Y Combinator, the startup incubator, has long been synonymous with Silicon Valley software companies that have digitized society: Airbnb for vacations, Reddit for sharing news and information, Stripe for payments. Earlier this year it put a call out for a new sector: defense tech.
This month the storied firm announced its first investment in a weapons company called Ares that is aiming to develop warship-sinking missiles smaller and cheaper than the ones produced by incumbent defense contractors like Lockheed Martin and Raytheon. “This is an amazing market for startups,” YC partner Jared Friedman told Forbes. “It’s proven, and the competitors are dinosaurs.”
Despite a long history with the military, doing business with the Pentagon and building defense companies has often sparked controversy in Silicon Valley. In 2018, Google declined to renew its involvement in a military contract called Project Maven when employees objected. Several universities cut ties with Palantir in 2019 after students protested the defense contractor’s ties to the federal border control agency, ICE. And this year, hundreds of engineers at Google’s AI division, DeepMind, called on the company to drop its military contracts.
But wars in Ukraine and the Middle East, growing tensions with China, and the rise of venture-backed weapons companies like Anduril have helped usher Y Combinator’s entry into the defense space — the latest sign of a seismic shift toward supporting the military. “The reason that we didn’t fund defense tech companies before was not because Y Combinator had some sort of change of heart,” said Friedman, who cofounded digital document company Scribd before joining Y Combinator. “It’s because the founders did. The founders are now interested in starting these kinds of companies.”
The canyon between incumbent defense contractors like Lockheed Martin (market cap: $133 billion) and startups like Ares, which received $500,000 from Y Combinator, is vast. But a growing number of Silicon Valley-backed companies are aiming to make missiles cheaper, and build them faster than the defense giants who are vying for billions in Pentagon contracts.
El Segundo, California-based Castelion, for example, announced earlier this year that it had tested a prototype of a hypersonic missile; it raised $14 million from Andreessen Horowitz and other investors and has contracts with the U.S. Navy and Air Force.
There have been misfires, too. Mach Industries, which raised more than $80 million from blue-chip investors like Bedrock Capital and Sequoia, ran afoul of production mishaps and safety failures — including one incident that was almost fatal, as previously reported by Forbes. In a blog post, the company said in May it was now making a cruise missile that “will accomplish its role for less than 25% of the cost” of current products.
The idea for Ares came to cofounder and CEO Alex Tseng earlier this year when he saw a request for information issued by the U.S. Navy’s Naval Air Command office, seeking industry input for the “rapid development, prototyping and fielding of an air-launched weapon” for fighter jets that would cost no more than $300,000 and could be produced at a rate of 500 units a year.
Tseng, who previously worked on carmaker Rivian’s self-driving team, and once studied turbo jet engines at Carnegie Mellon, met his cofounder Devan Plantamura at an anti-tank missile startup called Longinus. But the company shuttered after a few months, running out of money last year. “We struggled to raise…because the venture capital community really struggled to put their investment there,” said Plantamura, a U.S. Navy veteran who also worked at Mach Industries.
So when Y Combinator put out its call for defense tech companies in April, Tseng leapt at the opportunity. With Plantamura, he designed and successfully launched a prototype (no ordinance) projectile within 11 weeks, using a mix of custom parts and off the shelf products.
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It’s still early days — the company hasn’t yet secured the necessary federal explosives and firearms licenses — but since its announcement last week, Ares has received new interest from investors and possible customers, Plantamura said. He and Tseng are wary of the safety issues that have tripped up others in the defense tech space. “Silicon Valley has this sort of traditional mantra of, ‘moving fast break things,’” Tseng said. “In this case, we really don’t want to break the wrong things, you know. It’s a missile.”
With Ares announced, Y Combinator’s Friedman hopes the company will draw more interest from defense tech entrepreneurs. “By the end of the next year, I hope that we will see some of the next crop of these new defense tech companies,” he said, “proving that Anduril is not the only one that can do this.”
