2026 could see a new alphabet game as VCs play a greater role with the defense and IC. In plain English, venture capitalists are increasingly investing in U.S. military tech, driven by the Pentagon’s ongoing adoption of autonomous systems, a greater focus on cyber, biotech, and space. At the same time, the Intelligence Community is employing VC-like models to fund startups for national security tech.
In both defense and IC, VC will continue to support “dual-use funds” that support commercial and defense applications.
“The driver of this is an increasingly uncertain and dangerous world. This is combined with President Donald Trump saying he wants to have a $1.5 trillion defense budget,” explained Roger Entner, principal analyst at Recon Analytics.
Entner shared, “Drones, AI, and robotics are huge disruptors on the battlefield. The war in Ukraine shows us that the next war will be fought on terms that the U.S. military has not yet experienced. We need new weapons and new tactics. VC money is flowing into this obvious opportunity.”
The Warrior Ethos
VC’s interest in defense and intelligence began during the Biden administration and has continued to gain traction. As noted by Entner, it was just this month that President Trump called for a $1.5 trillion Pentagon budget, an increase of $500 billion from the fiscal year 2026 (FY26) budget.
“When you change the name of the Secretary of Defense to the Secretary of War and provide direction that much of the U.S. military infrastructure will be updated, there is a clear indication that money will be flowing into that industry,” suggested technology industry analyst Rob Enderle of the Enderle Group.
Even as Secretary Pete Hegseth has called for a return to a “warrior ethos” that seems more focused on boots on the ground style conflicts than those waged in cyberspace or via asymmetric warfare, Trump has called for the building of the “Golden Dome for America” missile defense system, and even a 21st-century battleship.
Such programs will offer opportunities for both large defense contractors and startups. At the same time, Trump has been critical of the defense sector, notably on the salaries of some executives.
“The administration has also indicated that they want these firms to spend more on R&D than on things like stock buybacks, which artificially raise the value of those stocks, which is counter to the behavior that the VCs typically drive, suggesting that they know that last directive doesn’t have any teeth,” Enderle told ClearanceJobs.
Ripe Sector for VCs
The administration will likely continue to make unexpected moves. From Greenland chatter to conflict with adversaries, a lot of factors impact the defense and IC sector.
The conflict in Ukraine will soon reach its fourth year.
Then there is the revolutionary development of AI, which continues at a pace that few could have predicted.
“Amid conflicts brewing worldwide and geopolitical instability, defense tech has exploded into one of the fastest-growing areas of venture capital, with unprecedented growth in VC investment in AI and defense tech. AI is increasingly embedded across defense systems, cybersecurity platforms, healthcare analytics, logistics optimization, and digital public service,” said Susan Schreiner, principal analyst at C4 Trends.
She told ClearanceJobs that, in today’s complex battlefield, there is greater urgency for agility and quick decision-making than ever before. VC will undoubtedly want to be a part of the solution.
“With the technological shift from hardware-first to software-defined, autonomous systems—AI’s value in defense is amplified when paired with real-time data, edge computing, and security mobile applications,” said Schreiner, noting that this year’s CES (formerly the Consumer Electronics Show) in Las Vegas had an entire venue focused on AI and quantum.
“These technological shifts are also leading to changes in military procurement strategies and the relationships with traditional defense contractors,” Schreiner added.
That has also led to cross-pollination of talent, with ex-Pentagon officials and military officers moving into venture roles to guide startups through the process. That included former U.S. Secretary of Defense Mark Esper joining a VC firm that backs military software startups.
“Startups are hiring advisors with defense backgrounds and securing ex-generals for their boards,” Schreiner noted.
In 2022, a standalone VC fund backed by 24 NATO allies was launched, with more than $1 billion. It was meant to complement NATO’s Defence Innovation Accelerator for the North Atlantic (DIANA), which will support the development and adaptation of dual-use emerging technologies to critical security and defence challenges.
“Funding to VC-backed startups in defense – defined to include military, national security, and law enforcement – hit $7.7 billion across close to 100 deals in 2025, per Crunchbase. That was a record high for investment in this space and more than double 2024,” said Schreiner.
That number is likely to rise.
“Brace yourself, as VC funding for AI in defense technology increases, we face a challenging period,” Schreiner continued. “The world is navigating the complex ethical, privacy, and intelligence considerations as AI and quantum technologies meet defense on a global level.”
Advances in technology does more than just make the world safer, however.
“The world is becoming an increasingly hostile place, which also fuels defense spending,” added Enderle. “So, the VCs clearly see a strong and legitimate opportunity to make money, and that’s the business they are in.”
