Defense Tech as Product Companies
Ross Fubini, Managing Partner at XYZ Capital, on the defense tech opportunity
The important change was not just defense becoming culturally acceptable, it was defense becoming legible as a venture scale business. Anduril gave the market a private company that could win real contracts, ship real hardware, and compound into multiple product lines, while Palantir gave it a public proof point that defense software could turn into billions of revenue. That combination made defense look less like a niche government services business and more like a product company category.
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Anduril mattered because it showed a startup could self fund R&D, sell finished systems, and climb from small contracts into major programs, instead of waiting for the government to pay to develop custom projects. That is what makes the economics look more like software and scaled hardware, not a low margin cost plus contractor.
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Palantir played the other role. It had already spent years forcing modern software into government workflows, and by 2023 it reported $2.225B in revenue, including $1.222B from government. That gave investors a visible public comp for defense adjacent software economics and showed this could become a large public market story.
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The hype is also grounded in a real demand shift. Anduril was estimated at $1B of revenue in 2024, up 138% YoY, and its growth has been pulled by concrete programs in drones, counter drone systems, and allied rearmament. Ukraine made these products feel urgent, not theoretical, which pulled in both engineers and capital.
From here, defense tech keeps moving toward product companies that own both the software brain and the physical system. The winners will look less like consultants billing for labor and more like Anduril, Palantir, and a new layer of focused startups that sell repeatable systems into narrow but fast growing defense markets.