Why VCs Are Investing In Dual-Use Military/Civilian Technology
Lisya Bahar Manoah, Managing Partner at Arieli Group.
Waze, Google Maps, Apple’s navigation app—without them, many drivers would be lost when travelling unfamiliar routes. These apps save time, money and sometimes even the lives of those who use them. The technologies behind these applications exist thanks to GPS satellites—one example of military technology that was eventually repurposed for consumer use.
Opportunities abound for investors as the defense sector grows. Defense is one of the backbones of the economy, and many of the technologies emerging from the industry can be used for civilian purposes, as well. Today, many VCs are seeking out investment opportunities with dual-use technologies, including big-name VCs like Andreessen Horowitz, Alumni Ventures, Sequoia Capital, General Catalyst, Lockheed Martin Ventures and others.
Examples Of Dual-Use Technologies Obtaining VC Investment
The big jump in VC investments came in 2021, when nearly $50 billion was invested in the defense sector—more than double 2020’s $20 billion. Among the categories investors are most interested in are advanced computing and software, biotechnology, security, connectivity and sensing systems.
Most VCs will not invest directly in weapons contracts, as the technology associated with these systems usually cannot be redeployed in the civilian space because of security regulations. But many will invest in startups or veteran firms whose technology could be repurposed for civilian uses, even if they were specifically developed for military purposes. Here are a few prominent examples of military technologies that have successfully transitioned to civilian applications—often with venture capital backing:
• Drones
Skydio, one of the largest makers of drones in the U.S., develops autonomous drones that utilize computer vision to identify objects. Established in 2014, Skydio is privately held, and most of the over $800 million it has raised in funding rounds so far has come from VCs. Some 50% of Skydio’s sales are to military customers, including the U.S. Department of Defense; however, the company has a wide range of other customers, including utility companies, construction firms and the transportation sector.
• Infrared Sensors
Originally designed for military vehicles to detect enemy presence, infrared sensors are now being used in cars equipped with night vision technology, enabling drivers to spot people or animals up to a hundred yards away.
• ECG Sensors
Developed for monitoring soldiers’ health on the battlefield, these sensors are now also used in wearable fitness devices to track athletes’ vital signs.
• Time-Of-Flight (TOF) Sensors
TOF sensors use light to measure distance and were initially employed for military surveillance and target detection. These same sensors are now deployed by robot vacuum manufacturers to help devices distinguish between different floor types, like linoleum, carpet or tile.
Opportunities Ahead
VCs have numerous opportunities to capitalize on dual-use technology investments across diverse sectors like healthcare, agritech and the automotive industry. For instance, sensors, which are vital to a wide range of military and defense systems, play an integral role in innovation for each of these fields. In agriculture, sensors can be used to detect and analyze the properties of soil, indicating whether it is suitable for specific types of crops, or which types of fertilizer will be most beneficial.
And there is clearly great opportunity for investors; according to Pitchbook’s “Vertical Snapshot: Defense Tech Update,” as of June 2024, the most recent month for which data is available, the defense technology sector experienced 35 exits totaling $8.3 billion—a significant increase over all of 2023, which saw 39 exits valued at $2.2 billion. Key growth areas include AI, where VCs invested over $130 billion for the entire year—more than half the amount they invested globally in 2024. Other growth areas include robotics, big data analytics and the Internet of Things (IoT).
With substantial government contracts on the table and the potential for these technologies to be adapted for commercial markets, I believe we can expect to see venture capitalist firms doubling down on their dual-use investment portfolios.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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