Investor Blindspots in Defense Tech
Ross Fubini, Managing Partner at XYZ Capital, on the defense tech opportunity
The real bottleneck in defense tech is not founder supply, it is investor pattern recognition. Most venture firms know how to judge SaaS by fast sales cycles, clean recurring revenue, and quarter to quarter expansion. Defense deals look different. A startup may string together small pilots, wait through multi year budget cycles, then turn one program into a large contract. Without people who know procurement, firms struggle to tell real traction from noise.
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Defense is a set of micro markets, not one big buyer. Two program offices inside the same department can use different budgets, contract paths, and decision rules. That makes diligence much harder than a normal software market where the same sales math repeats across customers.
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The capital need is also structurally unfamiliar. Many winning products bundle hardware and software, so companies spend heavily on engineering, testing, and production before revenue scales. Investors used to asset light software often hesitate when the next round needs $15 million to $30 million before procurement catches up.
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The companies that navigate this best usually have a dual motion or a multi market wedge. Forterra built one autonomy stack for defense and commercial yards. Ross also points to software businesses that sell into enterprises first, then add federal workflows and compliance once the product is already working elsewhere.
Over the next few years, money will concentrate around teams that can explain defense progress in a language investors understand, and around firms that have lived through procurement before. That favors repeat operators, dual use products, and companies with several paths to budget, instead of startups betting the business on one heroic program win.