The Hype is Loud, the Flywheel is Louder: Making Sense of Defense Tech
29 October 2025 - A Weekly Publication by New North Ventures
VC funding for defense tech is surging to record levels. PitchBook data shows global deal value likely hitting $10B this year, more than double 2024, and deal count up 11 percent even before year-end. Headlines whisper bubble, yet a closer look suggests this is less speculation and more structural realignment.
Certain categories of tech - like drones - are crowded. Nearly 60 percent of funding targets drone startups, and valuations have jumped from $22.8M across all sectors in 2024 to a median of $146M in defense tech today. Many newcomers are defense washing, claiming dual-use status with tenuous military relevance. These trends illustrate the hype, but hype is not the whole story.
Behind the headlines, long-term demand is real. Global military expenditure topped $2.7T in 2024, with the EU and US projecting hundreds of billions in new defense investment by 2030. Procurement timelines are shortening and VC-backed startups like Anduril, Shield AI, and Tiberius Aerospace are now winning government contracts. Structural tailwinds like these provide durable market signals that justify much of the recent capital inflow.
For LPs the lesson is clear. Look beyond the headline sectors and assess structural demand and government alignment. For founders the opportunity lies in underfunded dual-use areas, maritime autonomy, legacy modernization, and supply chain tech, where real gaps exist.
The defense tech market is undeniably in a hype cycle, but bubbles require misaligned fundamentals. Here, fundamentals are strong. Strategic patience, paired with selective capital deployment, remains the most reliable path to sustainable returns in dual-use markets.
The takeaway? Valuations may dazzle, but the underlying flywheel - government demand, structural gaps, and innovation - is turning steadily. The key is separating noise from signal.
Factory Towns Revive as Defense Tech Makers Arrive
Factory towns across the Midwest and Northeast are coming alive again, powered by defense tech start-ups. Swarm Defense Technologies in Auburn Hills, Mich., has transformed a vacant warehouse into a high-output drone facility, while Anduril’s $1 billion Ohio plant and Regent’s Rhode Island sea glider factory signal a broader trend. These investments leverage local skills, state incentives, and logistical advantages, creating industrial clusters that the federal government is eager to support.
The resurgence highlights the structural foundations behind the defense tech boom. Soaring valuations grab attention, but factories, skilled labor, and government demand anchor real, durable value. Industrial policy is shaping the geography of innovation, and investors and founders who recognize the intersection of capital, capabilities, and policy gain an edge. This trend will also play a key role in strengthening our nation’s economic resilience.
More links to explore:
Prelude Security just closed an additional $16 million funding round led by Brightmind Partners, with participation from Sequoia Capital and Insight Partners, bringing total funding to $45 million. The capital will accelerate commercialization of Prelude’s runtime memory protection, a next-generation endpoint security capability that detects and stops malicious code at execution.
Traditional endpoint solutions struggle against in-memory attacks, which now account for roughly 75% of advanced cyber threats. Prelude addresses this gap by monitoring code execution entirely in user mode, leveraging hardware-level telemetry to intercept attacks the moment they happen. This approach aligns closely with Microsoft’s Windows Resiliency Initiative and represents a fundamental evolution in endpoint security.
The funding enables Prelude to expand platform support, scale deployments, and continue pioneering defenses against sophisticated adversaries, including AI-enabled threats. Investors see a company combining technical rigor with real-world business impact, setting a new standard for the industry.
In this episode, New North Principal, Jess Nelson, guest hosts and is joined by Ben Faberlle, CEO of CrunchAtlas, a company pioneering AI-enabled cyber defense solutions. Ben discusses his transition from a military career to founding CrunchAtlas, the inspiration behind the company, and the challenges in building scalable cyber defense technology. He also shares insights into the current threat landscape, the journey to securing their first federal contracts, and the focus on critical infrastructure. Ben offers valuable advice for startup founders on securing contracts, strengthening cyber posture, and navigating the commercial sector. Tune in to learn more about the future of AI in cyber defense and the impressive journey of CrunchAtlas.
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