OPINION — As we speak, after a post-9/11 period outlined by world counterterrorism and uneven warfare, the U.S. is making ready for potential near-peer conflicts amid a brand new period of nice energy competitors, difficult by disruptive applied sciences. In response, a brand new wave of protection contractors is rising from the epicenter of American technological innovation: Silicon Valley. These firms are addressing important know-how gaps in areas resembling synthetic intelligence, autonomous programs, area companies, cyber operations, small drones, and extra. They’re deploying cutting-edge options to fill functionality shortfalls the U.S. authorities has acknowledged—and so they’re scaling quick. Profitable high-profile contracts, they’re reshaping how the Pentagon engages with the non-public sector.
Amongst these within the protection tech business, there’s been rising chatter in regards to the rise of those protection disruptors—what you would possibly name the neoprimes. We—one in every of us a know-how investor, the opposite a former portfolio supervisor on the DoD’s Protection Innovation Unit—are sometimes requested: Is the rise of neoprimes actual? What precisely is a neoprime? What defines one? We got down to reply these questions, utilizing information to assist our observations. We consider neoprimes are altering the tradition of protection acquisitions and creating applied sciences that may reshape how wars are fought. Shifts in protection spending and coverage are empowering neoprimes to develop and transfer quicker.
To grasp how we obtained right here, we are able to revisit a pivotal 1993 assembly now often called the “Final Supper.” Following the tip of the Chilly Battle, U.S. protection spending plummeted, prompting a significant drawdown. The Division of Protection confronted intense stress to chop prices, with budgets falling by about 30%—from $772 billion in 1989 to roughly $531 billion by 1998 (adjusted for inflation). Towards this backdrop, then-Deputy Secretary of Protection William Perry convened a important assembly with executives from the highest protection contractors. His message was clear: the Pentagon may not maintain a sprawling ecosystem of dozens of main companies, and consolidation was inevitable. The business responded accordingly—over 50 firms merged into the 5 dominant primes we all know at present. These survivors—Lockheed Martin, Raytheon, Northrop Grumman, Boeing, and Normal Dynamics—grew to become large, vertically built-in organizations that managed roughly 60% of DoD contracts by 2000. For many years, they dominated authorities contract spending to construct and maintain the nation’s safety equipment, supported by an unlimited internet of companions and subcontractors. However with predictable, annual funding streams and restricted aggressive stress, innovation inside these primes arguably stagnated.
Whereas many of those conventional primes hint their roots again over a century, a brand new tribe of Silicon Valley gamers has entered the sector. They’re accelerating deployment timelines and pioneering a special mannequin—outlined by speedy iteration, software-first architectures, and a larger urge for food for threat. They’re deploying operational programs in months moderately than years or many years. They’re not simply constructing prototypes for demos and workout routines—they’re scaling manufacturing and securing billion-dollar contracts. Whereas they might not but match the standard primes in complete contract quantity, they’re closing the hole yr over yr. A handful of key companies are main the cost, with an increasing set of startups gaining traction. Backed by enterprise capital and supported by a rising community of influential advocates shaping coverage and public opinion, neoprimes are beginning to redefine how the federal government approaches the acquisition, fielding, and sustainment of latest applied sciences. They’re changing into mission-critical to the protection industrial base of America.
As this new era of protection contractors beneficial properties momentum, what precisely is a neoprime? To reply that, we analyzed information from USAspending.gov (the federal authorities’s official platform for monitoring public expenditures), reviewed SEC filings from public protection firms, and compiled press releases from non-public companies. We additionally interviewed founders and enterprise capitalists centered on nationwide safety innovation.
By this analysis, we recognized a number of defining traits of neoprimes and rising market tendencies. Our evaluation focuses on a set of present neoprimes—SpaceX, Palantir, and Anduril Industries—alongside a cohort of rising firms like Defend AI, Skydio, Saildrone, Saronic, Hidden Stage, Epirus, Relativity House, Axiom House, HawkEye 360, Vannevar Labs, and others. These firms are starting to guide main protection packages with superior applied sciences and a essentially totally different strategy to hurry, software program integration, and supply.
Beneath, we define our findings and outline the traits that distinguish neoprimes. We consider these firms signify the way forward for nationwide safety—and to protect America’s strategic edge, we should quickly undertake and scale their options throughout the protection industrial base.
Neoprimes are Racing Forward in Division of Protection’s Essential Expertise Areas
At their core, neoprimes are constructed round rising, frontier applied sciences—fields like AI and autonomy, built-in networks, biotechnology, quantum science. In recent times, the Division of Protection has formally emphasised the significance of those applied sciences, figuring out fourteen Essential Expertise Areas that replicate a rising urgency to meet up with and surpass world opponents.
To higher perceive this development, we evaluated the highest 5 mostly used Product Service Codes (PSCs) for a set of presidency contractors from 2018 to 2023. PSCs are utilized by the U.S. federal authorities to explain the merchandise, companies, and analysis being bought by means of contracts, and we gathered this information from USAspending.gov’s contract award summaries by vendor. For Palantir, SpaceX, and Anduril, we then recognized the most well-liked PSCs throughout all three. We carried out the identical evaluation to find out the highest PSCs among the many conventional protection primes—Lockheed Martin, Raytheon, Northrop Grumman, Boeing, and Normal Dynamics.
Palantir’s prime PSCs had been predominantly within the info know-how class, in keeping with their core energy in information platforms and software program integration. Many of the PSCs related to Anduril had been concentrated in engineering companies.
In distinction, for conventional primes resembling Normal Dynamics, Boeing, Lockheed Martin, Northrop Grumman, and Raytheon, the commonest PSCs had been closely concentrated in {hardware} classes—protecting objects like airframe structural elements, helicopter rotor blades, and shock absorbers. In comparison with newer entrants, their portfolios featured far fewer PSCs associated to software program or IT companies.
Prime PSCs Throughout Neoprimes and Conventional Protection Corporations (2018-2023)
Neoprimes
|
Variety of Contracts |
PSC Code and Title |
Firms |
|
112 |
V126: Transportation/Journey/Relocation – Transportation: House Transportation/Launch |
SpaceX |
|
92 |
R425: Assist – Skilled: Engineering/Technical Consists of: Techniques Engineering, Technical Help, and Different Providers Used to Assist the Program Workplace Throughout the Acquisition Cycle |
Anduril |
|
90 |
7030: Info Expertise Software program |
Palantir |
|
26 |
DH10: IT and Telecom – Platform As A Service: Database, Mainframe, Middleware Platform delivered as a service for databases and middleware. A distributed platform, utility and system integration sources enabling cross utility growth, communications and knowledge sharing […] |
Palantir |
|
22 |
7A21: IT and Telecom – Enterprise Utility Software program (Perpetual License Software program) Enterprise Utility Off-The-Shelf Software program Delivered By Perpetual License, which additionally encompasses Enterprise Stage Software program Enabling Mission Functionality And Enterprise Operational Assist […] |
Palantir |
Conventional Primes
|
Variety of Contracts |
PSC Code and Title |
Firms |
|
131275 |
5340: {Hardware}, Industrial Notes: Frequent {hardware} designed primarily for industrial use might be categorized on this FSC. {Hardware} is the bodily, tangible and everlasting elements of finish objects that is probably not categorized elsewhere. It consists additionally of widespread objects which can be generally utilized in development and/or manufacturing (e.g., hinges, door locks) […] |
Normal Dynamics, Lockheed Martin |
|
102799 |
1560: Airframe Structural Elements Notes: This class contains fabricated system elements which can be completely connected or peculiar to the integral airframe of an plane, resembling assist structural elements, spars, ribs, ailerons, stabilizers, bulkheads […] |
Boeing, Lockheed Martin, Northrup Grumman |
|
53855 |
2540: Vehicular Furnishings and Equipment Consists of: Vehicle Seat Covers; Shock Absorbers; Bumpers; Windshield Wipers; Bumper Guards; Mirrors, Rear View and Facet View; Car Heaters. Excludes: Speedometers (FSC 6680); Suspension Kind Shock Absorbers (FSC 2510) |
Normal Dynamics, Lockheed Martin |
|
36254 |
1680: Miscellaneous Plane Equipment and Elements Consists of: Management Assemblies, Push-Pull; Brace, Positioning Cargo Ramp stowed on board; Cockpit Mounted Management Quadrants; Actuators, […] Plane Furnishings; Plane Mounted Winches and Hoists; In-Flight Refueling System Elements, together with Gasoline Elements; […] |
Boeing, Northrup Grumman, Raytheon |
|
35564 |
1615: Helicopter Rotor Blades, Drive Mechanisms and Elements Notes: This class contains miscellaneous part elements particularly designed for, and used solely in, helicopter drive mechanisms and rotor blades when not particularly categorized elsewhere within the FSC indexes […] |
Lockheed Martin |
Whereas conventional primes proceed to supply legacy platforms just like the F-18, B-2, and AMPV, even when Silicon Valley’s protection startups develop superior {hardware}, their programs are essentially software-driven. These platforms usually depend on swarms of unmanned programs powered by cutting-edge AI and autonomy. They are not simply assemblies of metallic—they signify complicated software program and programs integration challenges, being solved in actual time with applied sciences that did not exist a decade in the past. Notable examples embrace Anduril’s Lattice platform; small tactical drones from Skydio and Teal Drones; bigger programs like Defend AI’s V-BAT, autonomous floor vessels from Saildrone and MARTAC; and Palantir’s resolution making and analytics platforms that proceed to unfold throughout the Division of Protection.
Neoprimes are additionally centered on interoperability. Conventional contractors are infamous for proprietary programs that require their very own distinctive management programs and restricted third-party integrations—like drones that may solely be operated with particular controllers, computer systems, or area kits. However proprietary all the pieces does not scale on a battlefield more and more full of robots, sensors, and drones, particularly as troopers are restricted by the variety of management programs they will carry into the sphere. In distinction, neoprimes are designing software program with interoperability in thoughts from the beginning—constructed to combine seamlessly with legacy programs and ingest any information the federal government permits.
General, the options neoprimes are creating are particularly related at present, as many Chilly Battle-era instruments are failing to scale to the calls for of the trendy battlefield. For instance, Ukrainian troopers at the moment are utilizing low-cost drones to disable costly Russian platforms—within the latest Spider’s Internet operation, 117 drones struck 4 Russian navy airbases and focused at the least 40 warplanes. The operation dealt a major uneven blow to the Russian navy and broader financial system, with estimated losses reaching as much as $7 billion.The inevitable shift towards extra inexpensive, extra attritable platforms is forcing governments to rethink how they develop and fund main protection programs. Neoprimes and the Division of Protection are racing to develop low cost-to-kill applied sciences—whereas additionally creating defenses in opposition to them—as these small deadly platforms develop into more and more widespread on fashionable battlefields world wide.
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Prototyping and Collaborating Immediately with Servicemembers
Neoprimes construct working prototypes shortly and make a behavior to iterate with finish customers in actual time—making modifications on the fly, within the area. We’ve got noticed that these firms do not essentially watch for the Division of Protection to fund their R&D as an alternative, they develop options they consider are apparent solutions to present urgent issues and discover methods to get them into the arms of warfighters—usually effectively earlier than any massive procurement orders have even been positioned.
These firms will ship prototypes “downrange” with prepared servicemembers, generally years earlier than extra formal procurement contracts materialize. Defend AI, for instance, deployed working prototypes of their AI-enabled drones to Particular Operations Forces in fight within the Center East, gaining important suggestions whereas additionally delivering real-world outcomes for these early adopters. Different firms have taken comparable approaches: ship cutting-edge know-how to warfighters first—even earlier than any formal requirement exists—refine it within the area, and let the forms catch up later.
Delivering On Time and Inside Price range
Neoprimes usually prioritize outcomes over processes. As an example, Palantir was lately awarded a $178 million contract by the U.S. Military to develop the TITAN system, beating RTX Company in a aggressive choice course of. Remarkably, Palantir delivered the undertaking on time and inside funds—historically a uncommon feat in protection contracting.
As one instance of neoprimes’ outcome-first strategy, we now have noticed a rising choice for fixed-price contracts over the standard cost-plus mannequin. Beneath a fixed-price construction, firms are incentivized to innovate effectively, as they’re paid a set quantity no matter overruns. This stands in stark distinction to cost-plus contracts, the place incumbents are reimbursed for all bills and earn a revenue margin on prime—eradicating a lot of the stress to function leanly.
When analyzing authorities spending information, we noticed that just about 100% of Palantir and SpaceX’s contracts are fixed-price, whereas 65-80% of Anduril’s contracts comply with the identical mannequin. Among the many conventional primes, Normal Dynamics has steadily secured an growing variety of fixed-price contracts, and the development is much less clear for others.
That stated, each neoprimes and conventional contractors proceed to depend on cost-plus contracts, as they continue to be the prevailing norm throughout a lot of the protection business. We additionally acknowledge that ongoing debate surrounds using agency fixed-price versus cost-plus fashions in protection procurement. Whereas advocates of fixed-price contracts view them as the simplest approach for the federal government to make sure worth and accountability, critics argue that fixed-price fashions may be too dangerous for complicated scopes of labor. A typical argument in favor of cost-plus is that it gives the required flexibility when undertaking necessities are unsure or evolving.
Fraction of Mounted-Worth Contracts (2012-2024)
Maximizing Income and Contract Worth per Worker
Neoprimes function with small, agile groups—usually with only a fraction of the headcount of conventional protection contractors. However what they lack in dimension, they make up for in velocity and output. Many of those firms are producing increased income or contract worth per worker.
SpaceX and Anduril have outperformed a number of main conventional protection contractors when it comes to obligations per worker, exceeding the ratios of Raytheon, Northrop Grumman, Boeing, and Normal Dynamics. And whereas Lockheed Martin has outperformed all in absolute phrases, that could be attributed to its considerably bigger income—roughly $51 billion in comparison with SpaceX’s $3.8 billion.
Observe that as a result of Anduril and SpaceX are nonetheless non-public firms, we based mostly their worker counts on estimates from public reviews. Palantir and all conventional primes report worker numbers of their SEC filings.
Obligations per Worker (FY 23)
Rising Use of OTAs in Protection Contracting
Whereas Palantir, SpaceX, and Anduril are main neoprimes, a number of different firms are quickly rising on this class. Defend AI, which started with AI-powered quadcopters for U.S. Navy SEALs and different particular operations forces, is now fielding its V-BAT unmanned aerial car in Ukraine, Japan, and Brazil. Firms like Saildrone and Saronic are deploying a variety of autonomous drones above and under the water. Cybersecurity leaders resembling Palo Alto Networks, Fortinet, and Crowdstrike have gotten key gamers in areas like trusted networks and digital protection. Industrial area firms like Varda, HawkEye 360, and Astranis are constructing capabilities for on-demand area entry, persistent satellite tv for pc protection, and high-speed space-based information switch.
With the rise of neoprimes, the Division of Protection has considerably elevated its use of Different Transaction Agreements (OTAs) in recent times, reflecting a strategic shift towards extra agile and versatile procurement strategies. OTAs, which aren’t certain by the standard Federal Acquisition Regulation (FAR), permit the Division of Protection to collaborate extra simply with nontraditional contractors, together with startups and analysis establishments. When correctly executed, we consider that OTAs can result in higher, quicker, cheaper outcomes for everybody concerned—saving time, cash, and energy.
Additional evaluation reveals that OTA utilization is clearly trending upward throughout the Division of Protection. Despite the fact that OTA awards have elevated tenfold since 2017, nevertheless, they nonetheless account for less than about 0.01% of the full contracts awarded by the Division of Protection—it is nonetheless removed from mainstream within the broad acquisition neighborhood. Given what OTAs have already delivered, we are able to solely think about the impression if extra contracts had been accelerated this fashion.
OTAs Awarded vs Complete Contracts Awarded (FY17-FY22)
The Highway Forward: Partnering with Neoprimes to Meet Rising Nationwide Safety Wants
As we speak, we consider the U.S. authorities is starting to acknowledge the strategic worth of neoprimes in addressing important functionality gaps. The Division of Protection has acknowledged its lag in a number of key know-how areas and has taken deliberate steps to shut the hole. Along with encouraging the companies to increase their use of OTAs, the Division of Protection launched the Industrial Options Opening (CSO) framework to draw non-traditional distributors. It additionally launched the Workplace of Strategic Capital to supply extra versatile financing choices and created the Nationwide Safety Innovation Capital initiative to assist dual-use {hardware} growth. Over the previous 20 years, the Division of Protection has invested greater than $20 billion in small enterprise initiatives—all promising indicators of progress, however extra work stays.
Throughout the nation, dozens of rising know-how firms are successful contracts that will have defaulted to conventional primes only a few years in the past. These startups are usually not merely disrupting the protection industrial base; they’re actively shaping the way forward for warfare. Their applied sciences are starting to affect navy doctrine, operational planning, and frontline ways.
This shift displays a broader transformation in nationwide safety priorities—one we strongly assist and consider have to be accelerated. As these threats develop into more and more software- and technology-driven, we’re inspired to see Silicon Valley and its neoprimes emerge as pure leaders in enabling the subsequent era of navy readiness. Now could be the time to double down.
Editor’s Observe: The authors of this text are affiliated with Courageous Capital and MVA (MilVet Angels), which have invested in nationwide safety firms like Anduril Industries, Defend AI, Aetherflux, Hermeus, Ursa Main, and others.
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