February 7, 2023

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Anduril, a defense startup owned by Palmer Luckey, raises nearly $1.5 billion

Defense technology start-up Anduril has raised nearly $1.5 billion in the second-biggest U.S. venture capital round of the year.

Anduril said the investment was valued at $7 billion excluding the new cash it is raising, up from $4.2 billion 18 months ago. It comes at a time when huge investment rounds that have been a feature of the recent venture capital boom have all but dried up, while many start-ups struggle to avoid “downturns” that force them to accept lower valuations.

Anduril was founded five years ago by Palmer Luckey, who sold his previous start-up, virtual reality company Oculus, to Facebook for $2 billion at the age of 21. In an interview with the FT, Luckey said he set out to build a major defense company based on new technologies like AI and drones because many Silicon Valley companies had turned their backs on the Pentagon under pressure from their workers.

“Big tech companies in the US have largely refused to work with him [Department of Defense],” he said. “They have all this incredible technological talent that is just inaccessible to the DoD. There has never been a point in US history where things have been like this.”

Tech startups are struggling to sell to the military because of the defense industry’s long purchasing cycles and the challenge of earning enough trust to win large contracts.

“Silicon Valley laughed at them, a lot of people didn’t believe it was possible,” said Katherine Boyle, a partner at Andreessen Horowitz, an Anduril investor. “The nature of warfare has fundamentally changed and the [large defence contractors] will not be able to cover the procurement requirements.”

In the strongest sign yet of the Pentagon turning to software and AI capabilities of newer defense contractors, Anduril was awarded a nearly $1 billion contract by the US Special Operations Command earlier this year to serve as a systems integrator on a counter-drone project act . Alongside a number of deals with various branches of the US military, Luckey said the company works with “half a dozen NATO allies” and has “hundreds of millions” in annual revenue.

Anduril is best known for autonomous systems such as drones and surveillance towers for border security. Most of its engineers work on its Lattice software platform, which brings together data from many different surveillance and weapons systems, most of which were not built by the company.

Russia’s invasion of Ukraine has changed attitudes in Silicon Valley and made many more tech startups poised to consider working with the Pentagon, Boyle said. However, there is still heated debate in tech circles about how far companies that were not founded purely defensively should go, especially when it comes to offensive weapons.

Luckey said Anduril didn’t draw a line when building weapons, but didn’t use facial recognition software because the technology can never be reliable enough to be trusted in life-or-death situations. He dismissed calls for a ban on autonomous weapons, arguing that always having a “human in the loop” to make the final decision would put the US and its allies at a disadvantage compared to countries that use fully robotic weapons.

Instead, he called for clear lines of responsibility for deciding to use autonomous weapons in certain situations rather than actually firing them, but added that only democratically elected leaders should set the rules.

“You shouldn’t want me to make that decision because you shouldn’t want corporate leaders to dictate U.S. foreign or military policy,” he added. “We’re just supposed to be the dumb computer boys doing these things.”

The latest investment, which brings Anduril’s total fundraising to $2.2 billion, was led by Valor Equity Partners. The company was reported to have started the process of raising the round earlier this year. In the biggest VC round of the year, Elon Musk’s space company SpaceX raised nearly $1.7 billion in June.