How Software Companies Can Enter the U.S. Defense Market

that only pursue defense sales because they are capable of challenging existing prime contractors. But commercial companies entering the defense market can also secure checks from large VC firms after demonstrating the potential for massive scale across the Pentagon. For example, whileonly had a $750,000 non-recurring SBIR before raising their $325 million Series E, the additional funding helped them get a $250 million defense contract a year later.

Many defense investments also come from specialist mid-sized VC firms that explicitly help companies scale in defense. For example, America’s Frontier Fund and Shield Capital have traditional venture capital fund structures but dedicate their resources and networks to support companies selling to defense. Specialist VCs do not need category-defining success to make the same return allowing them to support a wider range of companies selling to defense.

Strategic corporate investors such as Lockheed Martin Ventures and Boeing’s HorizonX-AE Industrial study emerging technologies and offer strategic partnerships on top of earning returns. For example, Lockheed Martin Ventures’ efforts to scout AI/ML techin Fiddler. Strategic investors look after their parent corporation’s strategic interests and can even help startups become a vendor to their parent corporation . Strategic government investors such as In-Q-Tel, the U.S.

The defense market is primed to be transformed by cutting-edge software. This sea change need not be limited to a select few defense-only tech startups or contractors. Defense can be a lucrative additional vertical, for today’s U.S. commercial software companies—one that looks particularly attractive today.

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