Two years ago, we made the case for defense tech investing. Since then, we believe the world has changed dramatically. From our perspective, geopolitical tensions have intensified, warfare has evolved, defense budgets are growing. Today, we see governments seeking vendors agile enough to deliver modern solutions at the speed today’s threats demand. Our view is that the opportunity in defense tech investing isn’t just bigger than it was in 2023—it’s more urgent.

To the average observer, the most dramatic story of recent tech progress likely centers on generative AI’s seemingly breakneck evolution over the past several years. Yet behind the scenes and often beyond the view of the general population, we believe defense tech has been evolving just as rapidly. Now, several trends are converging, including geopolitical instability, an urgent need for more modern defense solutions, and maturing capabilities of dual-use technologies. As a result, governments are now reevaluating their priorities and looking beyond traditional large contractors for military and defense projects.

Together, these forces underscore our belief in the strategic importance of investing in solutions that enhance global stability and security. Emerging technologies are a key factor in the global power balance, and at Point72 Ventures, our view is that AI, autonomy, and software-first systems will redefine modern conflict with their prioritization of agility over mass and scale.

The Problem and the Opportunity

From 2020 to 2024, defense budgets increased by $146B in the United States and $480B globally. But we don’t think the pace of innovation has kept up. The defense industrial base was designed for a different era—one where 6-8 year timelines, monolithic programs, and hardware-first thinking were the typical norm. Today, our view is that’s not going to cut it. Recent conflicts have shown us that there’s an urgent need for new technologies including autonomous solutions, cybersecurity, electronic warfare, advanced manufacturing, energy and more.

Autonomous systems must operate in coordination, adapt on the fly, and reduce the need for human operators. Cyberspace is now a contested domain and, in our view, decision speed, the ability to evade surveillance, and offensive capability provide a clear advantage. And space has grown from a support layer to critical infrastructure.

At the same time, modern defense requires new ways to generate and store energy to move quickly and quietly through contested zones. This is where advanced manufacturing comes in.

We have seen that this is where startups shine because they can typically move fast, build modularly, and are increasingly staffed by people who’ve worked at the edge of both technology and mission. But for too long, we have seen them be shut out of meaningful defense spending.

Historically, less than 1% of total defense spending in the United States has been channeled into startups (venture investment in defense-tech startups reached approximately $3 billion in 2024, while the Department of Defense’s annual discretionary budget is around $850 billion). Now that seems to finally be shifting, with bipartisan support for strengthening industrial base capabilities and aligning commercial tech with national security goals. Other nations are following suit. All 32 NATO members have recently pledged to increase their defense and security-related spending to 5% of their GDP by 2035, some of which we anticipate could flow into startups.

To us, the opportunity is clear—and so is the urgency. To maintain deterrence, we believe we need to invest in the technologies that define the future, not the ones that won the past.

Why We Believe Specialized Support is Critical to Defense Tech Startup Success 

Defense is not like other markets. Having the best technology will only get you so far. Success also hinges on understanding how the government buys, who the decision-makers are, and how to align with long-term programs of record. We often see startups win early R&D or pilot contracts, but struggle to transition into full-scale procurement. Navigating all of this requires a clear understanding of paths to acquisition, timing and budget windows.

The Department of Defense isn’t a single customer—it’s hundreds of stakeholders across services, commands, and acquisition offices. Each has different pain points, risk tolerances, and procurement approaches. Sales cycles often last multiple years, customers are often classified, and budget processes are often opaque. Our view is that specialized support helps startups identify the right customer and build for real demand.

Policy and timing matter, too, in an ecosystem where programs can shift quickly based on elections, budget cycles and evolving global threats. We don’t think startups in this sector can just track trends, but also must track policy developments, new executive orders, and upcoming budget authorizations so founders can time their moves correctly to have the best possible chance at success.

Another reality of defense tech: in our experience, talent and partnerships are hard to find. We have seen that startups need to tap into the expertise of those who understand both cutting-edge engineering and the unique, complex realities of the sector. Often, they need connections to advisors who have operated in classified environments, former military who know the on-the-ground realities and can validate and pressure-test product-market fit, and trusted lobbyists and legal experts who can help navigate security clearance and contracting.

Our Advantage:  For Us, This is Personal

For our team at Point72 Ventures, being a dedicated partner to the next generation of defense tech companies is about more than investing. We care deeply about the sector because we’ve lived the mission firsthand with combined experience that includes the CIA, US Navy, Marine Corps, In-Q-Tel, BAE Systems, NATO Innovation Fund and Northrop Grumman. For the past five years, we’ve been investing in and supporting founders who we believe offer products that give those working across national security the tools they need to do their jobs effectively.

Our conviction as investors comes from the fact that many of us started out building and deploying systems, not just analyzing them. Now, we are able to evaluate defense startups like product managers to understand and form our opinions about what’s actually possible in the field. Our careers leading up to Point72 Ventures reflect in our networks, too. We’re fortunate to be part of a broader community of former users and operators who also answered the call to build for national security. These are relationships that have been built over many years, and often decades.

In short, we believe that succeeding in the defense tech industry requires more than building great products. We think it requires a deep understanding of government systems, timing and policy. Startups that can navigate this complexity stand to deliver transformational capabilities. But to do so, we believe they need investors and advisors who bring not just capital, but clarity, networks and real-world experience.

There’s much more work to be done in this sector and the potential for many more startups to be launched. To the talented and dedicated founders bold enough to build in one of the most difficult spaces out there, we’re excited to be your partners on that journey.

This blog post is not an advertisement nor an offer to sell nor a solicitation of an offer to invest in any entity or other investment vehicle and has been published for informational and market commentary purposes.  The information herein is not intended to be used as a guide to investing or as a source of any specific investment recommendation, and it makes no implied or express recommendation concerning the suitability of an investment for any particular investor.  Neither Point72 Private Investments, LLC nor any of its affiliates (collectively, “Point72”) accepts any liability for such information’s fairness, correctness, accuracy, reasonableness or completeness—no reliance should be placed on this document or the information contained herein.  Point72 is under no obligation to update this document or to otherwise notify a reader if any matter stated statement or information contained here changes or subsequently is shown to be inaccurate. The opinions, projections and other forward-looking statements are based on assumptions that the authors’ believe to be reasonable but are subject to a wide range of risks and uncertainties, and, therefore, actual outcomes and future events may differ materially from those expressed or implied by such statements.  Investment strategies, such as those discussed herein, contain inherent risks and limitations, including that such investments may be subject to unfavorable competitive dynamics or that the methods described herein may not be successful in achieving investment objectives. All investments carry a risk of loss.