Startup Cash Is Flowing Into Defense Tech. Not Everyone Will Survive.

Defense technology is attracting massive investor interest right now. Anduril and Mach Industries recently saw their valuations double and quadruple, respectively, while the U.S. government is pushing for a 40% increase in defense spending. A fresh wave of startups is angling for those contracts, but Ross Fubini—the venture capitalist who wrote Anduril’s first check—warns that most will get stuck in the so-called Valley of Death, the gap between winning a prototype deal and scaling to full production.

On a recent episode of TechCrunch’s Equity podcast, host Rebecca Bellan pressed Fubini, founder of XYZ Venture Capital, on what separates the companies that make it from those that don’t. His firm, built on the Palantir alumni network, now manages nearly $2 billion in assets.

The conversation offers a sobering reality check for founders chasing government dollars: getting the first contract isn’t the hard part. The challenge is building the operational muscle to deliver at scale. For business leaders tracking AI infrastructure and ML deployment in defense, the takeaway is clear—deep domain expertise and patient capital matter more than hype.

Catch the full episode on YouTube, Apple Podcasts, Overcast, Spotify, or follow @EquityPod on X and Threads.