America’s Industrial Reboot: A Massive Tech Opportunity

For much of the 20th century, the defense sector was a driving force behind technological breakthroughs – from the internet to GPS but in recent decades, its role as a primary engine of innovation has diminished. We believe the U.S. industrial base is at a pivotal moment. Decades of consolidation, outdated practices, and limited competition have left it ill-prepared to face the technological and geopolitical challenges of the 21st century.

But within this challenge we believe there lies immense opportunity. A wave of innovation is emerging, driven by new government initiatives, groundbreaking technologies, and an urgent call for modernization.

1. Stagnation in Defense

The U.S. defense budget accounts for 3–5% of GDP, yet it is defined by inefficiency and stagnation. Since the 1990s, consolidation has reduced competition, with the “Big 5” primes winning nearly half of all major defense contracts—70% of which face no competition at all. This structure fosters complacency, driving up costs while stifling innovation.

Traditional cost-plus contracts exacerbate the problem, insulating contractors from risk while creating incentives for cost overruns. In some cases, exorbitant markups—such as a 9,400% profit on essential components—highlight the extent of inefficiency. At the same time, development cycles for military systems are unacceptably long, with some projects spanning decades compared to mere years in the commercial sector.

The stagnation isn’t just a financial problem; we believe it’s a national security risk.

2. A Need for Modernization: Meeting the Challenges of a Changing World

The call for modernization is louder than ever. Global dynamics are shifting, and new technologies are rapidly transforming the industrial landscape. China has significantly increased its defense spending and dominates key research areas like hypersonics, autonomous drones, AI-enabled defense technologies, and semiconductor manufacturing, while the U.S. remains reliant on outdated systems and legacy practices, leaving it increasingly vulnerable to threats.

At the same time, the U.S. faces significant structural vulnerabilities. A heavy reliance on Taiwan for advanced semiconductors puts the country at risk in the event of geopolitical instability. Recent conflicts have exposed supply chain bottlenecks and manufacturing shortfalls, underscoring the urgent need for a robust and flexible industrial base.

The conflict in Ukraine has redefined warfare economics. Affordable systems like drones and missiles have proven devastatingly effective, disrupting traditional notions of high-cost, high-impact military assets. The lesson is clear: wars are no longer won solely through superior spending but through speed, innovation, and adaptability. The U.S. must learn from these dynamics by prioritizing unmanned systems, autonomous manufacturing, and modern supply chain logistics.

3. Opportunity for New Players: Building the Industrial Base of Tomorrow

The defense sector, once impenetrable for startups and innovators, is now opening. Organizations and instruments, like the Defense Innovation Unit (DIU) and Other Transaction Authorities (OTA), are helping bridge the "Valley of Death," fast-tracking partnerships between the government and private companies. Disruptors are demonstrating that even the most entrenched systems can be transformed through innovation, setting new standards for agility, cost-efficiency, and impact. Yet, these pioneers are barely scratching the surface. Remarkably, venture-backed startups still account for less than 1% of the contracts awarded by the Department of Defense (DoD), Department of Energy (DoE), and NASA—leaving immense room for growth and new entrants to make their mark.

We expect the industrial base of the future will look vastly different: unmanned/autonomous systems, nuclear-powered energy, robotic manufacturing, and an entirely new space economy.

These innovations are not theoretical. They are already reshaping the landscape, demonstrating that startups and technology-first players can compete with—and often outperform—the established primes.

A Call to Action: Leading the Next Wave of Innovation

This is not just a moment of transformation—it’s a generational opportunity. The U.S. industrial base has the talent, resources, and ingenuity to reinvent itself, but it will require bold thinking and decisive action.

Founders, technologists, and investors: the time to act is now.

We’re committed to supporting the innovators tackling these challenges. If you have a big idea, let’s connect. Please reach out to us as we seek to help solve hard problems and shape the future of the U.S. industrial base.

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