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Venture Capitalists Are Looking for a Fight
VCs are now becoming major Washington influencers while simultaneously jumpstarting defense’s newest and biggest names.
Dec 07, 2023
As conflicts ignite around the world, dragging on in Ukraine while sparking off in the Middle East, venture capital is banking on defense.
Indeed, United States-based venture capital investment in defense startups has doubled in four years. Only investing about $16 billion in 2019, U.S.-based VCs went on to seal over 200 defense and aerospace deals worth nearly $17 billion in the first five months of 2023 alone. Meanwhile, VC giant Sequoia invested in its first defense group, Mach Industries, earlier this year.
Who Are the Defense VCs?
Through their collective efforts, prominent venture capital firms including billionaire Peter Thiel’s Founders Fund, Andreessen Horowitz (a16z), and Lux Capital are upstarts among today’s rising stars in the defense sector, including Anduril, Hadrian, and Rebellion Defense. And in the process, VCs accrue not only high investment returns, but also growing influence over U.S. foreign policy.
Moreover, VC-backed groups in the defense space are giving established defense contractors like Lockheed Martin and RTX (formerly Raytheon) a run for their money. As Jamie Martin noted on BookForum four years ago, Founders Fund-backed Palantir had beaten out RTX to secure an $800 million army contract, and Elon Musk’s VC-powered SpaceX had been gobbling up satellite sector funds, forcing Boeing and Lockheed Martin to develop their own venture capital operations, Horizon X and Lockheed Martin Ventures respectively, to compete.
Fast forward to 2023 and VC’s domination of the defense space has crystallized in a conflict-mired era. Newcomer machine-parts startup Hadrian was founded only in 2020, but has already soared to the defense industry’s forefront, raising almost $100 million in funding as of late 2023.
“It doesn’t seem to be that working for the Pentagon is a dirty word anymore.”
Likewise, venture capital has buoyed defense newcomer Rebellion Defense’s rapid rise to prominence, with Rebellion raising $63 million in 2019 through the likes of former Google CEO Eric Schmidt’s new venture capital firm Innovation Endeavors, Founders Fund, and angel investor James Murdoch, son of Fox News Founder Rupert Murdoch. Schmidt, Murdoch, and In-Q-Tel (the CIA’s venture capital firm) Trustee Ted Schlein sit on Rebellion’s Board.
“It doesn’t seem to be that working for the Pentagon is a dirty word anymore,” explains William Hartung, a Senior Research Fellow at the Quincy Institute for Responsible Statecraft. “It seems like a lot of these startups are very much seeking that, and then the VC companies are facilitating it.”
Defense VCs Thrive on Conflict
At its heart, venture capital is a risky form of private equity financing. Despite the hundreds of billions of dollars U.S.-based VCs invest each year, about 75% of venture capitalist backed startups fail.
Success in venture capital, therefore, depends on heavy-handed risk-taking in the hopes of big returns from a few investments. In the defense sector, however, high returns comparable to other VC-frequented industries, like tech, are uncommon, rendering VC investing choices complex.
Ultimately, these coveted, yet elusive returns become more plausible in periods of tension and conflict, when governments—which VC-backed defense groups “depend” on for business-sustaining contracts—have a greater appetite for weaponry and adjacent tech.
Mastering the Influence Game
In any case, defense-focused VCs are gaming this primary client in their favor: Like the U.S. government-defense contractor revolving door’s advocacy for perpetual conflict, VCs are now becoming major Washington influencers while simultaneously jumpstarting defense’s newest and biggest names.
In this respect, billionaire VCs like Peter Thiel and Eric Schmidt are conspicuous for involvement in both sides of government-defense sector relations. While Thiel says he won’t fund candidates in the 2024 race, he’s previously supported a slew of successful Republican congressional campaigns. And after stints as chief financial officer for Thiel’s now-defunct Clarium Capital Management and chief of staff at Thiel Capital, Michael Kratsios took White House and Defense Department positions in the Trump administration, giving Thiel closer proximity to power.
Furthermore Rebellion investor Schmidt is a member of the Defense Innovation Board, which advises lawmakers and the Pentagon on tech policies and, as The American Prospect former managing editor Jonathan Guyer writes, is “allocating resources toward the exact technology Rebellion [is] selling.”
VC-powered defense organizations are making their allegiance with Israel clear as it continues to pummel Gaza, with Palantir and Anduril making public pro-Israel statements and Israel employing VC-backed Shield AI’s Nova 2 drone in besieged Gaza.
Rebellion Defense obtained U.S. Air Force contracts worth up to $950 million in 2020.
According to Guyer, the arrangement suggests “no firewall between Schmidt’s work for the government and the private sector.” Two Rebellion Defense employees also served on the Biden administration’s presidential transition team.
Indeed, VCs’ lack of transparency and visibility in the public eye shields their activities in the defense space from critical scrutiny.
“If the head of the Joint Chiefs goes on the board of Lockheed Martin, everybody knows about it,” says Hartung. “If a general goes on the board of some small tech company or as an adviser, that’s not as visible. But their activities may actually be more dangerous because they’re helping launch a whole new generation of technologies where we don’t really know what the consequences will be as they apply to military issues.”
Meanwhile, talk from defense-focused VCs and their beneficiaries’ suggests an urge to stir global tensions, or otherwise convince the Pentagon to prepare for the worst. For starters, VC-powered defense organizations are making their allegiance with Israel clear as it continues to pummel Gaza, with Palantir and Anduril making public pro-Israel statements and Israel employing VC-backed Shield AI’s Nova 2 drone in besieged Gaza.
Moreover, VC groups are poking the stick at China, now a nemesis in what Palantir senior policy adviser Jacob Helberg deems a brewing “tech war.” (Helberg is also a member of the U.S.-China Economic Security and Review Commission, putting him in a prime position to focus lawmakers’ national security-related policy concerns.)
Meanwhile, Lux Capital’s website plainly states that China is “a serious threat to U.S. global hegemony.” And a16z Cofounder Marc Andreesen has observed he has more success in policy conversations with lawmakers when he mentions China:“[A]ll of a sudden it’s like, ‘Oh well we need American AI to succeed, and we need American technology companies to succeed, and we need to beat the Chinese.’”
Teaming up earlier this year, further, a group of 13 prominent tech companies and adjacent VC groups signed an open letter requesting defense procurement reforms to better open the U.S. defense budget to startups. The letter warns that if no changes are made, U.S. “competitors will continue to gain ground on the technological battlefield” leaving American warfighters at a disadvantage on the physical one.
Anduril’s Palmer Luckey even characterized VCs as “hawkish” for the sake of protecting existing investments in a recent interview, observing that “[e]veryone who cares about Ukraine is also watching Taiwan, because…Taiwan going south is an actual existential threat to many of their investments [based there]. And so I think you’re seeing a lot of hawkishness on the part of venture capitalists” as a result.
More bluntly, VC America’s Frontier Fund (AFF) representative gloated that “if there is a kinetic event in the Pacific,” referencing Taiwan,“some of our investments will [go up] 10x, like overnight.”
Meanwhile, cash flows suggest VCs’ efforts are paying off: Anduril has earned an estimated $342 million in revenue in 2023, telling investors it’s slated to score $625 million in new government contracts this year. Rebellion Defense’s contracts doubled in 2023 alone. And, despite years of unprofitability, Palantir’s stocks jumped 20% after impressive third-quarter results, in which the company made $72 million in net income. As Palantir’s Alex Karp previously put it, “[b]ad times are very good for Palantir.”
Ultimately, VCs’ success in this sector relies on conflict. In other words, they’re looking for a fight.
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Behind Trump's Possible Arrest and the Latest Banking Crisis Lurks the Billionaire Oligarchy
Ultra-rich individuals like Peter Thiel are a key part of the anti-democracy movement, of which Trump is the informal leader.
Mar 24, 2023
What connects the two biggest stories now dominating the news — Donald Trump’s likely arrest and the Fed’s bailouts of shaky banks?
Start with multi-billionaire Peter Thiel, and follow the money.
You may recall that in 2016, Thiel spoke at the Republican National Convention to make the case for why Trump should be the next president of the United States.
In the midterm elections of 2022, Thiel donated $15 million to the Republican Ohio senatorial primary campaign of JD Vance, who alleged that the 2020 election was stolen and that Biden’s immigration policy meant “more Democrat voters pouring into this country.”
Thiel also donated at least $10 million to the Arizona Republican Senate primary race of Blake Masters, who also claimed Trump won the 2020 election and who admires Lee Kuan Yew, the authoritarian founder of modern Singapore.
Masters lost. But thanks to Thiel’s munificence, Vance is now in the U.S. Senate.
Thiel and other wealthy self-described “libertarians” want Trump to be re-elected president in 2024. I’ll get to the reason in a moment.
What connects Thiel to the bank bailouts?
Days before Silicon Valley Bank failed, Thiel’s venture firm, Founders Fund, advised clients to pull their deposits out. This contributed to the run on the bank.
Some $50 million of Thiel’s own money was still stuck in the bank. Then, guess what? Thiel and other rich depositors got bailed out by the Fed.
Charges of hypocrisy have been leveled at Thiel and other wealthy depositors who claim to be libertarians but were rescued by the government.
There was nothing hypocritical about it. Thiel and others like him aren’t really opposed to government, per se. They’re opposed to democracy. They prefer an oligarchy — a government controlled by super-wealthy people like themselves.
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Thiel is part of the anti-democracy movement, of which Trump is the informal leader.
Their antipathy to democracy comes from the same fear that the extremely wealthy have always harbored about democracy — that a majority could vote to take away their money. That fear has been heightened by the fact that more and more of the nation’s wealth is going to the top, combined with demographic trends showing the majority of voters becoming less economically secure, more non-white, and politically left.
Thiel and his ilk see in Trump an authoritarian strongman who won’t allow a majority to take away their wealth. In December 2017, Trump and his Republican allies in Congress engineered a giant tax cut for the super-rich and the companies in which they invest. Many believe that a second Trump administration, backed by a Republican Congress, will cut their taxes even further.
They also support the Fed. Like most of the world’s central banks, the Fed is removed from democratic accountability, out of fear that financial markets otherwise won’t trust them to do unpopular things like bailing out banks or controlling inflation by slowing economies and causing millions to lose their jobs. The Fed is run largely by bankers. You might say it’s part of America’s oligarchy.
A few years ago, Thiel wrote that “I no longer believe that freedom and democracy are compatible.” Presumably he was referring to the freedom of oligarchs like himself to be unconstrained by taxes and regulations. In this narrow sense, he’s correct: Oligarchy is incompatible with democracy. Nor is oligarchy compatible with the freedom of the rest of us.
Thiel and others like him want to return to an era when American oligarchs had freer reign. In that same essay, Thiel wrote:
The 1920s were the last decade in American history during which one could be genuinely optimistic about politics. Since 1920, the vast increase in welfare beneficiaries and the extension of the franchise to women — two constituencies that are notoriously tough for libertarians — have rendered the notion of “capitalist democracy” into an oxymoron.
But if “capitalist democracy” has become an oxymoron, it’s not due to excessive public assistance or because women got the right to vote. It’s because billionaire capitalists like Thiel are undermining democracy with giant campaign donations to authoritarian candidates.
I’m old enough to remember a former generation of wealthy Republicans who backed candidates like Barry Goldwater. They called themselves “conservatives” because they wanted to conserve American institutions. But Thiel and his fellow billionaires in the anti-democracy movement don’t want to conserve anything — at least anything that came after the 1920s, including Social Security, civil rights, and even women’s right to vote (except for the Federal Reserve’s bailouts for the rich and its ability to draft average workers into fighting inflation).
The 1920s marked the last gasp of the Gilded Age, when the richest Americans siphoned off so much of the nation’s wealth that the rest of America had to go deep into debt to maintain their standard of living and sustain overall demand for the goods and services the nation produced. When that debt bubble burst in 1929, we got the Great Depression.
It was also the decade when Benito Mussolini and Adolf Hitler emerged to create the worst threats to freedom and democracy the modern world had ever witnessed.
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Just 27 Billionaires Have Spent $90 Million to Buy GOP Congress: Report
"They're counting on that 'small' investment in anti-tax Republicans to save them billions in taxes," said Americans for Tax Fairness, which conducted the analysis.
Jul 18, 2022
A few dozen billionaires are spending tens of millions of dollars on the 2022 midterm elections--mostly to support Republican candidates, including many who have parroted the dangerous lie that the 2020 presidential election was stolen--in a bid to ensure that Congress is full of lawmakers willing "to make their wealthy benefactors even richer," according to a fresh analysis.
"What's good for billionaires--including cutting taxes on the rich and corporations--is bad for working families."
Titled Billionaires Buying Elections, the report from Americans for Tax Fairness (ATF) details how "billionaires are increasingly using their personal fortunes and the profits of connected corporations to drown out regular voters' voices and elect hand-picked candidates who further rig the nation's economy--especially the tax system."
A pair of super PACs tasked with securing Republican majorities in the House and Senate--the Congressional Leadership Fund (CLF) and the Senate Leadership Fund (SLF)--raised a combined $188.3 million through the first 16 months of the 2022 campaign cycle, according to ATF. Nearly half--$89.4 million, or 48%--came from just 27 billionaires. A whopping 86% of the GOP's billionaire money came from "Wall Street tycoons" who are arguably the biggest beneficiaries of glaring loopholes in the tax code.
The Democratic counterparts of those two super PACs--the House Majority PAC and the Senate Majority PAC--raised a combined $154 million over the same time period. A smaller share--$25.8 million, or 17%--came from 19 billionaires. A majority of billionaire contributions to Democratic candidates also came from the finance and investment sector (35%), but other industries were also well-represented, including cryptocurrency (26%), and tech (18%).
"Unlike candidates and party committees, super PACs can raise unlimited donations from individuals and corporations," ATF explained. "In return they are not supposed to coordinate activities with the campaigns they support but instead act independently, though that rule is often flouted."
Top billionaire donors to congressional super PACs include hedge fund magnate Ken Griffin, who has given more than $28.5 million to CLF and SLF, and private equity mogul Stephen Schwarzman, who has pumped $20 million into the GOP's two super PACs.
"Anti-democratic vote-buying," ATF wrote, "has been facilitated by--and is facilitating--the accelerating wealth growth of the billionaire class and the record profits of the corporations they own."
The combined net worth of the nation's roughly 750 billionaires surged by $2 trillion, or 70%, during the first two years of the Covid-19 pandemic. The collective wealth of the 27 billionaires bankrolling the GOP's super PACs alone soared by $82.4 billion over that time period, meaning that the $89.4 million they have donated to CLF and SLF constitutes less than 0.1% of their overall pandemic-era gains.
Meanwhile, the return on that modest investment could amount to billions of dollars if Republicans take back Congress in November and preserve their 2017 tax cuts or further slash taxes on superrich people and the corporations they own.
Over a recent nine-year period, the 400 wealthiest people in the U.S. paid an average effective federal income tax rate of just 8.2% when the increased value of their stock holdings is included in their income. That is a lower rate than the nationwide average of 13.3% in 2019.
As ATF explained, focusing on contributions to congressional super PACs fails "to capture the full political influence of billionaires, who in addition to personal donations also steer money to favored candidates from related corporations and organizations."
Billionaires are among the ultrawealthy Americans who control corporations through their extensive stock holdings. Many corporate giants have been distorting the upcoming midterms, ATF pointed out, by spending tens of millions to help GOP candidates who have vowed to defend special tax breaks for the top 1% get elected, including 144 far-right members of Congress who voted to overturn President Joe Biden's electoral victory.
According to the report, seven powerful corporations--AT&T, Chevron, ExxonMobil, FedEx, GM, Merck, and UPS--have collectively given nearly $1.5 million to dozens of election deniers and various Republican PACs and election committees this campaign cycle. The companies' demonstrated lack of concern for democracy, ATF noted, likely stems from their desire to keep dodging taxes. In 2021, these firms paid an average federal income tax rate of just 2.7% on a combined $78.4 billion in profits.
"We need to rein in billionaire political and economic power through campaign finance reforms and tax reforms such as a billionaires income tax."
Notably, Peter Thiel, the co-founder of PayPal who is worth about $5 billion and openly opposed to democracy, has been spending big on his preferred Republican candidates but not through the GOP's congressional super PACs.
Thiel "has so far spent almost $30 million through super PACs supporting the 2022 senatorial bids of two former employees who share his anti-democratic and anti-tax beliefs," ATF found. "J.D. Vance won the Ohio Republican U.S. Senate primary thanks in part to Thiel's $15 million in spending. Blake Masters has a fighting chance in Arizona's GOP U.S. Senate primary in August due to Thiel's $13.5 million in contributions."
Another source of "billionaire dominance of campaign financing, especially on the Republican side," wrote ATF, are so-called "dark money" groups, which are not required to disclose the identity of their donors. Some dark money groups--including Club for Growth, which has received $32 million from billionaire Wall Street trader Jeffrey Yass over the years--are "notorious for having bankrolled insurrectionist members of Congress" like Sen. Josh Hawley (R-Mo.) and Lauren Boebert (R-Colo.), ATF noted.
According to the report:
Politically active billionaire Charles Koch has not personally donated to either GOP super PAC this cycle, but his corporation--Koch Industries--has so far given them a total of $1.75 million.
Two of the biggest "dark money" groups, which do not disclose their donors, are essentially sister groups to the two congressional GOP super PACs. American Action Network gave at least $26 million to CLF in the 2020 cycle and $18.7 million so far this cycle. One Nation donated $77.5 million to SLF last cycle and has given $16.5 million so far this cycle.
The ability of the nation's wealthiest individuals to translate their disproportionate economic power into political clout has increased exponentially since the U.S. Supreme Court's 2010 Citizens United decision eliminated effective limits on campaign contributions.
\u201cBillionaires pumped $1.2 billion into the 2020 elections, almost 40x more than they did in 2010. In the 2020 election cycle, billionaires contributed nearly $1 out of every $10. #TaxBillionaires\u201d— Americans For Tax Fairness (@Americans For Tax Fairness) 1657716998
According to the report:
- Billionaires pumped $1.2 billion into the 2020 elections, almost 40 times more than the $31 million they donated in 2010, when the Citizens United rules were first in effect. In the 2020 election cycle, billionaires contributed nearly $1 out of every $10, while making up just 0.01% of all donors contributing more than $200.
- Billionaires donated almost $240 million to the combined campaign efforts of Donald Trump's two runs for president. Over half came from just one billionaire household, that of casino magnate Sheldon Adelson (who has since died).
"Billionaires, who are used to buying whatever they want, have increasingly dedicated their almost unlimited resources to buying American elections," Frank Clemente, executive director of ATF, said in a statement.
"The problem is what's good for billionaires--including cutting taxes on the rich and corporations--is bad for working families," said Clemente. "We need to rein in billionaire political and economic power through campaign finance reforms and tax reforms such as a billionaires income tax."
Several legislative proposals have emerged to tax the increased value of assets owned by the nation's wealthiest households each year regardless of whether they sell or keep them, which would ensure that income derived from wealth is taxed more like income earned from work.
Biden's plan would raise an estimated $360 billion over 10 years, while Sen. Ron Wyden's (D-Ore.) plan would raise an estimated $550 billion over a decade, and Rep. Jamaal Bowman's (D-N.Y.) proposal possibly even more.
Billionaire-backed Democratic Sen. Joe Manchin (W.Va.), however, has joined Senate Republicans in opposing such a measure.
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