OPINION — Right now, after a post-9/11 period outlined by international counterterrorism and uneven warfare, the U.S. is getting ready for potential near-peer conflicts amid a brand new period of nice energy competitors, sophisticated 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 expertise gaps in areas comparable to synthetic intelligence, autonomous methods, area companies, cyber operations, small drones, and extra. They’re deploying cutting-edge options to fill functionality shortfalls the U.S. authorities has acknowledged—they usually’re scaling quick. Successful high-profile contracts, they’re reshaping how the Pentagon engages with the personal sector.
Amongst these within the protection tech trade, there’s been rising chatter concerning the rise of those protection disruptors—what you may name the neoprimes. We—one in all us a expertise 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 help our observations. We imagine 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 will revisit a pivotal 1993 assembly now often called the “Final Supper.” Following the tip of the Chilly Conflict, U.S. protection spending plummeted, prompting a serious 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 corporations, and consolidation was inevitable. The trade responded accordingly—over 50 firms merged into the 5 dominant primes we all know in the present day. These survivors—Lockheed Martin, Raytheon, Northrop Grumman, Boeing, and Common Dynamics—grew to become huge, 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 enormous 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 distinct mannequin—outlined by fast iteration, software-first architectures, and a larger urge for food for threat. They’re deploying operational methods in months relatively than years or a long time. They’re not simply constructing prototypes for demos and workouts—they’re scaling manufacturing and securing billion-dollar contracts. Whereas they might not but match the normal primes in complete contract quantity, they’re closing the hole 12 months over 12 months. A handful of key corporations 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 recent applied sciences. They’re turning into mission-critical to the protection industrial base of America.
As this new technology 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 personal corporations. We additionally interviewed founders and enterprise capitalists targeted on nationwide safety innovation.
Via this analysis, we recognized a number of defining traits of neoprimes and rising market developments. Our evaluation focuses on a set of present neoprimes—SpaceX, Palantir, and Anduril Industries—alongside a cohort of rising firms like Protect AI, Skydio, Saildrone, Saronic, Hidden Degree, Epirus, Relativity Area, Axiom Area, HawkEye 360, Vannevar Labs, and others. These firms are starting to steer main protection applications with superior applied sciences and a basically completely different strategy to hurry, software program integration, and supply.
Beneath, we define our findings and outline the traits that distinguish neoprimes. We imagine these firms characterize 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 Know-how 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 Know-how Areas that replicate a rising urgency to meet up with and surpass international rivals.
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 via 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 Common Dynamics.
Palantir’s prime PSCs had been predominantly within the data expertise class, per their core power in information platforms and software program integration. A lot of the PSCs related to Anduril had been concentrated in engineering companies.
In distinction, for conventional primes comparable to Common Dynamics, Boeing, Lockheed Martin, Northrop Grumman, and Raytheon, the most typical PSCs had been closely concentrated in {hardware} classes—overlaying gadgets 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 Companies (2018-2023)
Neoprimes
|
Variety of Contracts |
PSC Code and Title |
Firms |
|
112 |
V126: Transportation/Journey/Relocation – Transportation: Area Transportation/Launch |
SpaceX |
|
92 |
R425: Assist – Skilled: Engineering/Technical Consists of: Programs Engineering, Technical Help, and Different Providers Used to Assist the Program Workplace Through the Acquisition Cycle |
Anduril |
|
90 |
7030: Data Know-how 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, software and system integration sources enabling cross software improvement, communications and knowledge sharing […] |
Palantir |
|
22 |
7A21: IT and Telecom – Enterprise Software Software program (Perpetual License Software program) Enterprise Software Off-The-Shelf Software program Delivered By Perpetual License, which additionally encompasses Enterprise Degree 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 business use can be labeled on this FSC. {Hardware} is the bodily, tangible and everlasting elements of finish gadgets that is probably not labeled elsewhere. It consists additionally of widespread gadgets which can be generally utilized in building and/or manufacturing (e.g., hinges, door locks) […] |
Common Dynamics, Lockheed Martin |
|
102799 |
1560: Airframe Structural Parts Notes: This class contains fabricated system components which can be completely hooked up or peculiar to the integral airframe of an plane, comparable to help 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) |
Common Dynamics, Lockheed Martin |
|
36254 |
1680: Miscellaneous Plane Equipment and Parts 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 Parts, together with Gas Parts; […] |
Boeing, Northrup Grumman, Raytheon |
|
35564 |
1615: Helicopter Rotor Blades, Drive Mechanisms and Parts Notes: This class contains miscellaneous part components particularly designed for, and used solely in, helicopter drive mechanisms and rotor blades when not particularly labeled 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 methods are basically software-driven. These platforms typically depend on swarms of unmanned methods powered by cutting-edge AI and autonomy. They don’t seem to be simply assemblies of steel—they characterize advanced software program and methods 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 methods like Protect AI’s V-BAT, autonomous floor vessels from Saildrone and MARTAC; and Palantir’s choice making and analytics platforms that proceed to unfold throughout the Division of Protection.
Neoprimes are additionally targeted on interoperability. Conventional contractors are infamous for proprietary methods that require their very own distinctive management methods and restricted third-party integrations—like drones that may solely be operated with particular controllers, computer systems, or area kits. However proprietary every thing would not scale on a battlefield more and more stuffed with robots, sensors, and drones, particularly as troopers are restricted by the variety of management methods they’ll carry into the sphere. In distinction, neoprimes are designing software program with interoperability in thoughts from the beginning—constructed to combine seamlessly with legacy methods and ingest any information the federal government permits.
Total, the options neoprimes are creating are particularly related in the present day, as many Chilly Conflict-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 Net operation, 117 drones struck 4 Russian navy airbases and focused no less than 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 reasonably priced, extra attritable platforms is forcing governments to rethink how they develop and fund main protection methods. 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 change into more and more widespread on trendy battlefields all over the world.
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Prototyping and Collaborating Instantly with Servicemembers
Neoprimes construct working prototypes rapidly and make a behavior to iterate with finish customers in actual time—making adjustments on the fly, within the area. We have now noticed that these firms do not essentially look forward to the Division of Protection to fund their R&D as a substitute, they develop options they imagine are apparent solutions to present urgent issues and discover methods to get them into the fingers of warfighters—typically nicely earlier than any massive procurement orders have even been positioned.
These firms will ship prototypes “downrange” with keen servicemembers, typically years earlier than extra formal procurement contracts materialize. Protect 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 related approaches: ship cutting-edge expertise 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 typically prioritize outcomes over processes. As an illustration, 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 mission 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 desire for fixed-price contracts over the normal 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 observe the identical mannequin. Among the many conventional primes, Common Dynamics has steadily secured an rising variety of fixed-price contracts, and the development is much less clear for others.
That mentioned, 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 trade. We additionally acknowledge that ongoing debate surrounds the usage of agency fixed-price versus cost-plus fashions in protection procurement. Whereas advocates of fixed-price contracts view them as the simplest manner for the federal government to make sure worth and accountability, critics argue that fixed-price fashions may be too dangerous for advanced scopes of labor. A standard argument in favor of cost-plus is that it gives the required flexibility when mission necessities are unsure or evolving.
Fraction of Fastened-Value Contracts (2012-2024)
Maximizing Income and Contract Worth per Worker
Neoprimes function with small, agile groups—typically with only a fraction of the headcount of conventional protection contractors. However what they lack in measurement, 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 Common 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 personal firms, we primarily based their worker counts on estimates from public studies. 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. Protect 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 automobile in Ukraine, Japan, and Brazil. Firms like Saildrone and Saronic are deploying a variety of autonomous drones above and beneath the water. Cybersecurity leaders comparable to 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 normal Federal Acquisition Regulation (FAR), enable the Division of Protection to collaborate extra simply with nontraditional contractors, together with startups and analysis establishments. When correctly executed, we imagine 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 inside the Division of Protection. Although OTA awards have elevated tenfold since 2017, nonetheless, they nonetheless account for less than about 0.01% of the whole contracts awarded by the Division of Protection—it is nonetheless removed from mainstream within the broad acquisition group. Given what OTAs have already delivered, we will solely think about the affect if extra contracts had been accelerated this manner.
OTAs Awarded vs Complete Contracts Awarded (FY17-FY22)
The Highway Forward: Partnering with Neoprimes to Meet Rising Nationwide Safety Wants
Right now, we imagine 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 expertise areas and has taken deliberate steps to shut the hole. Along with encouraging the companies to develop 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 help dual-use {hardware} improvement. 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 expertise firms are successful contracts that will have defaulted to conventional primes just some years in the past. These startups will not be 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 help and imagine should be accelerated. As these threats change 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 technology of navy readiness. Now’s 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, Protect AI, Aetherflux, Hermeus, Ursa Main, and others.
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