The Neoprime Membership: Silicon Valley and The Rise of Protection Disruptors

OPINION — At this time, after a post-9/11 period outlined by world counterterrorism and uneven warfare, the U.S. is getting ready for potential near-peer conflicts amid a brand new period of nice energy competitors, sophisticated by disruptive applied sciences. In response, a brand new wave of protection contractors is rising from the epicenter of American technological innovation: Silicon Valley. These corporations are addressing important know-how gaps in areas equivalent to synthetic intelligence, autonomous programs, area providers, cyber operations, small drones, and extra. They’re deploying cutting-edge options to fill functionality shortfalls the U.S. authorities has acknowledged—and so they’re scaling quick. Profitable high-profile contracts, they’re reshaping how the Pentagon engages with the non-public sector.

Amongst these within the protection tech business, there’s been rising chatter concerning the rise of those protection disruptors—what you would possibly name the neoprimes. We—one in every of us a know-how investor, the opposite a former portfolio supervisor on the DoD’s Protection Innovation Unit—are sometimes requested: Is the rise of neoprimes actual? What precisely is a neoprime? What defines one? We got down to reply these questions, utilizing knowledge to help our observations. We imagine neoprimes are altering the tradition of protection acquisitions and growing applied sciences that can reshape how wars are fought. Shifts in protection spending and coverage are empowering neoprimes to develop and transfer sooner.

To know how we received right here, we will revisit a pivotal 1993 assembly now generally known as the “Final Supper.” Following the tip of the Chilly Conflict, U.S. protection spending plummeted, prompting a serious drawdown. The Division of Protection confronted intense stress to chop prices, with budgets falling by about 30%—from $772 billion in 1989 to roughly $531 billion by 1998 (adjusted for inflation). In opposition to this backdrop, then-Deputy Secretary of Protection William Perry convened a important assembly with executives from the highest protection contractors. His message was clear: the Pentagon might now not maintain a sprawling ecosystem of dozens of main corporations, and consolidation was inevitable. The business responded accordingly—over 50 corporations merged into the 5 dominant primes we all know right now. These survivors—Lockheed Martin, Raytheon, Northrop Grumman, Boeing, and Normal Dynamics—grew to become huge, vertically built-in organizations that managed roughly 60% of DoD contracts by 2000. For many years, they dominated authorities contract spending to construct and maintain the nation’s safety equipment, supported by an enormous internet of companions and subcontractors. However with predictable, annual funding streams and restricted aggressive stress, innovation inside these primes arguably stagnated.

Whereas many of those conventional primes hint their roots again over a century, a brand new tribe of Silicon Valley gamers has entered the sector. They’re accelerating deployment timelines and pioneering a unique mannequin—outlined by speedy iteration, software-first architectures, and a larger urge for food for threat. They’re deploying operational programs in months slightly than years or many years. They’re not simply constructing prototypes for demos and workouts—they’re scaling manufacturing and securing billion-dollar contracts. Whereas they might not but match the normal primes in whole contract quantity, they’re closing the hole 12 months over 12 months. A handful of key corporations are main the cost, with an increasing set of startups gaining traction. Backed by enterprise capital and supported by a rising community of influential advocates shaping coverage and public opinion, neoprimes are beginning to redefine how the federal government approaches the acquisition, fielding, and sustainment of recent applied sciences. They’re turning into mission-critical to the protection industrial base of America.

As this new technology of protection contractors positive factors momentum, what precisely is a neoprime? To reply that, we analyzed knowledge from USAspending.gov (the federal authorities’s official platform for monitoring public expenditures), reviewed SEC filings from public protection corporations, and compiled press releases from non-public corporations. We additionally interviewed founders and enterprise capitalists targeted on nationwide safety innovation.

Via this analysis, we recognized a number of defining traits of neoprimes and rising market traits. Our evaluation focuses on a set of present neoprimes—SpaceX, Palantir, and Anduril Industries—alongside a cohort of rising corporations like Protect AI, Skydio, Saildrone, Saronic, Hidden Stage, Epirus, Relativity Area, Axiom Area, HawkEye 360, Vannevar Labs, and others. These corporations are starting to guide main protection applications with superior applied sciences and a essentially totally different strategy to hurry, software program integration, and supply.

Beneath, we define our findings and outline the traits that distinguish neoprimes. We imagine these corporations characterize the way forward for nationwide safety—and to protect America’s strategic edge, we should quickly undertake and scale their options throughout the protection industrial base.

Neoprimes are Racing Forward in Division of Protection’s Vital Know-how Areas

At their core, neoprimes are constructed round rising, frontier applied sciences—fields like AI and autonomy, built-in networks, biotechnology, quantum science. In recent times, the Division of Protection has formally emphasised the significance of those applied sciences, figuring out fourteen Vital Know-how Areas that mirror a rising urgency to meet up with and surpass world rivals.

To raised perceive this pattern, we evaluated the highest 5 mostly used Product Service Codes (PSCs) for a set of presidency contractors from 2018 to 2023. PSCs are utilized by the U.S. federal authorities to explain the merchandise, providers, and analysis being bought via contracts, and we gathered this knowledge from USAspending.gov’s contract award summaries by vendor. For Palantir, SpaceX, and Anduril, we then recognized the preferred PSCs throughout all three. We carried out the identical evaluation to find out the highest PSCs among the many conventional protection primes—Lockheed Martin, Raytheon, Northrop Grumman, Boeing, and Normal Dynamics.

Palantir’s prime PSCs have been predominantly within the data know-how class, according to their core power in knowledge platforms and software program integration. A lot of the PSCs related to Anduril have been concentrated in engineering providers.

In distinction, for conventional primes equivalent to Normal Dynamics, Boeing, Lockheed Martin, Northrop Grumman, and Raytheon, the commonest PSCs have been closely concentrated in {hardware} classes—overlaying gadgets like airframe structural elements, helicopter rotor blades, and shock absorbers. In comparison with newer entrants, their portfolios featured far fewer PSCs associated to software program or IT providers.

High PSCs Throughout Neoprimes and Conventional Protection Companies (2018-2023)

Neoprimes

Conventional Primes

Whereas conventional primes proceed to provide legacy platforms just like the F-18, B-2, and AMPV, even when Silicon Valley’s protection startups develop superior {hardware}, their programs are essentially software-driven. These platforms typically depend on swarms of unmanned programs powered by cutting-edge AI and autonomy. They are not simply assemblies of metallic—they characterize complicated software program and programs integration challenges, being solved in actual time with applied sciences that did not exist a decade in the past. Notable examples embrace Anduril’s Lattice platform; small tactical drones from Skydio and Teal Drones; bigger programs like Protect AI’s V-BAT, autonomous floor vessels from Saildrone and MARTAC; and Palantir’s choice making and analytics platforms that proceed to unfold throughout the Division of Protection.

Neoprimes are additionally targeted on interoperability. Conventional contractors are infamous for proprietary programs that require their very own distinctive management programs and restricted third-party integrations—like drones that may solely be operated with particular controllers, computer systems, or area kits. However proprietary all the things would not scale on a battlefield more and more stuffed with robots, sensors, and drones, particularly as troopers are restricted by the variety of management programs they’ll carry into the sphere. In distinction, neoprimes are designing software program with interoperability in thoughts from the beginning—constructed to combine seamlessly with legacy programs and ingest any knowledge the federal government permits.

Total, the options neoprimes are growing are particularly related right now, as many Chilly Conflict-era instruments are failing to scale to the calls for of the trendy battlefield. For instance, Ukrainian troopers at the moment are utilizing low-cost drones to disable costly Russian platforms—within the latest Spider’s Net operation, 117 drones struck 4 Russian navy airbases and focused at the least 40 warplanes. The operation dealt a major uneven blow to the Russian navy and broader economic system, with estimated losses reaching as much as $7 billion.The inevitable shift towards extra inexpensive, extra attritable platforms is forcing governments to rethink how they develop and fund main protection programs. Neoprimes and the Division of Protection are racing to develop low cost-to-kill applied sciences—whereas additionally growing defenses in opposition to them—as these small deadly platforms turn into more and more frequent on trendy battlefields world wide.

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Prototyping and Collaborating Immediately with Servicemembers

Neoprimes construct working prototypes rapidly and make a behavior to iterate with finish customers in actual time—making modifications on the fly, within the area. We now have noticed that these corporations do not essentially look forward to the Division of Protection to fund their R&D as a substitute, they develop options they imagine are apparent solutions to present urgent issues and discover methods to get them into the arms of warfighters—typically effectively earlier than any massive procurement orders have even been positioned.

These corporations will ship prototypes “downrange” with keen servicemembers, generally years earlier than extra formal procurement contracts materialize. Protect AI, for instance, deployed working prototypes of their AI-enabled drones to Particular Operations Forces in fight within the Center East, gaining important suggestions whereas additionally delivering real-world outcomes for these early adopters. Different corporations have taken comparable approaches: ship cutting-edge know-how to warfighters first—even earlier than any formal requirement exists—refine it within the area, and let the paperwork catch up later.

Delivering On Time and Inside Funds

Neoprimes typically prioritize outcomes over processes. As an example, Palantir was not too long ago awarded a $178 million contract by the U.S. Military to develop the TITAN system, beating RTX Company in a aggressive choice course of. Remarkably, Palantir delivered the challenge on time and inside funds—historically a uncommon feat in protection contracting.

As one instance of neoprimes’ outcome-first strategy, we now have noticed a rising choice for fixed-price contracts over the normal cost-plus mannequin. Beneath a fixed-price construction, corporations are incentivized to innovate effectively, as they’re paid a set quantity no matter overruns. This stands in stark distinction to cost-plus contracts, the place incumbents are reimbursed for all bills and earn a revenue margin on prime—eradicating a lot of the stress to function leanly.

When analyzing authorities spending knowledge, we noticed that almost 100% of Palantir and SpaceX’s contracts are fixed-price, whereas 65-80% of Anduril’s contracts comply with the identical mannequin. Among the many conventional primes, Normal Dynamics has steadily secured an rising variety of fixed-price contracts, and the pattern is much less clear for others.

That mentioned, each neoprimes and conventional contractors proceed to depend on cost-plus contracts, as they continue to be the prevailing norm throughout a lot of the protection business. We additionally acknowledge that ongoing debate surrounds the usage of agency fixed-price versus cost-plus fashions in protection procurement. Whereas advocates of fixed-price contracts view them as the best method for the federal government to make sure worth and accountability, critics argue that fixed-price fashions will be too dangerous for complicated scopes of labor. A typical argument in favor of cost-plus is that it supplies the mandatory flexibility when challenge necessities are unsure or evolving.

Fraction of Mounted-Worth Contracts (2012-2024)

Maximizing Income and Contract Worth per Worker

Neoprimes function with small, agile groups—typically with only a fraction of the headcount of conventional protection contractors. However what they lack in dimension, they make up for in velocity and output. Many of those corporations are producing greater income or contract worth per worker.

SpaceX and Anduril have outperformed a number of main conventional protection contractors by way of obligations per worker, exceeding the ratios of Raytheon, Northrop Grumman, Boeing, and Normal Dynamics. And whereas Lockheed Martin has outperformed all in absolute phrases, that could be attributed to its considerably bigger income—roughly $51 billion in comparison with SpaceX’s $3.8 billion.

Be aware that as a result of Anduril and SpaceX are nonetheless non-public corporations, we primarily based their worker counts on estimates from public studies. Palantir and all conventional primes report worker numbers of their SEC filings.

Obligations per Worker (FY 23)

Rising Use of OTAs in Protection Contracting

Whereas Palantir, SpaceX, and Anduril are main neoprimes, a number of different corporations are quickly rising on this class. Protect AI, which started with AI-powered quadcopters for U.S. Navy SEALs and different particular operations forces, is now fielding its V-BAT unmanned aerial car in Ukraine, Japan, and Brazil. Firms like Saildrone and Saronic are deploying a variety of autonomous drones above and under the water. Cybersecurity leaders equivalent to Palo Alto Networks, Fortinet, and Crowdstrike have gotten key gamers in areas like trusted networks and digital protection. Business area corporations like Varda, HawkEye 360, and Astranis are constructing capabilities for on-demand area entry, persistent satellite tv for pc protection, and high-speed space-based knowledge switch.

With the rise of neoprimes, the Division of Protection has considerably elevated its use of Different Transaction Agreements (OTAs) in recent times, reflecting a strategic shift towards extra agile and versatile procurement strategies. OTAs, which aren’t certain by the normal Federal Acquisition Regulation (FAR), permit the Division of Protection to collaborate extra simply with nontraditional contractors, together with startups and analysis establishments. When correctly executed, we imagine that OTAs can result in higher, sooner, cheaper outcomes for everybody concerned—saving time, cash, and energy.

Additional evaluation reveals that OTA utilization is clearly trending upward inside the Division of Protection. Despite the fact that OTA awards have elevated tenfold since 2017, nevertheless, they nonetheless account for less than about 0.01% of the entire contracts awarded by the Division of Protection—it is nonetheless removed from mainstream within the broad acquisition group. Given what OTAs have already delivered, we will solely think about the impression if extra contracts have been accelerated this fashion.

OTAs Awarded vs Complete Contracts Awarded (FY17-FY22)

The Street Forward: Partnering with Neoprimes to Meet Rising Nationwide Safety Wants

At this time, we imagine the U.S. authorities is starting to acknowledge the strategic worth of neoprimes in addressing important functionality gaps. The Division of Protection has acknowledged its lag in a number of key know-how areas and has taken deliberate steps to shut the hole. Along with encouraging the providers to increase their use of OTAs, the Division of Protection launched the Business Options Opening (CSO) framework to draw non-traditional distributors. It additionally launched the Workplace of Strategic Capital to supply extra versatile financing choices and created the Nationwide Safety Innovation Capital initiative to help dual-use {hardware} growth. Over the previous twenty years, the Division of Protection has invested greater than $20 billion in small enterprise initiatives—all promising indicators of progress, however extra work stays.

Throughout the nation, dozens of rising know-how corporations are profitable contracts that might have defaulted to conventional primes just some years in the past. These startups aren’t merely disrupting the protection industrial base; they’re actively shaping the way forward for warfare. Their applied sciences are starting to affect navy doctrine, operational planning, and frontline ways.

This shift displays a broader transformation in nationwide safety priorities—one we strongly help and imagine have to be accelerated. As these threats turn into more and more software- and technology-driven, we’re inspired to see Silicon Valley and its neoprimes emerge as pure leaders in enabling the subsequent technology of navy readiness. Now’s the time to double down.

Editor’s Be aware: The authors of this text are affiliated with Courageous Capital and MVA (MilVet Angels), which have invested in nationwide safety corporations like Anduril Industries, Protect AI, Aetherflux, Hermeus, Ursa Main, and others.

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