In the late hours of election night, as former President Donald Trump looked likely to win, Elon Musk tweeted an encouraging note directly at Anduril Industries founder Palmer Luckey: It’s “very important” to open up the Defense Department and intelligence agencies, he said, to “entrepreneurial companies like yours.” That was music to the ears of the leaders of Silicon Valley’s emerging defense tech companies. The smaller players in the defense-tech ecosystem have been rooting for a Trump victory, seeing him as the kind of disruptor who could give them a bigger share of the Pentagon’s budget. For years, defense officials have said they have a strong appetite for cheaper, more nimble defense technologies — but new players have found it challenging to carve out a space under the Pentagon’s rules. Many venture capitalists and defense tech entrepreneurs bet early on Trump’s campaign, convinced he could reform the Pentagon’s arcane budgeting system in ways that will push it to adopt their cutting-edge innovations faster. “The single biggest thing that will make the difference is the amount of investment that the next administration puts into these advanced capabilities, and when I say investment, I mean procurement dollars to buy them at scale,” Chris Brose, Andruil’s chief strategy officer, told DFD. Defense tech startups have long struggled to persuade the DOD to buy from them. Venture-backed defense tech companies took less than 1 percent of the $411 billion in federal defense contracts awarded last fiscal year. That’s even as the department increasingly seeks out AI-enabled systems, defense venture funding continues to pour in and new global conflicts have stoked calls to modernize military arsenals. The companies say the issue is that the Pentagon’s budgeting process is fixated on checking off a long list of requirements, instead of choosing the best technology for the job — an argument Musk repeated. They argue defense spending moves too slowly, and there’s a risk that technology becomes obsolete by the time programs make it into the budget. While the sector has notched some initial wins on budget reform, and convinced the Pentagon to take up initiatives like the Replicator drone program, a Trump-led Department of Defense would have a big opening to do much more. The industry is hopeful that the idea of a major shake-up may appeal to figures like Musk, who have grand plans of cutting through bureaucracy and slashing government inefficiencies. “There is an opportunity to reform acquisition,” Palantir’s chief technology officer Shyam Sankar said over email, “but as part of reforming and modernizing the entire organization.” His company published an entire treatise days before the election, urging DOD to shift its mindset by introducing more competition for contracts, granting opportunities to new entrants and resurrecting America’s defense industrial base. So what comes next? With Trump back in the White House and a sympathetic ear in Musk, the real test will be the specifics, which won’t be easy to figure out. With much of the Pentagon’s budget still being spent on conventional weapons systems — supplied by rich, lobbied up mega-contractors with deep Washington ties — the defense venture ecosystem is up against massive forces. “A lot of the startups here in tech world are going to be naive about the battle they're about to face,” said Steve Blank, a former science advisor for the Navy and startup founder who sits on the Silicon Valley Defense Group’s board. “There’s going to be incredible enthusiasm for change, but there’s an entrenched set of incumbents, mostly on K Street and inside these House and Senate committees, who are unwilling to make radical change.” The industry will need key lawmakers to either boost the defense budget, cut long-standing tech purchases to free up resources, or both. Top defense contractors — the current beneficiaries of the Pentagon’s long-term contracts — won’t back down without a fight, and Silicon Valley’s defense tech companies are relatively new to Capitol Hill. “We've not spoken with authority and with a single voice. We've all been lobbying for our company or technology or crypto or whatever,” said Blank. “Versus how do we actually change the system permanently to buy and build more efficient things to defend the nation and deter adversaries, or if necessary, win a war.” Trump transition spokesperson Karoline Leavitt did not elaborate when asked what reforms, if any, the administration would pursue to how the Pentagon buys technology. Trump, she said in a statement, “will deliver” on the “promises he made on the campaign trail.” “They have all of the authority they need,” Brose of Anduril said of the incoming Trump administration. “What they need is to make this a priority and dedicate the political will to working with the Congress.” For now, defense tech companies are optimistic based on the people they’ve seen joining the Trump team. One promising advocate may be Michael Kratsios, the managing director of Scale AI who will handle tech policy for the transition. House Armed Services Chair Mike Rogers (R-Ala.) is another, as a dark-horse candidate for Trump’s Defense Secretary. This fall, Rogers endorsed Palantir’s recommendation to shift a small percentage of budget funds directly to combatant commands for quicker experimentation with new tech, rather than routing it all through the military services. Luckey, a longtime Trump backer, told Bloomberg TV on Thursday that he’s “in touch” with the transition team and “there’s not a single name I’m unhappy with.” “There are plenty of signs that are very encouraging in terms of things that have been said, reports of people who are playing important roles it appears in the transition,” Brose said. But “there are lots of people with lots of different opinions, so I think we just kind of have to wait to see how this all develops.”
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