Defense Tech's Moment of Market Clarity
02 July 2025 - A Weekly Publication by New North Ventures
From Black Box to Blueprint: When Government Roadmaps Become Your Deal Flow
The defense technology investment landscape is experiencing a rare moment of market clarity. Government buyers across Western allies are publishing technology priorities with unprecedented transparency, creating visible procurement pipelines worth tens of billions annually. For institutional investors, this represents a fundamental shift from speculative dual-use bets to data-driven investment strategies.
Market dynamics are accelerating this trend. Defense technology investment doubled in 2023-2024, with seven new defense unicorns emerging and the top 10 defense deals capturing 80% of sector dollars. Meanwhile, venture capital has redirected attention and capital toward AI concentration, with 48% of 2024 investment flowing to AI companies at premium valuations. This bifurcation creates advantageous entry conditions for non-AI defense technologies that remain undervalued despite government validation.
Structural shifts further support dual-use positioning. NATO's Commercial Space Strategy establishes multinational procurement channels expanding addressable markets beyond traditional DoD contracts. The Department of Navy's published technology priorities provide multi-year visibility into billion-dollar procurement decisions across AI, quantum computing, and secure communications. Fund concentration data showing the top 10% of venture funds capturing 64% of fundraising suggests domain expertise may provide differentiation where technical evaluation matters more than check size.
The implications extend beyond traditional defense contractors. Companies developing vertically-applied AI systems for intelligence analysis face accelerated government adoption cycles. Cybersecurity firms aligned with Zero Trust Architecture implementations benefit from expanding federal requirements. Robotics, space systems, and communications companies find themselves positioned at validated government priority intersections.
Government technology roadmaps now function as validated market research, identifying multi-billion dollar opportunities before mainstream capital recognition. For sophisticated institutional investors, this represents measurable risk reduction through government-backed demand signals in historically unpredictable sectors.
Senate Votes 99-1 To Strip AI Provision From Tax Bill
The Senate voted 99-1 to remove a provision from Trump's tax legislation that would have created federal preemption of state AI regulation for 10 years. Major AI companies including Google and OpenAI had supported federal preemption to avoid navigating differing state requirements. The decision preserves the current state-by-state regulatory approach, creating a complex compliance environment that rewards companies with strong legal and policy capabilities while potentially creating barriers for less sophisticated competitors. For dual-use investors, this regulatory fragmentation represents both operational complexity and competitive differentiation opportunities, as companies capable of navigating multiple state frameworks may develop sustainable advantages over those struggling with compliance costs across different jurisdictions.
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Congratulations to HavocAI on being selected as a finalist in the U.S. Army's xTech Overwatch competition. The competition focuses on developing advanced unmanned systems, including aerial and ground vehicles, as well as sensor networks to improve situational awareness and operational efficiency in complex terrains. As one of up to 40 finalists, HavocAI will receive $15,000 and the opportunity to demonstrate their autonomous solutions to Army and Department of Defense experts at the Army Human Machine Integration Summit in October 2025. This recognition validates HavocAI's AI Decision Advantage capabilities and positions the company for potential follow-on Army SBIR opportunities, demonstrating exactly the kind of government validation and procurement pathway visibility we highlighted in our market analysis.
In this episode of the 'Securing Our Future' podcast, hosted by New North Ventures, Jeremy interviews Veronica Daigle about her journey from Wall Street to the federal government, including her roles at the Office of Management and Budget (OMB) and the Pentagon. Veronica now leads the Defense Ventures group at Red Cell Partners, a venture firm focused on building and incubating companies with dual-use applications.
The breakdown of roadmap-as-deal-flow was smart. I hadn’t thought about Navy procurement docs as market research before, but it’s a useful frame. What stood out to me, though, was the idea that institutional investors can now model demand around government priorities, not just founder vision.
Do you think this clarity will make investors more willing to back non-AI dual-use plays earlier, or will they still wait for traction before writing checks?