series C at a $4 billion valuation led by solo-capitalist Elad Gil. Drone company Epirus locked down a $250 million Series D led by 8VC and Washington Harbour Partners LP. Another drone startup, Shield AI, raised a $240 million round at an over $5 billion valuation led by L3 Harris and Hanwha Aerospace. And early-stage rounds are humming along, too: Military systems company Castelion Corporation clinched a $70 million Series A led by Lightspeed Ventures Partners.

Investors who missed out on these hype-fueled primaries are bidding aggressively on the secondary market, with shares of defense darling Anduril among the most in demand.

But not every new policy is fueling investor appetite. Some VCs told Business Insider that Trump’s tariffs are raising hardware startups’ costs and making it difficult to deploy cash. Others think such prolific enthusiasm will attract cash-flush generalist investors who could bring about unsustainable valuations. And even the bulls are “cautiously optimistic” that the new administration’s promises will become action.

‘Patriotic capital’ — and generalist investors — race toward defense

As defense tech looms large in some venture portfolios, investors say they are hopeful that the Trump administration will bring innovation into the Pentagon itself.

Jackson Moses, founder and solo GP of defense-focused firm Silent Ventures, thinks the administration is interested in reshaping the Department of Defense, he said, an inkling he attributes to President Trump’s stream of executive orders.

Garuth Acharya, a principal at 8090 Industries, is similarly enthused by actions that promise to “cut the red tape and move fast,” he told BI, like a recent executive order to streamline the federal procurement process, the complex process by which Congress, federal agencies, and others across government work to secure commercial military equipment and technology.

George Hoyem, who leads investments at In-Q-Tel, the strategic VC arm of the CIA, thinks that the White House’s push for more public-private partnerships will lower barriers for startups that want to work with government customers.

“These policies will not only increase the flow of capital into the sector but will also accelerate the adoption of cutting-edge technologies, which is a win for both investors and the country’s defense capabilities,” Hoyem said in an email to BI.

Once dominated by a few specialized funds, the administration’s focus on defense tech is drawing a broader mix of investors to the industry, defense-focused VCs say.

Jake Chapman, whose firm Marque Ventures invests in national security startups, says that interest in the defense tech ecosystem is on the rise. He hears about emerging managers or established firms building out new defense tech investing practices every week — many of whom “weren’t thinking about it six months ago and are starting to try and raise capital around that thesis,” he told BI.

While Chapman and others think that the administration’s interest in bolstering defense tech has already sparked investors’ interest, only a core group of VC funds focus solely on defense tech, according to PitchBook, though this number may increase as investors raise money from limited partners in the coming months.

While deal competition hasn’t become crowded quite yet, Chapman expects that to change in the next few months. The bulk of LP dollars, he added, is still flowing to large, established funds with institutional LPs, rather than newer or more specialized players.

Acharya of 8090 Industries welcomes the influx and thinks that both political and financial incentives are driving such investing behavior. “We are seeing more people come into this industry to invest — because it’s patriotic capital, and it makes sense: You’re going to make money on a lot of these deals,” he said.

Others are more cautious. Moses of Silent Ventures warns that as defense tech goes mainstream, a surge of cash could inflate valuations, even for defense tech’s darling startups.

Relying too heavily on generalist dollars could backfire, Moses warned. He told BI he’s worried that the surge of new defense tech investing might lead to a wave of defense startups that get funded but never reach meaningful scale — a trend he fears could flood the market with zombie startups. Defense tech investors might see “a lot more companies incorporate with generalist dollars, but not necessarily graduate,” he added.

Tariffs and ‘cautious optimism’

For firms like Chapman’s Marque Ventures and Hoyem’s In-Q-Tel, tariffs might make hardware startups that use US-made parts more attractive than those reliant on Chinese alternatives.

Like Hoyem, Acharya is hopeful that tariffs will prompt more investment in US manufacturing. “If anything, tariffs are going to accelerate re-industrialization in terms of advanced manufacturing,” he said. “This is our bread and butter — energy policy, abundance, all these kinds of things.”

Still, not all investors see tariffs as an investment opportunity. Taylor Sargent, a partner at early-stage defense tech firm Industrious Ventures, said that the policies are “absolutely making us take a step back,” though he noted that dual-use startups — ones that have both military and commercial applications, like Scale AI — can help hedge against “the changing winds of this administration,” Sargent added.

Given tariff fallout and increasing competition within defense tech deals, even prolific investors in the sector are treading carefully. Chapman says he is “cautiously optimistic” about the Trump administration’s ability to execute on its bullish vision for the industry — “with an emphasis on the cautious,” he added.

Others worry that excitement is outpacing execution. Moses cautioned that it’s a prime moment for founders to sell a story to eager investors about the Department of Defense’s transformation under the Trump administration. He expects a wave of underperforming “zombie companies” to follow — a correction that could echo the ebullient investor frenzy of the early 2020s.

Sargent shares that concern. Citing a swirl of mega-rounds in the first quarter of 2025, he said Industrious Ventures is “proceeding with a little bit of caution,” and predicted that the defense tech space will “settle down and mature” over the next year or so.

Still, Moses believes in the long-term viability of defense tech: “But, like history exemplifies, defense tech will bounce back,” he said.

The administration’s stated ambitions are promising, Chapman noted — but execution is still far from guaranteed.

“It’s clear that the administration wants to accelerate contracting and procurement processes,” he said. “They want to work with nontraditional defense companies, like the companies we’re invested in. But just because they want that to happen — and they’re trying to reshape policy to facilitate it — doesn’t mean it will happen.

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