Technology built with defense in mind is now gaining significant and serious appeal, fueled by global events, technological advancements and a growing need by end users to invest in more innovative ways to protect themselves. In its latest development, Shield AI — which makes software and hardware for drones and other autonomous aircraft used by military and other government organizations — has raised $165 million in funding, $90 million in Series E shares and $75 million in debt.
The funding comes in at a valuation of $2.3 billion, Shield AI said. The company is moving fast on that front, following a Series D of $210-$300 million about ten months ago, which valued the company at $1.25 billion. (It never confirmed the final amount, which was also a mix of equity and debt.)
Snowpoint Ventures’ Doug Philippone led the round, with Riot Ventures, Disruptive (a returning backer; it led Shield AI‘s Series D) and Homebrew (it led Shield AI‘s seed round). The company’s other investors include Point72, Andreessen Horowitz, Breyer Capital and SVB Capital.
Philippone is an interesting person to lead this latest round: he is not only an investor, but also the global defense chief of Palantir, a job he has held for the past 14 years. This is important, not least because Palantir was arguably one of the key companies to change the game for the way startups, spurred on by the Silicon Valley tech boom, took out defense contracts and started winning and raising huge sums of money from VCs. to fuel that growth.
Another influential startup that is changing the conversation about financing defense technology is Anduril, which, as we reported last week, is raising up to $1.2 billion (possibly more) at a $7 billion valuation. That round, we have been told, is now basically closed.
Shield AI is based on San Diego, which you could say is a bit like the Silicon Valley of the defense industry. It is home to the U.S. Pacific fleet, and according to statistics gathered by the city’s chamber of commerce, outside of Fairfax County, Virginia (where the Pentagon is located), San Diego gets more defense spending than any other place in the United States. US Shield is located there among dozens of other major and minor defense contractors.
And if you don’t follow the defense industry, but have at least seen or heard of Top Gun or the recently released blockbuster sequel, do you know that it is an important center specifically for the development of aerospace. Shield AI targets a very specific customer base aimed at the US military and its allies, yet it speaks of what it does in terms that put purpose and function in context for more ordinary people.
“The Chinese military is Netflix; the US military is Blockbuster. China is Amazon; the US is Barnes & Noble. China is Tesla; the US is General Motors,” writes Brandon Tseng, the president of the company that co-founded it with his brother Ryan (who is the CEO). Brandon is also a former Navy SEAL, so he speaks with some authority when making these kinds of analogies.
And on the company’s homepage, it describes Hivemind, its AI-based autonomous software platform, as what else? “A Top Gun for every plane.”
As with many other companies (perhaps any company) in autonomous transportation, whether in the air or on the ground, Shield AI has a mix of software and hardware that is already usable, and then products that are still in development. Some will be used in purely autonomous systems, and others in conjunction with humans.
In the case of Shield AI, the company says that Hivemind and its Nova drone (or small unmanned aerial vehicle system, sUAS, in more formal terminology) have been in operation since 2018. Ryan Tseng tells us that the details of exactly where and how are classified, as are most of the companies’ other activities, but they are part of the US Department of Defense Program of Record.
It is also working on a vertical take-off and landing (VTOL) aircraft called V-BAT that will soon be equipped with Hivemind. The software is also being integrated into other aircraft, such as the F-16 fighter jet pictured above, where it will act as a copilot alongside a human, with the aim of using it in F-22s, F-18s, and other models. Meanwhile, Tseng said in an interview that his V-BAT craft has also been operational around the world since 2018.
“The DoD and international militaries are acquiring V-BAT at a rapid pace, so we’re ramping up production as soon as possible,” he said — one reason for this funding. V-BAT defeated 13 competitors to win a major Navy Program of Record, he added. Its selling point is that it can withstand challenging conditions. “The unique design and controls allow take-off and landing in high winds, on crowded cockpits, aboard moving ships with landing zones as small as 12′ x 12′.”
The bigger strategy is to build a “swarm” capability for its devices – essentially using several of them together as a way to evade opponent jamming technologies. This, Tseng said, is on track to hit the market by the end of 2023 (although much of what they do is secret, they may not make anything public until it’s already used).
Taking both the recent milestone round of Anduril and this latest round of Shield AI, we are now at a time when VCs – themselves operating in a challenging financial environment – have changed their tone when it comes to supporting companies in the defense space, including not only companies like these that build military technology, but also companies involved in cybersecurity and other types of technology that help with resilience. Interestingly enough, this could include alternative energy technology and of course products that can be used by more than just governments, but also by businesses.
“The fundraising environment has never been more favorable for defense technology companies,” Tseng told Vidak For Congress. “Defense support was taboo in many circles. We were rejected by many early investors because defense was deemed too controversial. Today, it is increasingly recognized that investment in defense contributes to security, stability and peace, all of which are fundamental to a thriving society.”
Indeed, as noted by others now investing in or building for this space, there has been a noticeable shift in how people see companies like Shield AI and what they are trying to develop. That’s still a challenge though, which could be one reason a company like Shield does the job of messaging people who may never actually be customers, to still record what they’re trying to do.
“Many people do not realize the magnitude of the conflict in the world – before Ukraine, 84 million people were displaced by violence and persecution, compared to 39 million in 2011,” Tseng said. “There aren’t many opportunities to contribute to technologies that meaningfully address humanity’s great challenges — or that create the general conditions for human achievement. When you work on defense AI pilots, you work on the most important and disruptive defense technology of the next 30 years and empower our country and our allies to advance security, stability and peace.”
That is also complemented by the fact that opponents are also on their heels to build their own similar systems. China aims for military parity in the Pacific by 2027, Tseng noted, meaning they aim to surpass the US by 2028. And he added that there are reports that it is already comparing their prototypes with the pilot of Shield AI.
Tseng may also be biased, but has a very different idea of why autonomous is more important in this context. “Waymo engineers are allowed to build minivans that plod through the suburbs at 40 mph, we’re going to work with autonomous jets that fly over 1000 mph, dodge missiles and find threats,” he said.
All of this is not only a business opportunity, but a greater opportunity for those who support Shield AI.
“Investors flock to quality. This round is a reflection of Shield AIsuccess in creating great products, building a company with strong foundations and dominant technology leadership – with a AI pilot has proven to be the best in the world in numerous military evaluations,” Philippone said in a statement. “We love that they use a AI and software backbone in a variety of aircraft to provide truly groundbreaking value to our war fighters. The work they are doing today is just the tip of the iceberg.”