More ex-military officials are becoming VCs as defense tech investment reached $35B

The distance between Silicon Valley and the Pentagon just keeps getting smaller. As venture capitalists continue to pour money into defense tech startups, they’re turning to a new hiring pool: veterans and ex-Department of Defense officials.

Andreessen Horowitz hired Matt Shortal, an ex-fighter jet pilot, as its chief of staff; Lux Capital brought on Tony Thomas, former head of U.S. Special Operations Command, as an adviser; and Shield Capital’s managing partner Raj Shah served in the Air Force.

Hiring ex-military personnel can be a major advantage for firms, giving them “an understanding of what problems are actually on the battlefield,” instead of just “sitting in Silicon Valley and theorizing,” Ali Javaheri, PitchBook’s emerging tech analyst, told TechCrunch.

The boon in ex-military hiring comes alongside the continued defense tech investment craze. Silicon Valley pumped almost $35 billion into defense tech startups in 2023, and over $9 billion so far this year, according to a report released last week by PitchBook. This trend is anchored by some blockbuster fundraises. Shield AI, which produces an AI-powered drone pilot system, raised $500 million last year, and Anduril, Palmer Luckey’s defense tech startup, reportedly secured a fresh $1.5 billion in funding last month. Although funding into the sector has slowed this year, Javaheri said it’s still shown “resilience” in the context of a brutal overall fundraising environment.

But the sector is not all roses. Javaheri described the Department of Defense acquisition process as “cumbersome,” sometimes taking years for startups to secure any contract. That’s time startups have to financially weather with little to show investors for their efforts.

Venture firms that can offer startups the connections of ex-military personnel have a major leg up in competitive deals. “You get their network where they can talk to a program officer who's ultimately in charge of the budget line of a specific military office,” Javaheri said. “The military is a very network-driven sort of organization.”

For ex-military, they get entrance into a second, lucrative career with cutting-edge technology. “A few years back you would have gone to be executive vice president at Lockheed Martin — totally not sexy,” Chris O’Donnell, a former Navy SEAL and director of Franklin Venture Partners, told The New York Times.

But the time for landing a cushy post-military venture job might be running out. The sector has hardly any exits to speak of, besides Palantir’s public offering in 2020 or Anduril’s recent buying spree, in which it snatched up engineering company Blue Force and rocket motor maker Adranos.

Even if the tech IPO window wasn’t closed at the moment, Javaheri doesn’t see many IPOs in the future. He advises VCs to view their investments as possible acquisition targets, probably from the very same unsexy companies that these former military folks are currently eschewing.

“There's a good chance that the existing defense contractors will gobble up some of the smaller companies,” he said.

But for the time being, the defense tech hype is still going strong — and veterans and DOD officials can cap off their careers with a well-funded landing pad.

For those who know the history of Silicon Valley, this is a coming home of sorts for the tech industry. The Valley’s tech industry began at the intersection of university research and DoD tech spending, as the area has always been home to a variety of military operations. Indeed, San Francisco’s Presidio area now hosts a number of VC offices, like defense tech backer Founders Fund.

“Silicon Valley has returned to its roots and is working closely with the Pentagon in this increasingly tense and competitive geopolitical environment,” Javaheri said.