The Defense Tech Playbook

A Strategic Planning Resource for Venture-Backed Startups

Building for the US Defense Community

Dan Berkenstock and Helen Phillips

A PUBLICATION OF THE HOOVER INSTITUTION

 The number of new venture-backed defense tech companies is growing . . .

The number of new defense tech companies created per year, as measured by the number of annual Series A investments in the aerospace
and defense vertical. Source: PitchBook Data Inc.

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 . . . and this playbook is intended to help sustain and accelerate this trend.

Venture-backed startups are an integral

component in the effort to rapidly increase

capabilities for the US defense community.

Accelerating this trend requires understanding

the differences between building for defense

and for typical enterprise customers.

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 This playbook will be most applicable to your business if . . .

❏ You are a builder with a defense-focused concept

that includes developing, deploying, and delivering
hardware.
❏ You expect to raise venture capital to develop and
grow your business.
❏ You anticipate the US Department of Defense (DoD)
will be your primary source of revenue.
❏ You believe that you have validated that your concept
addresses an important mission need or
provides a valuable new capability.

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 The defense tech challenge

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 The Department of Defense, with a budget of nearly $1T,
is staffed by almost 3.5M personnel. Over the past 75 years,
its acquisition processes have been developed to minimize
exposure to the type of risk that characterizes
venture-backed startup culture.

This creates three core challenges to

building a defense tech business . . .

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 1. DoD users and buyers are in separate and distant organizations.

Combatant commands Services (buyers)

(users) deliver Secretary of Defense equip the combatant
effects. commands.

They think about They think about

today. tomorrow.

Combatant Commands Services

complex process

Navy
Army
Africa
Central
Cyber

Strategic

Air Force
European

Northern

Space
Southern

Space Force
Transportation

Marine Corps
Indo-Pacific

Special Ops

Users Buyers

This separation creates a process that slows new DoD adoption.

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 2. The DoD doesn’t set its own purchasing processes or budget.

Enterprise Department of
Customer Defense
Board of President Congress
CEO
Directors

VP VP VP Secretary of Defense

Users Buyers Users Buyers Users Buyers Users Buyers

Commercial enterprise customers In the DoD, the users and

may organize users and buyers buyers don’t have an integrated
into separate departments, but leader below the secretary. In
decisions all roll up to addition, the secretary doesn’t
business leaders with final determine DoD budgets. Instead,
responsibility and authority. they create a proposal, which
is reviewed and revised by the
president and Congress.

This approach limits DoD’s flexibility to work with new companies.

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 3. The planning and budget process is 4+ years from new concept to contract.

Year 1 Year 2

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Each service reviews and updates their Each service develops a budget request DoD leadership arbitrates the
conceptual design of future approaches to use of supporting the FYDP over the next year, resulting individual POMs, leading to the
force, resulting in updates to the DoD’s Future in their annual Program Objective Memorandum secretary’s Program Decision
Years Defense Program (FYDP). (POM). Memorandum (PDM) to the
White House for review and
A service sees utility integration into the president’s
in your product here. proposed budget.

Year 3 Year 4

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

The president Congress reviews, refines, and New programs are assigned to program executive Programs are executed,
submits a amends the president’s officers (PEOs), who award and manage milestones are achieved, and
proposed proposed budget, ultimately acquisition contracts under the guidance of a companies obtain revenue.
budget to passing appropriations bills. service acquisition executive (SAE).
Congress. Significant
revenue can begin
here.

This timeline limits DoD’s ability to pivot to emerging capabilities.

Sources: Congressional Research Service, Defense Acquisition University.

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 Meanwhile, you’re creating a startup company that needs capital.

On average, a
hardware-focused startup
requires about $75M in capital
to develop an initial product
and $200M+ in capital
to scale.
Source: PitchBook Data Inc.

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 The good news: Capital for venture investment has grown significantly.

US Venture Capital
Assets Under Management ($B)

Source: PitchBook Data Inc.

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 The bad news: Accessing that venture capital requires a clear path to revenue . . .

First significant
commercial enterprise First significant DoD
sales usually occur here. sales usually occur here.

Lag in DoD demand signal

founding product business

Signed contracts are a demand signal for

investors that a company will eventually generate
enough revenue to produce a significant return on

their investment. Delays in this demand signal result

in delays to capital and capabilities.

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 . . . and that clarity emerges later in the life cycle of a defense tech company.

The CEO of a commercial enterprise

customer has the flexibility to sign
contracts for future purchases,
demonstrating customer interest
in advance of product maturity.

The secretary of defense does not.

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 Funds vary significantly in available capital, impacting your startup because . . .

Distribution of New Venture Funds by Size ($)

2013–2024

Source: PitchBook Data Inc.

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 . . . investors need to believe you can reach revenues similar to their fund size.

To commit, early investors need to believe your

company can generate a return on investment
that is about the size of their fund.

Larger funds can invest more capital, but need

larger returns per investment.

This puts even more pressure on your company to

demonstrate significant demand signals as
early as possible.
For example, a $300M fund, expecting to own 10% of a company at exit, and believing that the company will be valued at a 10x multiple of
revenue upon that exit, will need to believe your company can achieve annual sales of roughly $300M in a 5–10 year time frame.

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 These needs create a timing mismatch between financing and demand signals.

Here, you are trying to raise easier

larger amounts of capital . . .

$1B
hard

hardest

$100M
Financing Amount

harder
easier

$10M

. . . while true DoD demand

signals only materialize here.
$1M

1 year 1–2 years 1–2 years 1–2 years 1–2 years

Founding Seed Series A Series B Series C Growth

This assumes a standard venture capital financing model of milestone-based financing rounds, beginning with a seed round and focusing on
the early-stage Series A though Series C. Sources: PitchBook Data Inc., investor interviews.

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 Your strategic path

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 This challenge can be overcome by following three steps:

1 2 3

Consider your Establish early Lay the groundwork

resources and plan demand signals via early for scalable
for the long term. R&D funding. revenue.

Recognize historical Spend those resources Engage early and often

norms of funding by getting to valid demand with the elements of
round for defense tech signals as quickly as the DoD that
companies in order possible, primarily conceptualize how your
to understand the through DoD R&D funding capability will be used
resources your company opportunities that are in future conflicts.
will likely have to linked to program Start that four-year
work with. office requirements. process on day one of
your business.

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 On average, successful defense tech companies raise about $325M in capital . . .

$150M

$100M

$50M

$5M $20M
$1M

This chart shows the average amount of funding raised (for 170 active defense tech companies) by financing round from 2014 to present.
This constitutes a baseline for the scale of resources you might expect for your company’s development. Source: PitchBook Data Inc.

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 . . . with milestones that evolve toward concrete financial metrics.

$100M–$300M
$100M–$300M in
in
signed contracts
signed contracts

$150M
$150M

2-5
2-5 contracts
contracts $100M
$100M
with
with scalable
scalable
customers
customers

AA good
good idea
idea
and
and team
team
$50M
$50M

$5M
$5M $20M
$20M
$1M
$1M

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 Understanding this evolution allows you to focus on what matters most.

1. An idea that can lead to a standalone system or capability that

will solve an important gap or create new capabilities for
A good idea and government users
team
2. A team that has credible technical and government knowledge
and experience

1. Scalable customers = program executive officers (PEOs) or

their representatives through various DoD innovation programs
2-5 contracts with
scalable customers
2. Scalable contracts = $2M–$10M in committed awards, with the
opportunity to grow into programs of record

1. Multiple congressionally appropriated programs of record,

awarded by a program office
$100M–$300M in
2. Signed contracts with international governments or prime
signed contracts
contractors
3. Signed contracts with commercial customers

A first scalable sale is the critical early milestone.

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 Your first scalable sales

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 Your first DoD sales will likely come from the R&D budget . . .

The Department of Defense spends over $150B

annually on research and development.

Source: “Defense Primer: Research, Development, Test, and Evaluation,” Congressional Research Service.

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 . . . which is administered by offices that fund the many phases of development.

aturity
o d u ct m
pr
easing
Incr

concepts prototypes production

research and acquisition and

development funds sustainment funds

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 Example: Small Business Innovation Research (SBIR) funding

The SBIR program includes three phases meant to

advance new, government-relevant capabilities from
concept to commercialization.

Phase Phase Phase

I II III

Proof of Concept Technology Development Commercialization

6–12 months 24 months sole-sourced

$50,000–$275,000 $750,000–$3 million uncapped

eligibility: US-owned and

-based company with fewer
than 500 employees ✔
Since 1982, federal agencies with external research budgets in excess of $100M must set aside 3.2% annually to support small businesses
through the SBIR program. Associated policies and procedures are set by the Small Business Administration (SBA). Source: www.sbir.gov.

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 Example: Strategic Funding Increase (STRATFI) Program

The Department of the Air Force offers the STRATFI

program, worth up to an additional $15M in funding.

Phase Phase Phase Phase

I II II+ III

Proof of Concept Technology Development Strategic Funding Increase Commercialization

6–12 months 24 months 48 months Generate revenue for your

$50,000–$275,000 $750,000–$3M $3M–$15M product through a
congressionally appropriated
program of record

eligibility: have a current pro tip: STRATFI awards take

Phase II award and a program about 12 months from
office willing to apply ✔ application to revenue.

Since 2019, commercialization assistance funding programs have enabled certain offices that administer SBIR funds to follow Phase II awards
with an additional phase, up to $15M in funding, if matched by program dollars and/or external investment. Source: www.afwerx.com.

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 Example: Working with the Defense Innovation Unit (DIU)

DIU partners with users and buyers across the DoD to

find companies to address critical capability gaps,
from prototype to production.

DIU annual activity (round numbers)

Prototype Production
Proposals
Awards Awards

1,500 100 15
Averaging $2M–$5M Averaging $80–$100M

Initially created in 2015 as DIUx (experimental), DIU creates acquisition flexibility through the use of Other Transaction Agreements (OTAs), a
type of contract that allows transition from prototype to production without opening a competition to other companies. Source: www.diu.mil.

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 These programs are stepping stones, not destinations . . .

R&D funding can provide the demand signal to

unlock early-stage venture capital, but growth
capital requires multiyear revenue consistent with
congressional appropriation.

“A multiyear procurement (MYP) is a vehicle for acquiring multiple years

of requirements for systems or subsystems with a single contract action,
usually up to a maximum of five years. . . .Authority to enter into MYP
contracts must be included in the component's budget submission for the
fiscal year in which the multiyear contract will be initiated.”

Defense Acquisition University ACQuipedia

Scalable revenue requires Congress.

The Defense Acquisition University (DAU), established in 1991, is the primary training environment for the defense acquisition workforce. It’s a
great resource for you, too. Source: www.dau.edu.

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 . . . and their real value is in program office relationships that will lead to scale.

These officials ultimately

direct which new capabilities
are submitted in the annual
budget request.
Service
Acquisition
Executive

Program Executive Director of Strategic Combatant

Officers Requirements Commanders

Program offices select individual Combatant commanders don’t

companies to execute budgeted directly control the budget, but
programs. Participating in R&D they can be influential with the
activities sponsored by a program officials who do. Building
office allows you to build the credibility with them (as the
credibility and track record users) is also important and can
required for them to select your be accomplished through exercises
company for larger programs. and demonstrations.

The senior officials responsible for force design, strategy, planning, and requirements go by different titles in the different services but are
generally responsible for the Future Years Defense Program (FYDP) and for aligning requirements across the joint force.

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 This approach is leading to meaningful revenue for the defense tech sector . . .

This charts depicts total US government (USG) contract awards to 170 venture-backed defense tech companies as represented in the federal
procurement data system (FPDS) and reflects the emergence of these companies as well as USG willingness to fund them. Source: FPDS.

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 . . . and contracts that indicate significant demand signals for individual companies.

This charts depicts average US government (USG) contract awards to 170 venture-backed defense tech companies for their first five years
contracting with the USG, as represented in the federal procurement data system (FPDS). Source: FPDS.

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 Commercial and international customers are another revenue opportunity.

R&D funding alone may not be enough. You may

have to seek out revenue from international
governments or commercial enterprise customers.

Pros
● Both types of customers typically have greater acquisition flexibility, especially
for multiyear commitments.
● Progress with international government customers can be motivating for US
government customers.

Cons
● Defense sales to international customers can be slowed by regulatory compliance,
especially related to the International Trafficking in Arms Regulations (ITAR) .
● Most hardware-focused defense products are not directly applicable to commercial
companies and may require extensive redesign that distracts focus from delivering
capabilities for your primary DoD customers.

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 Adding it up

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 This outlined approach should catalyze increasing sales and venture investment.

program office and combatant command engagement

program
office-sourced
research and revenue
development
funding
$1B

$100M
Financing Amount

good idea
and team

$10M

$1M

1 year 1–2 years 1–2 years 1–2 years 1–2 years

Founding Seed Series A Series B Series C Growth

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 Focus your time, talent, and capital on the important milestones . . .

Before Your company should have . . . By spending

raising . . . cumulatively less
than . . .

Seed Round An idea, customer interviews $1M

Series A A conceptual design, 1–2 scalable customers $5–$10M

Series B A prototype product, 3–5 scalable customers $20–$45M

Revenue from a “market-ready” product, clear pathway to

Series C $45–$120M
$100–$300M+ in signed contracts

Growth A manufacturable product, $100M’s in repeatable sales $125M–$240M

In developing your plans, remember to include substantial margin. Not only do programs of record typically require 4+ years, but the STRATFI
program typically requires about 12 months from application to revenue. Modulate your burn rate to absorb delays in revenue and financing.

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 . . . and you will maximize the likelihood of your company’s success.

Scalable sales
and operations

$10B Manufacturable
product
Exit
Valuation

Operational
$1B product
Prototype
product

$100M Conceptual
design

$10M

1 year 1 year 1–2 years 1–2 years 1–2 years 1–2 years

Founding Seed Series A Series B Series C Growth Exit

($6M) ($25M) ($50M) ($100M) ($150M)

Financing Round
(Capital Raised)

There will be setbacks, but understanding precedent in financing and revenue will help you maximize your company’s chances of delivering
both a high-impact product for the defense community and a significant return for investors.

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 In conclusion:

By definition, startups are hard.

Defense tech startups are harder.

They are also vital for US national security.

You can (and should) do this!

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 Glossary

Air Force Work Project (AFWERX): Innovation arm of the Department of the Air Force; executes the SBIR program for the Air Force.
Broad Agency Announcement (BAA): Procurement tool targeted at basic and applied research and development.
Combatant Commands (COCOMs): Eleven geographic or functional missions that provide command and control of military forces.
Defense Innovation Unit (DIU): Organization founded in 2015 to accelerate commercial technology across DoD at scale.
Department of Defense (DoD): Government department providing the military forces needed to deter war and protect US security.
Director of Cost Assessment and Program Evaluation (D/CAPE): Office that reviews and analyzes the POMs developed by DoD components.
Facility Clearance (FCL): Clearance required for businesses to work on classified contracts with the US government.
Future Years Defense Program (FYDP): Five-year plan that projects the forces, resources, and programs to support DoD operations.
Initial Public Offering (IPO): Exit opportunity when a private company first sells shares of stock to the public (typically institutional investors).
In-Q-Tel (IQT): Independent, nonprofit venture arm of the CIA and broader Intelligence Community, established in 1999.
Mergers and Acquisitions (M&A): Exit opportunity when one company buys or consolidates with another company.
Other Transaction Agreement (OTA): Flexible contracting instrument, categorized as research, prototype, or production.
Planning, Programming, Budgeting, and Execution Process (PPBE): Strategic planning and budgeting process for DoD.
Program Decision Memo (PDM): DoD decision document that reflects all decisions made during the programming phase of the PPBE process.
Program Executive Office (PEO): DoD office responsible for a specific DoD program or entire portfolio of programs.
Program Objective Memorandum (POM): DoD components’ budget request/funding plan with proposed resource requirements over five years.
Research, Development, Test, and Evaluation (RDT&E): DoD funding for R&D to explore and develop new technologies and capabilities.
Service Acquisition Executive (SAE): DoD official responsible for all acquisition matters within their service and who gives guidance to the PEO.
Small Business Administration (SBA): Federal agency that helps Americans start, build, and grow businesses.
Small Business Innovation Research Program (SBIR): DoD and SBA program providing contracts for small business research and development.
SpaceWERX: The innovation arm of the US Space Force and a division of AFWERX.
Strategic Funding Increase (STRATFI): AFWERX and SpaceWERX program ($3M–$15M) that requires private or government matching funds.
Tactical Funding Increase (TACFI): AFWERX and SpaceWERX program ($375K–$2M) that requires private or government matching funds.
Venture Capital (VC): Noncontrolling investments in private companies, via equity, focused on building the company and scaling.

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 Defense Tech Startup List

Aalyria FlightWave Near Space Labs Squishy Robotics

ABL Formlogic Neros Technologies Starfish Space
Adranos Fortem Technologies Northwood Stoke Space
Aeon Forterra Ocean Aero Swarm Aero
Aerodome Fortify oneNav Swarmbotics AI
Aevum Freeform Orbion Space Technology Teal Drones
Albedo Frontier Aerospace Orbit Fab Terran Orbital
Alloy Enterprises Gecko Robotics Orbital Sidekick Tomahawk Robotics
Antares goTenna Outpost True Anomaly
AnySignal Gravitics Overland AI TrustPoint
APEX GRYFN Overwatch Imaging TurbineOne
Archer H3X Parallel Flight Technologies Turion Space
Armada.ai Hadrian Performance Drone Works Umbra
Astranis HavocAI Picogrid Urban Sky
Astro Mechanica HawkEye 360 Pison Ursa Major
Atomic Industries Hermeus Pixxel Ursa Space
Atomic-6 Hidden Level Planet Labs Vannevar Labs
Auterion Impulse Space Portal Vantage Robotics
Bastille Networks Inversion Privateer Varda Space Industries
Beacon.ai IonQ Proteus Space Vatn Systems
BlackSky JetZero Pulse Aerospace Venus Aerospace
Boom Supersonic K2 Space Radian Aerospace WhiteFox
Brinc Kall Morris RangeView WindBorne Systems
Cambium Kayhan Space RED 6 X-Bow
Canopy Aerospace Kepler Communications RISE Robotics Xona Space Systems
Cape Kodiak Robotics Rivada Networks Xwing
Capella Space Kymeta Rivet Industries Zenith Aerospace
Castelion Launcher Saildrone
CesiumAstro Layup Parts SandboxAQ
Chaos LeoLabs Saronic
Citadel Defense LIFT Aircraft SCOUT Space
D-Orbit Liquid Robotics Seasats
D-Wave Loft Orbital Senra Systems
Darkhive Longshot Space Technologies Shield AI This is the list of companies
Dedrone Lunar Outpost Shift5 included in the financing and
DeepSig Lunar Resources Skydio
Distributed Spectrum LunaSonde Skydweller Aero revenue analysis within this
Dive Technologies Mach Industries Skyloom Global playbook. SpaceX, BlueHalo,
Echodyne Machina Labs Skyryse Joby, Anduril, Relativity, and
Elroy Air Markforged SkySafe
EOI Space Maybell Skyways Rocket Lab have been excluded
Epirus Merlin Labs Slingshot Aerospace as outliers in terms of
EXOS Aerospace Modern Intelligence Solstar Space capital raised (>$1.5B).
Exyn Moon Express Somewear
Firefly Aerospace Morpheus Space SpinLaunch
Firestorm Muon Space Spire

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 The Project for Accelerating Defense Tech Innovation

The Defense Tech Playbook is a product of the Project for Accelerating Defense Tech
Innovation, an initiative housed within the Hoover Institution’s Technology Policy Accelerator.

The Project for Accelerating Defense Tech Innovation seeks to enhance US national security
by collaborating with leading entrepreneurs, investors, and defense policymakers to improve
and accelerate the development of innovative defense capabilities.

This effort encompasses a combination of primary research and education. In particular, the
project seeks to bridge the entrepreneur-to–Department of Defense divide through initiatives
designed to teach entrepreneurs how to engage most effectively with government
stakeholders, and government stakeholders how to better understand and partner with
entrepreneurs.

For more information please follow the QR code below or email

accelerating-defense-tech@stanford.edu.

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 The Hoover Technology Policy Accelerator
The Defense Tech Playbook is a publication of the Hoover Institution’s Technology Policy Accelerator,
which conducts research and develops insights that help government and business leaders better
understand emerging technology and its geopolitical implications so they can seize opportunities,
mitigate risks, and advance American interests and values.

Authors
Dan Berkenstock, PhD Helen Phillips

Dan Berkenstock is a science fellow at the Helen Phillips is in the master’s program for
Hoover Institution, where he studies the international policy at Stanford, focused on
intersection of space entrepreneurship, defense tech and international security.
venture-backed defense tech companies, Previously, Phillips worked on the tech
and defense acquisition reform. Previously, scouting and corporate venture capital team
Berkenstock was the founding CEO of the at Booz Allen Ventures. She also interned at
venture-backed company Skybox Imaging. the Defense Innovation Unit and Starfish
He holds a PhD in aeronautics and Space. She holds a BA in economics from
astronautics from Stanford University. the University of Virginia.

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Copyright © 2025 by the Board of Trustees of the Leland Stanford Junior University

The views expressed in this essay are entirely those of the authors and do not necessarily reflect
the views of the staff, officers, or Board of Overseers of the Hoover Institution.

February 2025

31 30 29 28 27 26 25   7 6 5 4 3 2 1
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