The U.S. Department of Defense (DOD), headed by the Pentagon, is keen to involve private players in the defense sector to source equipment and technology. The rationale behind this step is that newly founded tech start-ups are usually more technologically advanced than the current handful of players, many of whom have grown complacent in their advancements.
A prime example of such a private player is billionaire Elon Musk, who founded SpaceX, which manufactures space vehicles and rockets. SpaceX also has a satellite center called Starlink that runs a global internet network. In Russia’s war against Ukraine, the latter has used Starlink’s satellite services to track the invading nations’ movements. Notably, SpaceX has also won Pentagon contracts to transport military cargo and humanitarian aid worldwide using its heavy rockets. The company also sends astronauts to space for the National Aeronautics and Space Administration (NASA).
Meanwhile, venture capitalists (VCs), who often are the financial backers of such start-ups, complain that other suitable investment options, including cryptocurrencies and e-commerce companies, have lost their sheen. As a result, they have turned their focus on the burgeoning defense sector, which is also a recession-proof investment.
Recent Bank Turmoil Could Hit the Pentagon
The recent collapse of Silicon Valley Bank threatened the existence of many tech start-ups that had their accounts in the bank. If the banking crisis had spilled any further or if the Fed had not backstopped SVB’s depositors, it would have hampered the DOD’s supply chain.
One of the best examples of a private company becoming public with the help of successful government contracts is Palantir Technologies (NYSE:PLTR). Palantir is a software company that specializes in big data analytics and serves public institutions, private enterprises, and the non-profit sector.
While it is true that the government is showing interest in start-ups for aid in cybersecurity, defense, and technology missions, it is unknown to what extent the government can rely on newly founded companies owing to their teething problems. Furthermore, technological advancements require huge capital inflows, and only time will tell if the VCs continue to shower favor on the tech sector.
