VC funding for defense & aerospace hits $10B in 2021

Here’s an excerpt from the Economist article, Can tech reshape the Pentagon?

VC funding for American aerospace and defence startups tripled between 2019 and 2021, to $10bn (see chart). In the first half of 2022 such firms raised $4bn, down a bit from the last six months of 2021 but not as sharply as for startups overall. On August 8th Palantir, a listed data-analytics firm which works with soldiers and spooks, reported better-than-expected second-quarter revenues of $473m, up by 26% year on year. The estrangement between the crucible of America’s tech and the Pentagon may, in other words, be coming to an end. The rekindled bonhomie may reshape America’s mighty military-industrial complex.

I’m sure those VC investments include a fair chunk of primarily civilian aerospace companies such as the new space sector and EVTOL. However, those technologies are often dual-use and even if DoD isn’t on a company roadmap it very well could be. In the EVTOL case, AFWERX prime may have put DoD on the roadmap of companies like Joby where it might not have before. The Prime effort, which provides USAF test and certification assistance, has also requested over $100M in the FY23 budget.

Another source finds that aerospace and defense was just 2 percent of the total VC investment in FY21. That still seems underweight. Let’s use the “Personal Consumption Expenditures” as an estimate of the commercial economy. That’s about $14 trillion a year in the United States. Let’s use rough figures that the DoD sector contracts are $400B and civilian aerospace is about $500B. Putting those together, defense and aerospace as a whole is about 6.5 percent of the total addressable market. Yet it received 2 percent of VC investment. That’s not crazy off, and in fact a little better than I would have guessed.