Private capital is a potential force multiplier for the defense industrial base. Investment is at a record high and deal counts are climbing. Investors are placing big bets on new entrants that promise faster timelines, lower costs, and capability gains. At the same time, the US government has made acquisition reform and defense industry capacity top priorities over the past year.
It feels like a turning point, but it is also a fragile one. If financial backers and the government don’t work to understand each other, the investment and effort could be in vain.
Capital alone doesn’t produce readiness. Defense development cycles are long and the path from prototype to scaled production is rarely linear. Unless suppliers, customers, and investors move in sync, investment could pour in without enhancing military capability—or driving results for investors, suppliers, and taxpayers.
The scale and breadth of investment in defense have expanded rapidly. Over the past decade, venture capital investments above $10 million in defense-focused companies have grown dramatically, reaching more than $16 billion in 2025, according to an analysis from Bain. (Unless noted, all figures in this piece are from the same analysis.)
Funding is also diversifying. Historically concentrated in space companies, investment now spans unmanned maritime systems (for example, Anduril, Saronic Technologies, and Blue Water Autonomy), autonomous aircraft (for example, Shield AI and Helsing), and raw materials (for example, Vulcan Elements and ReElement Technologies). Space accounted for just 29 percent of investment dollars in 2025.
The investor base itself has broadened as well. In 2017, fewer than 100 firms made venture investments in aerospace and defense. By 2024, more than 300 did—generalist investors alongside defense specialists. Defense remains a relatively small share of total venture capital — we estimate roughly $16.5 billion in 2025, which is 3-4 percent of global VC funding for that year — but the momentum is real.
Part of that momentum is because investors are betting that policy makers will reform acquisition, increase budgets, and redirect spending toward novel solutions. There has been considerable momentum on these fronts over the past year, but outcomes, especially with respect to funding, are far from guaranteed.
Despite budget growth since 2018, the US defense industrial base still struggles with readiness, affordability, and surge capacity. Pressure for results is rising—from investors, suppliers, the Pentagon, and Congress alike. But sustained private investment growth depends on returns. And returns require a real shift in procurement market share toward companies — incumbent or disruptor — that can deliver step-change improvements in cost, capability and capacity.
VC-backed defense technology firms (excluding SpaceX, which is so big it would skew the numbers, and adjusting for dual-use revenue) had a combined valuation of roughly $130 billion at year-end 2025. At a five-times revenue multiple, consistent with more mature defense tech companies, that valuation implies $25-30 billion in annual revenues by 2030.
Put differently, new entrants would need to capture roughly 3 percent of procurement, RDT&E, and O&M spending combined from the US, NATO and allied nations—about $1 trillion to achieve those revenue levels. To provide a sense of scale, that’s in the range of than the US Navy’s fiscal 2026 shipbuilding budget.
Such a shift is achievable. But it requires coordinated change across the system. Any broken link—whether on the supplier, customer, policymaker, or investor side—puts those outcomes at risk.
What could derail momentum? Three risks stand out.
1. Suppliers fail to meet operational needs: New systems must deliver capability and affordability gains. Doing so in contested military environments is difficult. Improvements to meet these requirements can lead to added customization and complexity. Field testing and iteration with operators are essential. At the same time, commercial technology will struggle to scale effectively with extensive customization. It’s a delicate balancing act.
But operational performance alone is not enough. Companies must scale production—on time and on budget—while navigating talent shortages, fragile supply chains, and capital intensity, all while keeping systems affordable. Systems that can’t be maintained, repaired, upgraded, and supported — especially in distant or contested theaters — won’t survive, no matter how promising the prototype.
2. Customers don’t shift spending, or fail to reward risk: Private investment in defense competes with opportunities in every other sector. If investors see better returns elsewhere, capital will move.
Strong returns require the scaled adoption of new technologies. Recent acquisition reforms aim to prioritize speed, modularity, and cost. But without incentives, budget stability, and flexibility in new acquisition models, progress may stall, constraining the recently empowered new decision-makers within the acquisition system.
Customers also must be prepared to catch innovation. Doctrine, force design, operational concepts, and training must evolve alongside new systems. Buying thousands of small drones only works if the force structure, manpower, and infrastructure are in place to deploy and sustain them effectively. In 1941, the Victory Plan set force structure and wartime production targets for industry to enable American success in a war with Germany and Japan. Gen. Albert Wedemeyer, the Victory Plan’s key architect, warned that even “one hundred thousand” airplanes produced without the accompanying trained personnel, infrastructure, and logistics would deliver little advantage.
3. Investors lack discipline or patience: Defense investing is not software investing. Development timelines are traditionally long and procurement pathways are opaque. Investor discipline and patience will determine industrial base outcomes and encourage further capital inflows.
If private capital works to identify winners — and avoids backing solutions that can’t scale or be sustained — investment will grow. Capital deployed too quickly, or without a clear view of the end-state business model, risks eroding confidence across the sector. Consider analogous examples, such as clean technology in the mid-2000s and Space special-purpose acquisition companies (SPACs) a few years ago. Is there a credible plan for pricing and long-term support? Can the company maintain its culture and talent as the business matures?
Success by 2030 will not be defined by headline valuations. It will show up in behavior and outcomes:
- Clear, top-down, and quantifiable demand signals for priority technologies around which new military concepts of operation can succeed.
- Stable, timely funding aligned to industrial scaling.
- High-rate production of privately backed or at-risk–funded systems.
- Measurable market share shifts toward more cost-effective capabilities.
- Evidence that disciplined risk-taking is rewarded, in the form of returns and successful investor exits.
Private capital can help reshape the future of defense, but technology alone won’t define the next era. The test is whether every stakeholder — investor, supplier, customer and policymaker — is willing to break old patterns and back what works.
If they are, this moment could mark not just a surge in funding, but a lasting shift in performance. If they aren’t, then the boom in defense for private capital may end up being merely a blip in the history of finance — which would be a big loss for both industry and the warfighter.
Dan Folliard is a former career civil servant and senior executive in the Department of Defense where he served for more than two decades. He was most recently the Chief Digital and AI Officer at US Special Operations Command and also served as a special assistant to multiple secretaries and deputy secretaries of defense across several administrations, and held roles in defense technology, strategy, resourcing, and regional policy. Mr. Folliard now advises defense companies on technology strategy.
Michael Sion is a partner in Bain’s Aerospace & Defense Practice. He advises clients on strategy and commercial due diligence across commercial aerospace, defense, government services, and space, supporting both leading companies and private capital investors. Michael has authored several Bain reports on the aerospace and defense supply base. He began his career at the Center for Strategic and International Studies and DFI International, where he focused on strategy and policy issues in national security.
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