VCs double down on defence

Venture capital (VC) money might be drying up—overall funding dropped by a third globally last year—but startups are still fetching billion-dollar valuations by tapping into something that never goes out of style: Matters of national security.  

What happened: Skydio, a drone startup with customers ranging from everyday aviation enthusiasts looking to capture videos of people wiping out to the US military looking to execute recon missions, raised US$230 million at a US$2.2 billion valuation. 

  • The round included VC heavyweight Andreessen Horowitz alongside big corps like Nvidia and deep-pocketed celebrities like Magic Johnson and Justin Timberlake.

Why it matters: As VCs pull out of traditional tech investments, new sectors of focus are emerging. One such sector is defence, which has proven to be a new haven for investor dollars thanks to increased national defence budgets in the face of geopolitical uncertainty.

  • VCs poured US$7 billion into aerospace and defence companies between January and October last year, marking growth as funding in other sectors dried up. 
  • In the past, VCs have shied away from investments in defence due to moral and ethical complications, but Russia’s invasion of Ukraine has caused a shift in thinking.

What makes startups like Skydio so attractive is that their consumer-facing businesses allow them to bring in revenue while they wait through long government procurement cycles. 

Zoom out: With billions in dry powder sitting around, major firms are also seeking out companies dealing in “must-haves” (like budgeting products) or buzzy tech (anything AI). We might be in the middle of a VC winter, but big firms are still finding ways to keep toasty.