When Russia invaded Ukraine in early 2022, “I think that woke people up,” Josh Wolfe, cofounder and managing partner at Lux Capital, told me last month, adding that seeing “commercial off-the-shelf technologies being used to defend the democratic nation was inspiring for many.” Lux has been a big investor in defense technologies across land, sea, air, and space, Wolfe notes, with investments in startups like military tech company Anduril and autonomous precision component factories builder Hadrian. It’s also a key investment area for the firm’s new $1.15 billion fund.  

Defense tech can be a pretty broad term, but VCs are looking into areas like drones, satellites, cybersecurity, A.I., space, and communications. According to a new PitchBook report out this week, defense tech has experienced a boom in recent years: From 2016 to 2022, investors plowed $135.3 billion into the sector across 4,744 deals. There’s been a rise in deals in Q1 this year, with 89 deals compared to 60 in Q4, although deals are tracking lower for Q2 so far, according to PitchBook data provided to Fortune. There’s interest from some top players: Andreessen Horowitz recently announced that the firm is earmarking $500 million to invest in companies that support American interests, including in defense. 

During the past year, the “top defense tech segments were renewable energy [and] generation ($3.9 billion), sensing, connectivity [and] security ($3.4 billion), and biotechnology ($3.2 billion),” indicating that “military priorities go beyond just aerospace and weaponry to include a full suite of technologies that form a broad definition of ‘national security,’” the PitchBook authors note. 

VCs argue that defense tech’s rise in popularity is owing to a few dynamics: Historically the process of winning government contracts has been far more lengthy than the frequency of venture-backed startups raising funding, which is roughly 18 to 24 months, making it hard for young startups to sell to the government, according to Bob Ackerman, founder and managing director at cybersecurity-focused firm AllegisCyber. But “there’s a growing realization that something has to change and that the government is looking for ways to kind of streamline” their process, he told me. (Ackerman still believes that synchronizing the cycles of a startup with the government’s procurement process will continue to be an issue.)

Another propellant is that startups building technologies that can serve both commercial and government uses have been able to achieve more venture-worthy growth. The Department of Defense has in recent years created programs like the Defense Innovation Unit Experimental, or DIUx, and employed other transaction authorities (OTAs) that enable the government to write checks faster, giving venture investors confidence that these companies can scale more quickly, Sri Chandrasekar, managing partner of Point72 Private Investments, the hedge fund’s private investment arm, told me. “I think that’s really why you’re seeing all these people jump in: They’re seeing all the traditional SaaS businesses’…growth slow and we’re seeing instead there’s this market where companies are growing really fast.”

VCs today point to Elon Musk’s SpaceX, which was founded back in 2002 and is valued at well over $100 billion, as a shining example of a defense tech success story: “Between Palantir and SpaceX, we are seeing extraordinarily highly-valued businesses where the vast majority of revenue is government-derived. Venture investors look at that, and [they’re like], ‘Huh, that’s interesting,’” Chandrasekar says. We’re also currently seeing more ex-Palantir and ex-SpaceX founders building startups, he added.

But it’s not just the U.S.: Investors in Europe are also becoming increasingly interested in defense tech. Pawel Chudzinski, a partner at Berlin-based Point Nine Capital, told me while I was recently in Europe that “up until two years ago, a defense startup was, like, a no-go. That has changed completely.” He later added that the optics, and willingness, of investors to put money into defense has shifted significantly after the Ukraine war started. Europe is expected to increase spending on defense, Chudzinksi noted, and “all of this sounds like an opportunity to European tech entrepreneurs.” 

Where are VCs looking to invest? Allegis’ Ackerman points to use cases like defending against offensive applications of artificial intelligence. Point Nine, meanwhile, focuses primarily on software companies, and Chudzinski says that they’re looking at applications that are, of course, “software heavy—automation, simulation, computer vision, etc.” Like elsewhere in venture, multiples for defense- and cyber-related startups have come down owing to the macro conditions, Ackerman says. 

To be sure, defense has been a controversial area for VCs to invest in, and Ackerman says they won’t invest in offensive technologies—like those used to wield cyber attacks. But long an evangelist of defense tech, Lux’s Wolfe opines there’s “a moral imperative to invent technology so that people that are really doing the good work around the world are advantaged, not disadvantaged.”

And despite the up-and-to-the-right nature of defense tech deals over recent years, make no mistake: “This is not a phenomenon of 2023,” Ackerman says. “This is a trend line that’s been developing for 20-plus years, [and] it has continued to grow.” 

See you tomorrow,

Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.

VENTURE DEALS

– ElevateBio, a Waltham, Mass.-based cell and gene therapies biotech company, raised $401 million in Series D funding. AyurMaya Capital Management Fund led the round and was joined by Woodline, Lee Family Office, Novo Nordisk, SoftBank Vision Fund 2, F2 Ventures, and others. 

– Figure, a Sunnyvale, Calif.-based A.I. robotics company, raised $70 million in Series A funding. Parkway Venture Capital led the round and was joined by Aliya Capital, Bold Capital, Tamarack Global, Audeo VC, FJ Labs, and others.

– Sastrify, a New York-based buying and managing SaaS subscriptions platform, raised $32 million in Series B funding. Endeit Capital led the round and was joined by Simon Capital, HV Capital, FirstMark Capital, and TriplePoint Capital. 

– Ayar Labs, a Santa Clara, Calif.-based silicon photonics developer for chip-to-chip connectivity, raised an additional $25 million in Series C1 funding. Capital TEN led the round and was joined by VentureTech Alliance, Boardman Bay Capital Management, IAG Capital Partners, NVIDIA, and Tyche Partners. 

– Novisto, a Montreal-based ESG data management software company, raised $20 million in Series B funding. Inovia Capital led the round and was joined by Portage Ventures, SCOR Ventures, White Star Capital, and Diagram Ventures. 

– Infinite Uptime, a Pune, India-based predictive maintenance solutions provider for industrial machinery, raised $18.85 million in Series B3 funding. Tiger Global led the round and was joined by GSR Ventures, VenturEast, Mayfield, and THK. 

– Checkmate, a Los Angeles-based automated savings platform for online shopping, raised $15 million in Series A funding. GV led the round and was joined by Mantis VC, Common Metal, BDuck Capital, Black Angels Group, Wischoff Ventures, Fuel Capital, Blackbird Ventures, F7 Ventures, Night Capital, and Scribble Ventures. 

– Kira Learning, a San Francisco-based computer science teaching and learning platform, raised $15 million in Series A funding from NEA and the AI Fund.

– Laced, a London-based online sneaker marketplace, raised $12 million in Series A funding. Talis Capital led the round and was joined by H&M Group Ventures. 

– Pesto, a San Francisco-based asset-backed credit card company, raised $11 million in Series A funding co-led by Activant Capital and Plural. 

–  Spellbook, a Toronto-based legal tech startup, raised $10.9 million in funding. Thomson Reuters, Moxxie Ventures, and others invested in the round. 

– Memcyco, a Ramat Gan, Israel-based website impersonation detection and prevention solution, raised $10 million in seed funding co-led by Capri Ventures and Venture Guides. 

– Sixfold, a New York-based generative A.I. tool for insurance underwriters, raised $6.5 million in seed funding led by Bessemer Venture Partners. 

– WireMock, a San Francisco-based API platform for developer productivity, raised $6.5 million in seed funding. Ridge Ventures led the round and was joined by First Rays Venture Partners and Scribble Ventures. 

– InProTher, a Copenhagen-based early-stage biotech company developing human endogenous retroviruses immunotherapies, raised €6 million ($6.46 million) in seed funding from the European Innovation Council Fund and others. 

– BebopBee, a Seattle-based mobile game development studio, raised $4 million in funding. BITKRAFT Ventures, Courtside Ventures, Andover, GOAL Ventures, and other angels invested in the round.  

– BBy, a New York-based breast milk storage and administration company, raised $3 million in seed funding. Pioneer Fund led the round and was joined by Y Combinator, 7G Bioventures, Cathexis Ventures, and other angels. 

PRIVATE EQUITY

– Agile Defense, backed by Enlightenment Capital, acquired XOR Security, a Falls Church, Va.-based cybersecurity operations and engineering provider. Financial terms were not disclosed. 

– Baird Capital acquired a minority stake in Freemarket, a Dublin- and London-based fintech platform for regulated B2B cross-border payments and currency exchange. Financial terms were not disclosed.

– British Columbia Investment Management Corporation acquired a minority stake in ZEDRA, a Geneva, Switzerland-based planning, governance, and operational services provider. Financial terms were not disclosed.

– Partners Group acquired a minority stake in Sterling Pharma Solutions, a Dudley, U.K.-based contract development and manufacturing organization and GHO Capital Partners portfolio company. GHO will retain a majority stake. The investment is supported by a consortium of investors led by funds managed by AlpInvest and Pantheon.

OTHER

– Pyxis Oncology agreed to acquire Apexigen, a San Carlos, Calif.-based biopharmaceutical company. The deal is valued at approximately $16 million.

– Vertex Labs acquired Digimental Studio, a London-based digital art studio, for $12 million.

PEOPLE

– Cambridge Associates, a Boston-based investment firm, hired Samantha Davidson as president and head of global investing. Formerly, she was with Mercer.

– Kleiner Perkins, a Menlo Park, Calif.-based venture capital firm, hired Leigh Marie Braswell as a partner and Nadia Cochinwala and Lucas Oliveira as investors. Formerly, Braswell was with Founders Fund, Cochinwala was with TPG, and Oliveira was with Thoma Bravo.

– Lateral Investment Management, a San Mateo, Calif.-based private investment firm, hired Jeff Benjamin as an operating partner. Formerly, he was with Ellie Mae. 

– Verdane, an Oslo-based growth equity investor, hired Dominik Schwarz as a partner. Formerly, he was with EMH Partners.