Private equity aerospace and defense startups received $3 billion in venture capital funding through 102 deals in 2024. This represents an 11% jump from $2.7 billion in 2023. The defense tech sector has attracted nearly $130 billion in venture capital since 2021, showing a dramatic 145% rise compared to 2017-2020.
Defense companies have become attractive investment targets as annual defense spending between the U.S. and partner nations reaches $1.6 trillion. The U.S. makes up half of this global budget. Private equity firms now follow venture capital into this sector by a lot, though they move with caution. The defense sector brings its own set of challenges. Companies just need sharper diligence and must arrange their strategies due to complex regulations, evolving compliance expectations, and reputation risks.
This piece looks at the digital world of defense tech startups and why they keep gaining momentum. It also highlights major breakthrough categories and shows how private equity can participate in these opportunities while handling the sector's unique requirements.
Why defense startups are gaining momentum
Defense startups have gained tremendous momentum as several powerful forces meet in 2025. U.S.-based defense tech startups received venture investments of about $38 billion through the first half of this year. This is a big deal as it means that the 2021 peak might be surpassed if this pace continues. These numbers reflect a fundamental change in the development and deployment of national security capabilities.
The convergence of tech maturity and global threats
The geopolitical landscape has altered defense priorities. Defense budgets grew by $146 billion in the United States and $480 billion globally from 2020 to 2024. Many countries have released updated national security strategies since 2022. These strategies highlight the need for new technologies that boost resilience and effectiveness.
Tech advances have created fertile ground for innovation. Defense tech founders now develop solutions that benefit both defense and commercial sectors. Technologies serving both military and civilian purposes help startups attract investment while meeting critical national security needs.
These trends have created perfect conditions for private equity aerospace and defense investments. Traditional defense contractors now face mounting pressure to modernize faster.
The role of public-private collaboration
The Department of Defense has created multiple innovation-focused organizations over the last decade. These organizations encourage development and deployment of new technologies. They include:
The Defense Innovation Unit (DIU) that scales innovation through better connection with private companies
The Office of Strategic Capital (OSC) that attracts private capital for national security
National Security Innovation Capital (NSIC) that funds hardware startups solving defense challenges
NATO has formed an innovation accelerator (DIANA) and launched the €1 billion NATO Innovation Fund focused on dual-use technologies. These initiatives provide well-laid-out pathways for defense companies to invest in and scale their innovations.
Each partnership creates what the Department of Defense calls an "industrial commons." Here, manufacturers can pool risk – shared by the federal government – to advance manufacturing capabilities domestically.
How Decorus Imperium sees the chance
Decorus Imperium knows that all but one percent of total defense spending in the United States has gone to startups historically. This creates huge opportunities for focused investment strategies.
Governments want vendors who can deliver modern solutions at the speed needed to counter today's threats. Decorus Imperium places itself where emerging technologies and national security priorities intersect. They focus on finding defense companies with strong technical teams, clear paths to government contracts, and expandable technologies that work in commercial markets too.
Top innovation categories in defense tech
State-of-the-art technologies reshape the defense scene and create compelling opportunities for private equity aerospace and defense investments. Six categories of advancement stand out as promising targets for investors seeking defense companies:
1. AI and machine learning
AI provides critical decision advantages at digital battlespace speeds. The Department of Defense's Task Force Lima aims to use AI capabilities across operations, from warfighting to policy. Defense AI must work with limited data sets in unpredictable environments, unlike commercial applications. Companies that solve these unique challenges become valuable assets. AI-powered systems streamline operations, boost decision-making, and make military missions more effective.
2. Autonomous drones and vehicles
Technical breakthroughs in robotics now enable autonomous systems that support high-risk missions and reduce risks for troops. The Defense Innovation Unit has chosen multiple vendors through its Ground Vehicle Autonomous Pathways project to prototype software for unmanned vehicles. These technologies deliver surveillance capabilities, threat identification, and better communication in low-bandwidth regions. Defense agencies have increasingly adopted autonomous solutions, which creates substantial market opportunities.
3. Cybersecurity and threat detection
The Department of War has implemented a Cybersecurity Risk Management Construct to provide immediate cyber defense. This five-phase construct marks a change from 'snapshot in time' assessments to dynamic, automated monitoring—essential elements in modern warfare. Companies that develop AI-driven threat detection systems attract major attention by identifying anomalies and responding quicker than traditional methods.
4. Space and satellite systems
Space has become the new battlefield. Military space programs have evolved beyond traditional fixed-orbit satellites toward agile spacecraft capable of sustained maneuvering. The Space Force develops refueling vehicles and conducts in-orbit servicing experiments to support these dynamic operations. Companies that enable satellites to counter threats through unpredictable maneuvering represent compelling investment targets.
5. Hypersonics and advanced weapons
Hypersonic systems travel at Mach 5 (a mile per second) or faster and present game-changing capabilities for national security. These weapons strike targets faster while maneuvering to avoid detection and defensive countermeasures. Their development requires solutions to complex engineering challenges including heat management, advanced materials, and precise maneuverability. This growing sector creates specialized investment opportunities.
6. Quantum and next-gen computing
Quantum computing marks a fundamental change with major national security implications. Early quantum supremacy demonstrations indicate this technology will break traditional cryptographic systems and enable unprecedented optimization of complex operations. Investment opportunities exist in quantum-enhanced AI, battlefield simulations, and secure communications. These areas could alter conflict management in the 21st century through quantum capabilities.
How private equity can engage with defense startups
Private equity investors see unique opportunities to participate in defense technology startups. These opportunities come with their own set of challenges that are different from traditional commercial investments. Success in this complex ecosystem demands specific knowledge and strategies.
Understanding dual-use potential
Dual-use technologies work in both defense and commercial applications, which makes them attractive investment targets. AI, autonomous systems, and quantum computing let startups build sustainable business models that don't rely solely on defense funding. The internet, GPS, and Siri started as defense projects and became transformative technologies. Investors should focus on companies that develop solutions with commercial potential to stay strong through government contracting cycles.
Evaluating product-market fit in defense
Product-market fit in defense is different from commercial markets. Companies find the best results through direct work with military end-users during development. They put prototypes in warfighters' hands through demonstrations, expos, and base visits. The distinction between R&D contracts and production contracts matters since only 16% of DOD SBIR-funded companies get Phase III contracts. Startups need clear paths to Programs of Record for predictable long-term revenue.
Supporting scale and compliance readiness
Compliance readiness poses a major challenge. Over 75% of contractors aren't ready for Cybersecurity Maturity Model Certification requirements coming in 2025. Private equity firms can help portfolio companies set up crucial cybersecurity measures like vulnerability management, multi-factor authentication, and patch management. Companies need support to cross the "Valley of Death" between prototype and production, especially with streamlined procurement options like OTAs.
Working with government stakeholders
Defense sector success depends on understanding stakeholders beyond the Department of Defense. Military end-users, congressional appropriators who control funding, and senior military leaders who shape programs play vital roles. Private equity must help portfolio companies build strong relationships with all three groups. The Economic Adjustment Committee, with its 22 Federal departments and agencies, helps coordinate technical and financial assistance.
What makes a defense company worth investing in
Defense companies with profit potential show specific traits that reveal their innovation potential and ability to execute. Private equity aerospace and defense investors look for certain characteristics that point to promising investment opportunities.
Strong technical team with defense experience
The most successful defense startups have teams that combine deep technical knowledge with practical military expertise. These companies know what's technically possible and what warfighters need. Top teams include engineers who can "harden" products for harsh operational environments and navigate complex security requirements.
Clear path to government contracts
The best defense companies know how to handle procurement cycles that take more than 6-12 months. They maintain strict financial discipline to manage these "lumpy" revenue periods. Top candidates have secured original contracts through vehicles like SBIRs or OTAs that lead to larger Programs of Record.
Scalable technology with commercial crossover
Companies with "dual-use" business models serve both commercial and government markets and benefit from diverse revenue streams with less financial pressure. These firms build scale in commercial markets while they work through longer defense contract timelines.
Alignment with national security priorities
Successful defense investments target specific capability gaps in national defense strategies. Global VC investments in defense-related companies rose 33% year-over-year to $31 billion in 2024. Notable areas include AI ($12B), autonomous systems ($4B), and quantum technologies ($2B).
How Decorus Imperium identifies these traits
Decorus Imperium reviews defense startups through detailed technical assessment and careful study of their contract pipelines and customer relationships. Their diligence process focuses on companies that include manufacturing capabilities in their original plans—this is a big deal as it means faster market entry.
Conclusion
Defense tech startups are creating some of the most exciting investment opportunities in today's market. Venture capital funding has reached $3 billion in 2024, while global defense spending stands at $1.6 trillion annually. This sector gives private equity investors substantial room to grow if they understand its unique characteristics.
Technological maturity and rising global threats have created the perfect environment for new ideas. Through collaboration with organizations like the Defense Innovation Unit and NATO's innovation accelerator, startups can expand their technologies more effectively. Smart investors who see these patterns can position themselves well in this growing market.
The industry has six promising areas: AI and machine learning, autonomous drones and vehicles, cybersecurity, space systems, hypersonic weapons, and quantum computing. These technologies help solve critical national security challenges. They often serve both military and civilian purposes—a significant factor that creates sustainable business models.
Private equity investors need a different approach to defense tech compared to regular commercial investments. They must work directly with military end-users to evaluate product-market fit. The core team should help companies deal with compliance requirements and build relationships with government stakeholders.
The best defense investments usually combine strong technical teams with military knowledge, clear paths to contracts, expandable solutions that work in commercial markets, and a focus on national security priorities. Decorus Imperium shows this targeted approach through detailed technical evaluation and careful review of contract opportunities.
Defense tech investing comes with its own set of challenges. Yet it gives exceptional returns to investors who build specialized knowledge. Global security concerns keep growing, and defense budgets expand. Without doubt, this sector will keep moving upward, rewarding investors who blend technical insight with strategic planning.