Defense technology startup Anduril has closed a $1.5 billion deal in what is almost certainly one of the largest funding rounds of the year, valuing the company at $14 billion.
Anduril has ambitions to become the next great American defense contractor, joining a corporate hierarchy that has shrunk to just five giants: Lockheed Martin, RTX, Northrop Grumman, Boeing, and General Dynamics. These companies make billions of dollars in revenue from their deals with the U.S. Department of Defense, and their monopoly on defense production is almost absolute.
But the defense startup founded by Palmer Luckey is trying to become a serious competitor to these old giants, and its recent victories are starting to get noticed. Earlier this year, it beat Lockheed, Northrop and Boeing in a program to develop and test a small unmanned combat aircraft prototype. Anduril is also betting that it can win the contract if it moves faster than its competitors. It’s bringing a Silicon Valley mentality to defense manufacturing, which is notoriously slow.
This latest round is a huge increase from Anduril’s previous valuation of $8.5 billion set in December 2022. The company reportedly told investors that it doubled its revenue last year to about $500 million, meaning the current valuation is set at 28 times earnings. That’s high by many standards for a late-stage startup, but especially for a traditional defense company. Lockheed Martin’s multiple is about 1.9 times earnings based on its current valuation and last year’s earnings, while Boeing’s is 1.3 times earnings. That lower multiple is for billions more in earnings. Lockheed Martin is expected to earn $18.9 billion in 2023, while Boeing’s is expected to earn nearly $78 billion in 2023.
Anduril’s new funding round was co-led by Founders Fund, which led Anduril’s seed round and Series A in August 2017, and Sands Capital, which has been involved in several IPOs since Visa’s public offering in 2008. Founders Fund’s participation is not entirely surprising, given the company’s long-standing bet on Anduril. The company’s co-founder and chairman, Trae Stephens, is also a partner at Founders Fund. The round also saw new participation from major institutional investors, including Fidelity Management and Research Company and Baillie Gifford.
The company said in a statement that the new funding will help it scale its new software-defined manufacturing platform, called “Arsenal,” starting with its Arsenal-1 facility. The facility will increase Anduril’s production space by more than 5 million square feet and will be capable of manufacturing “tens of thousands of autonomous military systems” annually, employing more than 1,500 people.
A separate statement specifically explains Anduril’s rationale for expanding manufacturing. The company’s goal is to “hyperscale” defense production, producing defense systems at a scale that is currently impossible for sophisticated military systems. But Anduril isn’t focused on building a few very expensive, sophisticated systems. It’s focused on producing much cheaper products that can be hyperscaled with rebooted factories. That’s exactly what Arsenal is: an adaptable, replicable model that “allows us to scale infinitely and rebuild the arsenal of democracy.”
What’s more, Anduril says the centrality of software will make factories more efficient over time, and the Arsenal Operating System will facilitate faster, cheaper manufacturing. This will have implications for the products themselves, which Anduril says will be developed to be less reliant on highly specialized labor, maximize the use of readily available components, and allow for faster iterations of product changes.
The seven-year-old company’s success with government and private investors has created a boom in defense technology, a sector previously considered nearly impossible to invest in due to the long timelines for government contracts. But it’s unclear whether Anduril’s rising tide will actually lift all boats, or whether Anduril will be the exception rather than the rule (as is often the case in Silicon Valley).
