01-07-2025
The booms and bombs of defense-tech investing
NATO nations last week agreed to spend at least 5% of GDP on defense by 2035, in a major diplomatic win for the Trump administration.
Why it matters: This is a strong tailwind for defense-tech startups, which in the past few years have moved from venture capital's Island of Misfit Toys to Love Island.
And it comes on the heels of Trump's plans for a "Golden Dome" missile shield that could cost $175 billion (including an initial $25 billion earmark in the reconciliation bill).
Driving the news: The NATO pledge includes 3.5% on core defense and 1.5% on securing critical infrastructure.
Axios Future of Defense author Colin Damarest explains: "Countries close to Russia have traditionally spent the most. This includes Estonia, Latvia and Poland — all of which have broken the 3% mark. Tallinn also is home to the alliance's digital brain trust, the NATO Cooperative Cyber Defence Centre."
By the numbers: More than 400 global defense-tech companies have raised nearly $13 billion so far in 2025, per PitchBook.
Zoom in: As venture capitalists rush into the sector, there are some pretty big questions about how they'll ever exit.
Not for market leaders like Anduril, which could go public tomorrow if it wanted, but for the rank-and-file and even some smaller unicorns.
M&A multiples in defense are lower than in broader tech, and that's true whether the buyer is a legacy prime or an upstart like Anduril (which has been acquisitive, but hasn't been buying VC-backed startups).
One possibility is that Big Tech will expand deeper into defense, and thus will pay revenue multiples that will help VCs clear the preference stack. But that hasn't yet played out, particularly as those companies dig into the couch cushions for cash to spend on general AI.
Another is that legacy primes will fear obsolesence and pay up — although they may be content to just ride the NATO/Golden Dome rocket.
