Silicon Valley’s Disruption

A new generation of defense technology startups, often called “neoprimes,” is drawing attention away from traditional contractors such as Lockheed Martin, Boeing, and Raytheon. These firms are building everything from autonomous drones to AI-powered battlefield intelligence systems, reshaping how the U.S. and its allies approach modern defense challenges.

With heightened geopolitical tensions and defense budgets on the rise, neoprimes are winning government contracts at a pace previously unseen for new entrants.

Market Shifts and Investor Flows

According to PitchBook data, venture capital investment in defense and aerospace startups reached $8.4 billion in 2023, a nearly 60% increase from 2021. Anduril Industries, founded by Palmer Luckey, recently secured a multibillion-dollar Pentagon contract, while Shield AI continues to attract both defense orders and private market funding.

Meanwhile, shares of major defense contractors have underperformed relative to the S&P Aerospace & Defense Index, signaling that investors are diversifying their exposure beyond legacy players.

Strategic Implications

Startups thrive by exploiting inefficiencies in the defense procurement process. Their ability to iterate quickly contrasts with the multi-year cycles that dominate traditional contracting. For Lockheed and Boeing, the risk is clear: the Pentagon may increasingly view neoprimes as more adaptive partners in areas like AI, unmanned systems, and cybersecurity.

Yet scale and compliance still favor the incumbents. For neoprimes, moving from prototype to large-scale deployment remains a hurdle that may eventually force consolidation or acquisitions.

Looking Ahead

As global military modernization accelerates, defense neoprimes are likely to secure a permanent foothold in the industry. Whether they remain independent disruptors or are absorbed into the portfolios of industry giants will shape the future balance of power in defense innovation.