Decades-old defense contractors are leaning into the Pentagon’s new focus on startups, entwining themselves with emerging companies that have the technologies or even the contracts they seek.
“We're making bets in advance on specific capabilities and then going back to the market to say, ‘Who are the founders, and who are taking novel approaches to building something that is unique and different and can be applied within a military context?’” said Brian McCarthy, Booz Allen Hamilton’s managing partner of ventures.
The trend reflects the Pentagon’s new urgency—after years of pleading by commanders, lawmakers, and even defense officials—to expand the military’s industrial base and bring in more tech companies. A series of recent directives from Defense Secretary Pete Hegseth and other administration officials have prodded the Pentagon to more aggressively pursue commercial technologies, enable lower-level commanders to make their own purchases, and to use simpler contracting methods that are friendlier to would-be contractors.
That has caused a shift in strategy for firms like Booz Allen Hamilton, which was founded in 1914 and began work for the U.S. Air Force in 1947. In July, the company announced it was tripling its plans to invest in newer firms to $300 million.
Company executives said they are not trying to mimic Silicon Valley venture firms, but to invest in new defense-relevant technologies as well as new companies.
One of those companies is Firestorm Labs, which aims to enable the additive manufacturing of drones in “the hardest conditions in the world: Taiwan, etc.,” McCarthy said. “They're putting all of their building and printing all of their drones on location in a skiff-like box, which is what the military is ordering. So you have no supply-chain issues.’”
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Booz is also looking at space-based services such as autonomous navigation for satellites via a company called Starfish. McCarthy said his company is looking toward the space market of tomorrow, diversified far beyond today’s handful of players like SpaceX and Blue Origin.
“There's going to be hundreds, if not thousands, of these launched over the next couple of years,” he said.
Northrop Grumman, meanwhile, is also seeking to broaden its appeal to newer companies. It has a startup investor fund, and in June it launched an ecosystem for testing and developing autonomous technologies.
The Beacon ecosystem is intended to give “third-party partners an opportunity to test new autonomous solutions with exposure to industry leaders who can scale them,” according to a release.
What does that mean? In a practical sense, it means access to the company’s 437 Vanguard plane, which can toggle between manned and unmanned operation. The goal is to enable companies working on AI pilots to test how their software performs within different mission focus areas, said Tom Jones, corporate vice president and president of Northrop Grumman’s Aeronautics Systems sector.
“We take care of the flight operations, we take care of the safety and airworthiness to allow this capability, and we turn them loose on our computers to write software at a pace” that can be safely tested, Jones said, adding that the company aims to announce new flight demonstrations with partners later this year.
Even established Silicon Valley firms are getting into the game. In 2023, Andreessen Horowitz—an early investor in Airbnb, Lyft, and Twitter—stood up an “American Dynamism” fund aimed at government contracts.
On a Monday call with reporters, officials outlined a lobbying effort to enshrine a Pentagon preference for commercial technology into law. Bolstered by Hegseth’s March memo to that effect, the company has managed to get the preference into the Senate version of the 2026 defense authorization act. The company also wants to change the “past performer” preference that gives companies that have executed federal contracts an advantage over rookies.
Matt Cronin, a senior advisor at Andreessen Horowitz, said the past-performer preference keeps innovative companies from competing for awards they could otherwise win. One such company, he said, “chose not to bid on those contracts even though they offer a superior product. We'd argue things also objectively can be shown to be the case simply because the unbelievable level of bureaucracy and compliance burden is so high it's not worth their time.”
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