Every month Neros Inc. makes hundreds of drones designed to drop warheads on adversaries. By the end of the year, the company wants its new Southern California factory to crank out 10,000 per month. Never mind that Neros only has orders for 36,000 of them for Ukraine.
“If we wait until a buyer comes knocking and asks for a certain quantity of drones built at a certain pace, it will be too late,” said Chief Executive Officer Soren Monroe-Anderson. “The supply chain is the hard part. We are putting in the work now” to be able to produce weapons later, he said.
Neros is one of a growing number of startups betting on the great reindustrialization of America’s defense base. Dozens of other Silicon Valley industrial companies are building out large manufacturing operations, at the same time the Trump administration pushes to bulk up defense spending. A rough tally of plans by just a few of the better-known startups in the industry shows they’re spending a collective $4 billion and counting over the next few years on shipyards, factories and manufacturing tools and equipment.
Weapons maker Anduril Industries Inc. and autonomous ship builder Saronic Technologies are undertaking the largest projects, investing $1 billion and $2.7 billion respectively to build software-operated manufacturing megafactories, capable of producing tens of thousands of AI-powered autonomous ships, aerial drones, fighter jets and other weapons.
They’re joined by other venture-backed players like factory startup Hadrian, drone and defense company Shield AI, satellite firm Astranis Space Technologies Corp., and industrial parts and manufacturing upstart Divergent Technologies Inc. This month, Varda Space Industries Inc., backed by investors like Peter Thiel’s Founders Fund, raised $187 million to open a lab in California to bolster its drugmaking efforts and frequency of its missions to space.
Meanwhile, other tech leaders have even grander ambitions. The developers of the billionaire-backed futuristic community California Forever are planning to build the largest defense-focused industrial manufacturing park in the US that will also include a shipyard near San Francisco. Another project, Frontier Valley, hopes to construct 5 million square feet of Bay Area manufacturing space.
“This new age of defense is about rapid manufacturing,” said Lux Capital general partner Brandon Reeves, whose firm has backed Anduril, Varda and Hadrian. “Everyone is trying to get to scale.”
The efforts could help address a glaring problem in American national security: the slow speed of US weapons manufacturing compared with China. In most modern-day wartime scenarios, the country that’s able to quickly produce the most autonomous drones, ships and other hardware has a vast advantage, meaning America is poorly positioned. VCs and startups have been vocal about this problem — Joe Lonsdale has invoked the critical role of World War II-era production efforts, and Andreessen Horowitz adviser Matt Cronin has called the issue an “existential threat” to US national security.
But building out industrial infrastructure is a gamble for venture investors who are spending large sums to expand production with no guarantee that famously hard-to-get defense contracts will materialize. VCs have plowed more than $70 billion into the top 100 defense startups, which have so far secured about $29 billion total in contracts, according to a July report by the Silicon Valley Defense Group.
“It’s a chicken-and-the-egg problem,” said General Catalyst Managing Director Paul Kwan, an investor in Anduril, Saronic and more than a dozen other defense startups planning to expand in advance of contract awards. “Private capital has stepped up. That’s absolutely the investment risk we are taking.”
While startups are making inroads — the Defense Department more than doubled its annual spending on startups in 2024 — the group still represents less than 1% of the overall defense budget, per the report’s tally.
By far, the bulk of defense spending goes to traditional contractors, specifically Lockheed Martin Corp., RTX Corp., Boeing Co., Northrup Grumman Corp. and General Dynamics Corp. Known as the “Big Five,” these firms have been around for decades and have deep Washington relationships. And while these legacy companies have the benefit of well-established supply chains and large-scale production facilities, many in Washington and Silicon Valley have complained that they move too slowly, weighed down by layers of bureaucracy that affect how quickly they can innovate. Startups can boast of their more nimble structures and up-to-the-minute technology, but they usually lack a track record, so it’s often difficult for them to break through the complicated world of Washington procurement that prioritizes reliability.
“The market is telling these companies to grow — and investors are backing them. But the Department of Defense has not yet built the contracting infrastructure or funding flexibility to meet the moment,” the Silicon Valley Defense Group writes. The result could be a “two-speed ecosystem” where private capital continues to grow while public funds remain tied to legacy processes and contractors. “Ultimately, this is not sustainable,” the authors say, “and we risk ecosystem momentum collapse.”
‘Where’s the Paperwork?’
One marquee player in defense tech is Epirus Inc., which makes electronic weapons capable of zapping drones out of the sky. The company is prepared to spend as much as $50 million to build a new facility in Oklahoma this year to make the high-powered microwave devices that can identify and disable hostile drones.
CEO Andy Lowery says he will be able to increase production by 2027 to as many as 100 units a year from the current handful of prototypes now in use. But whether he’ll be able to sell those units once he makes them is less clear.
“We know this is going to be needed, but I’m scared. Where’s the paperwork?” Lowery said. “For me to put a shovel in the ground I want the order.”
The biggest companies in the industry have already decided that building big manufacturing facilities is worth the risk. For example, Anduril, which closed a $2.5 billion funding round last month, is in the process of building out a sprawling megafactory in Ohio. Called Arsenal-1, the complex is the size of 87 football fields. It will include at least nine buildings and ultimately employ around 4,500 people manufacturing nearly all of Anduril’s drones, missiles, mini-fighter jets and other products.
Arsenal-1 is intended to be the first of several such large-scale undertakings in the coming years, the company has said, as it works toward building advanced manufacturing systems designed to be quickly replicated in other US and allied locations.
Meanwhile, Saronic, which raised $600 million earlier this year, is spending $2.5 million to build a modern shipyard it’s calling Port Alpha and an additional $200 million to renovate an existing shipyard. Saronic CEO and co-founder Dino Mavrookas said his company is “on a mission” to bring back shipbuilding on a scale not seen since World War II, and is seeking to double its employee count to 700 by the end of this year.
So far, Saronic has collected just $33 million in contracts from the federal government, according to data compiled by Bloomberg Government. But with a new partnership and at least three new ship products this year, Mavrookas expects more.
Untested
Shipbuilding, like rocket factory construction, could help the US meet a critical need. America builds less than 1% of the world’s new ships per year, while China produces roughly half. The issue is urgent enough that the Trump administration recently issued an executive order calling for more construction. Companies like Saronic could play a key role in advancing naval technology while helping the US catch up to potential adversaries.
However, even if the orders come in, there’s no guarantee that new Silicon Valley technology will play the role technologists hope it will. As more companies hustle to lock down US supply chains, design modern factories and staff assembly lines in anticipation of increased demand — they have yet to prove new technology will work as promised, or that the new factories can handle a massive production surge.
“They are untested. I have an open question about whether these companies can actually scale production of these new weapons systems,” said Becca Wasser, defense deputy director for the Center for a New America Security. “They say they can do it, but mass production is really, really hard.”
Moving fast in defense manufacturing requires many pieces of a production puzzle to come together at the same time. Neros, which is backed by Founders Fund and Sequoia Capital, is struggling to find enough rocket motors from a US-based supplier to produce 10,000 drones a month. After working for months to expand production, the startup has located a monthly supply of only around 3,000 motors so far — enough to fulfill its current orders, but well short of its ultimate goal of 1 million a year.
Despite the obvious challenges that come with manufacturing, swathes of Silicon Valley appear undeterred. Y Combinator Managing Director Jared Friedman said a combination of patriotism and a sense of opportunity has galvanized many of the young entrepreneurs that come through the popular tech accelerator. Where software once was the obvious choice for ambitious founders, today a growing number want to make drones, robots, ships and other advanced hardware.
“What’s going to be the next big thing? What smart, young people want to work on,” Friedman said, adding that he expects the revenue to eventually follow the investments. “I’m quite optimistic that investors are predicting the future correctly.”
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