Palmer Luckey argues that raising capital for defense startups has historically been very difficult: over the 35 years since the Cold War there were only two defense unicorns (Palantir and SpaceX, with SpaceX ambivalently counted), while many other industries produced far more unicorns. He credits Anduril (which he says became the third defense unicorn) and geopolitical events—particularly Russia's invasion of Ukraine—for shifting investor attitudes and making it easier to raise money now. Luckey frames most early defense startup talent as motivated by passion or patriotism rather than financial upside, and suggests ESG investors should consider defense investments.
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It's very, very hard to raise money as a defense startup. And this is true even when you've recently sold the company for billions of dollars. I found out in 35 years, since the end of the Cold War, there's only been two unicorns in the defense space. So Palantir, SpaceX, and SpaceX sort of doesn't count because that's actually a mars company. And it just happens that the military is their largest customer. Both of them were founded by people who had just sold their previous companies for billions of dollars, which means investors just kind of write it off. And so if you were trying to start a defense company and trying to raise money from technology investors, they would say, look, I don't even understand why. I don't know anything about the military industry. But you're telling me in 35 years there's only been two unicorns, both founded by billionaires. I don't even have to understand the dynamics. I just understand that clearly the United States is not good at turning small defense companies into big defense companies. To put this into perspective, two unicorns in 35 years, in that same period of time, you've got two mattress unicorns, two dozen fast casual dining unicorns, 50 gaming unicorns, over 100 financial technology unicorns, about 50 automotive unicorns, something like 150 biotech unicorns. Every other industry, ones much smaller, have much larger scale success. So smart investors don't want to invest in defense. Smart founders don't want to found defense companies, and smart employees, they don't have a financial reason to do it. Most people I found in defense startups, they were doing it because they were passionate and they were patriotic. They certainly did not believe that that was the way that they were going to make the most money, which is a problem if you're trying to attract really smart people. We were the third defense unicorn. I think there's like seven new ones now. So I often joke that other companies have raised a lot more money off our success than we have. And it's true, because we've proven that this model works where you can spend your own money and build a defense product company, where you decide what to build, how to build it, and then you sell it to a government customer. When you have a working technology, we've proven that it can work. And that has led to, yes, some big defense companies are making VC firms to try and jump into this. Also, a lot of the major VC firms are now making funds dedicated to defense. And that's something that's really powerful. It's Almost. Well, I'm giving myself a little bit too much credit. About half of it is because of Ukraine, and then the other half of it is because of our success. And there's also a lot of people who I think just hadn't thought about it. There were a lot of investors who had not. They never sat down and thought about why they were not investing in defense technology companies. And I think that Russia's invasion of Ukraine forced a lot of people to sit down and reconsider assumptions that they had. I mean, when I started Anduril five and a half years ago, I got a lot of heat from my friends and my enemies alike, you know, ranging from, you're wasting your time. Don't you understand that economic ties preclude any large scale conflict? There's no reason for weapons. You're just wasting time all the way to, you just want to kill people, weapons are inherently bad, etc. Etc. After the Ukraine conflict, many of the people, friends and even enemies reached out to say I was wrong. I actually understand now that it is possible for weapons to play a positive role in the world, and I think that that's changed a lot of people's thinking around investment. I recently said in an article that I think ESG funds should include defense investments. That's my controversial take of the day.
