L.A. tech startups get big cash infusion as Silicon Valley pivots to defense
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- Los Angeles-area defense tech funding surged to $4 billion this year, more than double 2024’s total amid rising China tensions.
- Silicon Valley is abandoning decades of resistance to military contracts as geopolitical conflicts reshape investment priorities.
- Companies like Mach Industries are developing stratospheric weapons and vertical-takeoff missiles with massive venture capital backing.
One weapon being tested can be dropped into the stratosphere thousands of miles from its target and can deliver an explosive with precision even without GPS.
Another is a cruise missile that takes off vertically without a runway so it can deliver a strike from at least 180 miles with the accuracy of a helicopter-launched rocket.
The weapons have not only drawn plenty of interest from the Department of Defense, but also from venture capitalists who are backing their manufacturer — Mach Industries, a Huntington Beach startup founded by an MIT dropout with big ambitions.
The three-year-old company has received $185 million in venture funding and last year moved from Texas to Southern California, where it opened a factory to draw on the area’s wealth of aerospace and defense talent.
Aerospace companies are sprouting all across Southern California, breathing new life into an industry that once powered the regional economy.
“If there is a single sort of success criteria for Mach it is the ability to deter a war in the Pacific with China over the next decade, and so I think that calls for massive investment,” said company founder Ethan Thornton, who is just 21.
Mach’s speedy rise is remarkable, but it’s just one of a number of startups in the region benefiting from a change of heart in Silicon Valley, where venture capitalists, company founders and employees have for decades resisted the lure of the defense industry — and the government contracts that come with it.
That attitude has shifted markedly in just a few years as China has massively built up its military, leading to fears of a Pacific war, and the Russia-Ukraine conflict has upended conventional military thinking with its use of drone warfare.
“We need folks who are going to make things smarter, faster, cheaper than what we’re getting now, because the geopolitical environment is getting more complex,” said Dale Swartz, a partner at McKinsey & Co.’s Silicon Valley office who focuses on national security innovation.
That military imperative is reflected in where investors — including such firms as Andreessen Horowitz, Khosla Ventures and Sequoia Capital — are putting their money.
This year, venture capital deals in L.A.-area defense tech companies have exceeded $4 billion, more than double the $1.8 billion raised in all of 2024, according to data from PitchBook. The figures include deals in Los Angeles, Long Beach and Santa Ana.
Leading the pack is Anduril Industries, a Costa Mesa maker of drones and other autonomous defense systems co-founded by entrepreneur Palmer Luckey, which raised a startling $2.5 billion in the second quarter. That included $1 billion from Peter Thiel’s Founders Fund.
Impulse Space, a Redondo Beach firm developing in-space transportation technologies, raised $300 million; Chaos Industries, a Hawthorne company that makes advanced threat-detection systems, raised $275 million, and Apex Space, a Los Angeles manufacturer of small satellites, raised $200 million in the quarter.
Venture capital investments in the L.A. region totaled $5.8 billion in the second quarter, more than double the amount from a year ago, according to a report from research firm CB Insights. Costa Mesa-based Anduril raised the most, with a $2.5-billion funding round.
But it’s not just notable venture capitalists on Silicon Valley’s famous Sand Hill Road that are plunging in. So, too, are leading legacy companies, as well as the new generation of artificial intelligence startups that have disrupted the tech world.
In July, Google, Anthropic, OpenAI and xAI were each awarded contracts worth up to $200 million by the Department of Defense in support of the agency’s “adoption of advanced AI capabilities to address critical national security challenges.”
Those deals are an about-face for the Valley, which has had a queasy relationship with the defense industry since Vietnam — and more recently has witnessed tech workers protest military contracts and raise ethical concerns about technology for mass surveillance or weapons development.
Once known for the motto “Don’t Be Evil,” Google didn’t renew a controversial Pentagon contract known as Project Maven in 2018 after thousands of workers protested that the company’s AI would be employed to analyze drone surveillance video.
The Gaza conflict also has ignited resistance from tech workers concerned that the Valley’s bleeding-edge software could be put to use against Palestinians.
One flash point has been a $1.2-billion cloud computing contract, known as Project Nimbus, that Google and Amazon signed with the Israeli government in 2021. Another is Microsoft’s Azure cloud platform, which the Guardian reported was used by Israeli intelligence to store Palestinians’ phone calls.
Google didn’t answer questions about worker concerns surrounding its defense contracts. The company has previously said that Project Nimbus “is not directed at highly sensitive, classified or military workloads relevant to weapons or intelligence services.”
Microsoft pointed to a May blog post that said it “found no evidence to date that Microsoft’s Azure and AI technologies have been used to target or harm people in the conflict in Gaza.” The company said in August that it hired a law firm to further review the Guardian’s report.
To be sure, Silicon Valley has a long defense history and, in a sense, the recent investments are something of a full circle.
Hewlett Packard, founded in a Palo Alto garage in 1939, worked with the U.S. military in World War II to develop microwave technology to disrupt enemy radar. Founders Bill Hewlett served in the Army during the war and Dave Packard served as deputy secretary of Defense in the Nixon administration.
In the late 1960s, the Defense Department — with the assistance of Stanford and other universities — developed the internet’s predecessor, ARPAnet, to keep military and government computers secure in the event of war.
After the end of the Cold War, military spending collapsed, shrinking the L.A. area’s defense industry, which saw several major contractors slash jobs in Southern California, including Northrop Grumman and Raytheon.
But military spending has steadily risen over the last decade, reaching a record $2.7 trillion in 2024, according to the Stockholm International Peace Research Institute.
The growing arms race with China and the geopolitical conflicts in Ukraine, Gaza and elsewhere boosted spending, which grew 9.4% last year. The U.S. spent the most — nearly $1 trillion — making up roughly 37% of global outlays.
The spending looks to only accelerate after President Trump’s January call for the military to develop a “golden dome” defense system costing $175 billion.
The system is intended to protect against “ballistic, hypersonic, advanced cruise missiles, and other next-generation aerial attacks from peer, near-peer, and rogue adversaries,” according to the White House order. One early analysis estimates that a fully functional Golden Dome might actually cost as much as $3.6 trillion over two decades.
“They realized that there’s so much money in the U.S. military that it was a way where they could get their VC 100x returns,” William Fitzgerald, a former Google employee who protested Project Maven, said of today’s shift in Silicon Valley thinking.
Now, at Stanford, Harvard and other universities, students are pursuing careers in defense tech, while the military is reaching into the tech world to increase its proficiency in AI and other advanced software.
In June, the Army announced an effort to recruit senior tech executives to serve part time as advisors to help fuel initiatives, including one that “aims to make the force leaner, smarter, and more lethal.” The Army swore in executives from Meta, OpenAI, Palantir and Thinking Machines Labs as reserve lieutenant colonels.
The military also has offered defense startups key support with seed funding through Small Business Administration money it controls, in a convergence of interests with venture capitalists.
Anduril was one of the first companies to benefit when it was initially awarded a $50,000 check and went on to receive millions more a few years after it was founded in 2017, with its focus on autonomous weapons and bringing Silicon Valley innovation to the military.
Since then, a host of defense tech and aerospace startups with potential military capabilities have benefited from the funding, particularly in Southern California.
They include Impulse Space; Epirus, a Torrance electronic-warfare company; and Vast, a Long Beach company building a space station.
“For us to get the kind of commercial innovation that we need, we really need to go after the startups or the companies that can move fast, pivot fast, and then create those things,” said Drew Busbee, chief operations officer of DTI, an El Segundo nonprofit that collaborates with the military and advises startups on how to navigate Defense Department procurement programs.
K2 Space, a Torrance company that makes the primary power and structural components of satellites, has been a big beneficiary of Silicon Valley venture capital and military seed funding.
Elon Musk’s announcement that he’s moving SpaceX headquarters to Texas could present a blow to Hawthorne and the Southern California space economy that it helped to revive.
In February, the startup raised a $110-million, Series B round led by Lightspeed Venture Partners and Altimeter Capital. It had previously received military seed funding, culminating in a $30-million contract to fly a mission with military payloads next year.
Its technology challenges the current satellite model developed by SpaceX for its Starlink network, which relies on thousands of satellites in low Earth orbit to provide internet access anywhere on Earth.
K2 is building larger, more powerful satellites that operate in a higher orbit, enabling fewer than 20 to cover Earth. A key advantage is their $15-million cost, a fraction of the price typically charged by the industry for such capacity.
“In our heart we are a commercial product that has really interesting applications on the national security side,” said Chief Executive Karan Kunjur, who co-founded the company with his brother, a former SpaceX engineer.
The 3-year-old company is rapidly expanding. It’s grown to about 160 employees and this year moved into a 180,000-square-foot factory that Kunjur says has the capacity to make 100 satellites annually.
Mach is similarly growing. Thornton, who took college classes in high school, founded the company in his family’s garage, though it didn’t incorporate until 2022. It’s already opened a second site, an engine testing facility in San Luis Obispo.
That kind of focus from a small town Texas native earned him the first defense tech investment that the high-profile Silicon Valley venture capital firm Sequoia Capital has ever made.
“We seek out founders who have a unique insight into a problem and look at the world in a different way — Ethan perfectly exemplifies this,” said Sequoia partner Stephanie Zahn. “Ethan has been obsessed with the defense industry since a young age.”
The company, which already has 180 employees, was awarded an Army Applications Laboratory contract earlier this year to build a low-cost vertical takeoff cruise missile.
In Mach’s Huntington Beach factory, the winged carbon-fiber Viper missiles that Thornton calls “mini fighter jets” were lined up in a row. Nearby sat its smaller Glide stratospheric bombs that when mass produced will be made with cheap injection molding.
There’s a reason for that. Thornton figures for the U.S. to deter a war with China in the Pacific, it will need millions, not thousands, of UAV’s from Mach and other suppliers — with technological superiority.
“The best way for America to win is by setting the edge of future tech design,” he said.
