Based on research by Elke Schwarz
Finance and Society · 2025 · Peer-reviewed article
Why It Matters
This paper argues that the surge of venture capital into the defense sector represents more than just a new funding stream; it is a cultural and structural overhaul of the military-industrial complex. For defense professionals, this analysis is critical because it reveals how the fundamental logic of Silicon Valley, prioritizing rapid, high-risk growth and market disruption, or 'blitzscaling', is fundamentally misaligned with the traditional defense imperatives of stability, accountability, and ethical diligence. The author, Elke Schwarz, details how VC firms and their portfolio companies are actively 'hacking' the Pentagon’s procurement processes through lobbying, legal action, and narrative manipulation. The result is a shift towards a 'move fast and break things' ethos within the Department of Defense itself. This transformation puts pressure on the DoD to favor speed and scale over robust oversight, raising profound questions about the long-term reliability of new AI-driven systems and the ethical foundations of future military operations when financial incentives, not just strategic necessity, drive innovation.
Key Findings
The paper reports that venture capital investment in US defense startups more than doubled from $16 billion in 2019 to $33 billion in 2022. Separately, citing MacColl (2024), it reports nearly $130 billion invested in the defense technology startup sector since 2021.
VC firms and their startups actively work to 'hack the Pentagon' by wielding influence through lobbying, hiring former government officials, and using litigation to force open procurement processes, as seen in lawsuits by SpaceX and Palantir.
To create demand, VC-backed firms manufacture a crisis narrative centered on the perceived stagnation of traditional defense primes and an exaggerated, imminent 'China threat,' thereby justifying the urgent, risk-tolerant adoption of their technologies.
The paper links Replicator's original 18-24-month target for acquiring thousands of autonomous systems to VC-style speed and scale. It cites the DoD's 2022 prototyping guidebook for the 'fail fast, fail cheap' ethos and, separately, Kathleen Hicks's 2024 remarks about moving fast and breaking things.
The author warns that this VC-driven culture shift could normalize flawed AI products and expansive surveillance, and suggests that war, or at least embracing its possibility, may be the best catalyst for VC-driven defense-sector growth.
The VC Growth Imperative
Venture capital (VC) operates on a distinct 'high-risk, high-reward' logic that shapes its investment strategy, the author explains. VC firms raise capital from institutional investors and high-net-worth individuals to create funds with a typical lifespan of 10-12 years. Their primary goal is to generate outsized returns by investing in high-growth potential startups. According to the paper, VC investment follows a 'power law' curve, where a small fraction of investments yields the vast majority of profits. Citing one source, the analysis notes that just 6% of deals can produce 60% of the total returns. This means a fund's success depends on identifying and nurturing a few 'unicorns', companies that achieve a valuation of $1 billion or more, whose exponential growth will compensate for the numerous other startups in the portfolio that fail or achieve only mediocre results.
To achieve the necessary returns, VC-backed startups are pushed toward 'blitzscaling,' a term coined by investor Reid Hoffman to describe a strategy of prioritizing speed over efficiency in the face of uncertainty. As the paper details, blitzscaling is an ideology focused on aggressive, rapid scaling to outperform competitors and establish market dominance. The primary product in this model is not a physical good or even profit, but 'growth' itself, measured by an upward spiral of valuations in successive funding rounds. This relentless drive for hypergrowth encourages startups to 'spend to battle for market supremacy' and take significant risks. This process, the author argues, is a performance of Silicon Valley's 'move fast and break things' motto, where the main task is to capture market share, even if it means operating at a substantial loss.
The concept of the 'unicorn' is central to the viability of the VC model, and the paper argues these valuations are often built on speculation and narrative rather than proven performance. The term itself, coined in 2013 when only 39 such companies existed, suggests a belief in the rare and exceptional. At the time of Schwarz’s research, there were roughly 1,200 unicorns with a cumulative valuation of nearly $4 trillion, according to the CBInsights data she cites from 2024. The author contends that these valuations are highly dynamic and speculative, often resting on 'gut-feel' and hype rather than quantitative rigor. The cycle is designed to drive valuations upward, ultimately vindicated if the startup can be sold to the public via an IPO or acquired by a larger company. This system incentivizes the creation of a 'fantasy of growth' to keep investors engaged and funding flowing.
Engineering a Disruption
To make the traditionally slow and consolidated defense market compatible with their need for rapid growth, VC firms have actively worked to reshape it, the paper argues. A key strategy is forging a startup-friendly government environment by wielding intellectual influence and leveraging high-level networks. The author points to former Google CEO Eric Schmidt as a prime example. Since 2016, Schmidt has chaired influential bodies like the Defense Innovation Advisory Board (DIB) and the National Security Commission on AI (NSCAI), using these platforms to urge the DoD to adopt 'more agile acquisition, budget and oversight processes' and new warfighting paradigms centered on software and AI. This influence campaign is bolstered by an expansive network of over 50 former Pentagon officials now employed by VC firms, who use their standing to lobby for more funding for emerging technologies.
When influence is not enough, VC-backed firms have resorted to legal force to disrupt the market. The paper highlights lawsuits by VC-backed companies SpaceX and Palantir as setting the precedent. In 2014, SpaceX sued the U.S. Air Force for improperly awarding non-competitive launch contracts, a move that successfully opened the bidding process and led to SpaceX securing multi-million-dollar deals. Similarly, in 2016, Palantir sued the U.S. Army, arguing its procurement process for the Distributed Common Ground System unfairly excluded them. Palantir won the lawsuit, secured an $823 million contract, and, as stated in its 2020 IPO filing, views this legal victory as 'transforming the procurement of goods and services across the US federal government' and expanding its total addressable market.
These efforts have successfully driven reforms in the Pentagon's procurement process to better accommodate VC timelines. The author details the expansion of Other Transaction Agreements (OTAs), which bypass the standard Federal Acquisitions Regulation, allowing for faster, more flexible contracting with less oversight. The paper reports that OTAs are used on a multibillion-dollar scale and that Anduril and Palantir have benefited from them. Another significant change is the 2020 adoption of the Adaptive Acquisitions Framework (AAF), which created new pathways for acquiring software products that did not fit traditional models. Furthermore, the establishment of the Office of Strategic Capital (OSC) facilitates direct loans and banking guarantees for defense tech startups, further aligning the Pentagon’s financial structures with the needs of the VC ecosystem.
The Narratives of Inevitability
A key component of the VC strategy, as outlined in the paper, is the construction of powerful narratives to manufacture a 'value gap' and position their portfolio companies as a 'future social necessity.' The most prominent story is that of an urgent need for acquisition reform because the government's processes are too bureaucratic and its traditional suppliers, the 'primes' like Lockheed Martin and RTX, are technologically stagnant. This narrative of 'excess bureaucracy' holding back the U.S. Army is now commonplace in media coverage and serves as a key justification for aligning procurement timelines with VC interests. The Anduril company retrospective from 2023, cited by the author, encapsulates this by stating that the 'ingenuity of incumbent defense primes had stagnated amid misaligned incentives and crippling bureaucratic procedures.'
This story is paired with a second narrative that the wars of the future will be won exclusively with digital innovation, software, and AI. This discourse anoints defense tech founders as 'visionary' figures, with Anduril founder Palmer Luckey being called the 'Millennial slayer of US defense giants' and Palantir’s Alex Karp penning op-eds positioning himself as a modern Oppenheimer of AI weapons. The author notes these claims are often unverifiable and exaggerated, such as Luckey’s promise that Anduril will 'save Western civilization' while making tens of billions. These narratives position software-focused companies as intrinsically more valuable for future conflicts than traditional hardware, establishing tech executives as the new experts on how to win wars, despite the lack of evidence for their claims.
The entire narrative framework is supercharged by what the paper calls the 'valorizing crisis,' primarily by invoking the 'China threat.' The analysis highlights how the 2021 NSCAI report mentioned China 604 times, entrenching the idea of an imminent and formidable competitor. This creates a sense of existential urgency and a fear of missing out (FOMO) that shortens decision-making timelines for defense acquisitions. The author argues that this narrative of plausible crisis is a potent tool, as VC firms can profit from the rush to acquire new technologies 'regardless of whether the crisis occurs at all.' This conjuring of an imminent threat, bolstered by real-world conflicts in Ukraine and Gaza, becomes a powerful, if unsubstantiated, justification for the rapid, risk-tolerant adoption of VC-backed technologies.
Defense in Silicon Valley's Image
The influence of venture capital is producing a palpable cultural shift within the Department of Defense, a phenomenon the paper terms 'Defence 2.0.' The Pentagon is increasingly adopting the language and logic of its new partners. The author points to the DoD's 2022 Prototyping Guidebook, which embraces a 'fail fast, fail cheap to learn fast and save money' ethos directly borrowed from the tech startup environment. This mindset is embodied in programs like the Pentagon’s 'Replicator' initiative, which aims to acquire thousands of small, autonomous, and attritable drones within 18-24 months, a timeline that mirrors VC funding cycles. Similarly, the US Army's '10X Platoon' explicitly reproduces the VC growth mandate with its goal to 'make better decisions 10 times faster than before' using AI and robotics.
Top defense leadership is echoing this new cultural script, according to the paper. At a 2024 summit hosted by VC firm Andreessen Horowitz (a16z), Deputy Defense Secretary Kathleen Hicks was repeatedly pressed on acquisition hurdles. Her response, cited at length in the study, affirmed the need to 'fundamentally reform defense acquisition' through alternative pathways for software. Hicks also declared in her keynote at the summit, 'yes, moving fast and breaking things is necessary to win wars.' The paper also records her proviso that legal and constitutional limits must be respected. Schwarz reads this rhetoric as a sign that the government's perspective is adjusting to the demands of VC-backed startups, prioritizing speed and agility, sometimes at the expense of traditional oversight.
The author concludes by warning of the profound ethical and strategic consequences of this shift. Normalizing a 'move fast and break things' approach in a domain governed by life-and-death decisions could lead to the deployment of flawed and inadequate AI products, causing harm to civilians. This VC logic also promotes a worldview that justifies constant global surveillance and directs funding away from other initiatives that might offer more utility with greater oversight. Perhaps most alarmingly, the paper suggests, is the logical endpoint of the VC model's application to defense. For a sector driven by a mandate for hypergrowth, the author suggests that war, or at least embracing its possibility, may be the best catalyst for growth.
Where the Evidence Is Uncertain
The author highlights that many of the claims made by defense startups and their VC backers about the revolutionary capabilities of their AI-powered systems are speculative and currently unverifiable. It remains an open question whether these technologies can deliver on their promises in the complex reality of warfare, or if their primary utility is bolstering speculative valuations for investors. Schwarz also acknowledges that reforms, greater agility and some autonomous capabilities may benefit defense. Her criticism concerns whether adopting startup products faster and at greater scale can reliably deliver those benefits.
What to Monitor
Changes in DoD procurement regulations, particularly the expanding use of Other Transaction Agreements (OTAs) and the funding allocated through the Office of Strategic Capital (OSC).
Market share and contract awards for 'unicorn' defense startups like Anduril and Shield AI versus traditional prime contractors in major DoD programs of record.
The rate at which former senior DoD and intelligence officials join VC firms or their portfolio companies, and the policy recommendations they subsequently advocate.
About This Document
"From blitzkrieg to blitzscaling: Assessing the impact of venture capital dynamics on military norms", Elke Schwarz
Finance and Society · Queen Mary University of London · 2025 · Peer-reviewed article
License: Open access
Selected Sources
This briefing was curated and summarized by DefenseHub from "From blitzkrieg to blitzscaling: Assessing the impact of venture capital dynamics on military norms", by Elke Schwarz, published in Finance and Society in 2025. Findings and underlying research remain attributable to the original authors and publisher.