Defense wins championships

Republic Capital
6 min readMar 26, 2023


We first publicly discussed our views on the emerging multipolar world in our November 2022 piece We’re going back. In it, we examined the criticality of the Artemis Moon missions as they relate to American cooperation and progress. China’s rapid technological ascension over the past decade is directly threatening U.S. unipolarity. According to a State Department funded report by the Australian Strategic Policy Institute, China now leads the U.S. in 37 of 44 identified critical technologies, including nanoscale materials, artificial intelligence, and hypersonics. The U.S. has been aware of this and last month announced measures to choke off investments into advanced Chinese technology, specifically those that could pose military threats.

Source: DALL·E (March 2023)

Since November, a number of new nuances in China’s insatiable pursuit of global influence have surfaced. It is positioning itself as a geopolitical broker, facilitating deals across the Global South. As such, defense has become a priority for the United States, and investors are taking notice.

Two dear friends

Chinese President Xi Jinping met with Vladimir Putin in Moscow this week, just over a year since Russia’s initial invasion of Ukraine. Western sanctions imposed on Russia have drawn Xi and Putin closer. China has increased its import of Russian oil and its export of key semiconductors to Moscow — bilateral trade turnover in 2022 between the two countries increased 29.3% year over year. However, the balance still heavily favors China as it accounts for over 30% of Russia’s total trade, while Russia accounts for only about 3% of China’s. The visit underscores Putin’s reliance on maintaining an economic alliance with Xi, who recently won an unprecedented third term as China’s leader.

While China positions itself as a mediator and possible peacemaker in the ongoing conflict in Eastern Europe, Chinese officials have insisted that the U.S.-led expansion of NATO is to blame. Herein lies the first of several concerns for the United States. Balance in the war could shift towards Russia should China supply it with some of its advanced weaponry. Evidence of China’s military stance isn’t helped by the December 2022 jet flyby over the South China Sea nor the spy balloon fiasco. Although outright conflict is unlikely for now, the surprises of China’s prevalence signal that the U.S. is underprepared for a potential ‘Great Power’ conflict.

With that said, China may have its own unspoken desires. A westward Russian breakthrough would definitely take a few American eyes off of Taiwan.

The $842B 2024 U.S. Department of Defense budget outlaid the following priorities:

  1. “Defending the homeland, paced to the growing multi-domain threat posed by the People’s Republic of China (PRC),” and
  2. “Deterring aggression, while being prepared to prevail in conflict when necessary — prioritizing the PRC challenge in the Indo-Pacific region, then the Russia challenge in Europe.”

The messaging couldn’t be clearer, but it does leave a gap.

A few new friends

On March 10, China brokered a deal to restore relations between Iran and Saudi Arabia. The two countries formally split ties seven years ago, but this new Saudi-Iran pact has completely reshaped the Middle East. China showed that it could complete a deal that the U.S. had avoided. A senior official of Israel President Benjamin Netanyahu substantiated this claim, saying the deal was born from a “feeling of U.S. and Israeli weakness.” Netanyahu’s U.S.-brokered foreign policy deal normalized relations with four Arab states in 2020 in a push to isolate Iran. Meanwhile, the relationship between the U.S. and Iran continues to deteriorate after a deadly UAV attack led to American retaliation against Iranian troops in eastern Syria last week.

There are hopes that this truce can alleviate tensions in Yemen, where a proxy-backed civil war between Saudi and Iranian supported groups has raged since 2015. Resolving the humanitarian crisis in Yemen is of paramount importance, and so the deal is something the U.S. cautiously supports.

The truth is, China has come over the top and told the U.S.: “Whatever you can do, I can do better.” Just as it did in Russia, China has cemented itself as an economic ally to the Middle East. Both Iran and Saudi Arabia count China as their top customer for oil.

Russia has also joined the fray, moderating talks between Saudi Arabia and Syria which negotiators say are close to restoring ties between the two countries. The Middle East appears to be setting aside its differences and integrating itself into a finally stabilizing super region.

The U.S. is still the region’s foreign military superpower, but regional clout is slipping while it stretches itself thin.

Show me the money

Addressing the challenges outlined above is the very ethos of venture capital. Those who invent and commercialize solutions to massive problems tend to win the king’s ransom. The decades following the Dot Com Boom led to the zero-interest rate, software-first darlings that venture investors came to expect. While important, they mostly solved easy problems. The pendulum is swinging back to hard tech.

In our opinion, the next Kleiner Perkins will make its mark by investing in the next Genentech. The next Sequoia will be birthed by an employee of the next Fairchild Semiconductor. The aerospace & defense sector may very well be where this potential of talent and engineering is perking its ears, ready to pounce. It’s time to get comfortable again with hard problems.

Source: DALL·E (March 2023)

Investors are privy to geopolitical imbalance, pouring hundreds of millions of dollars into defense and national security startups as the tides turn from monolith defense primes to nimble startups. Small business programs and federal funding opportunities, like SBIR and AFWERX, have helped spur commercial innovation to stay in the race with China. This year’s DoD budget made R&D and procurement priorities, totaling $145B and $172B respectively — the largest in history.

We’re notably seeing this innovation in space, which is rapidly becoming a new battleground in of itself. The U.S. Space Force budget includes a $60M provision for ‘tactically responsive space’ to deploy satellites via commercial launch systems on short notice. American communications and observation satellites launched on American rockets have proven integral to aiding in the war in Ukraine (however, SpaceX did recently limit Starlink capabilities to Ukraine’s military after it used the constellation to operate lethal drones). We believe businesses like Republic Capital portfolio companies Firefly Aerospace and Relativity Space will be essential to American defense success.

Recent defense-related venture deals include: Republic Capital’s co-lead investment into K2 Space’s $8.5M Seed, Vannevar Labs’ $75M Series B led by Felicis Ventures, and Machina Labs’ investment from Lockheed Martin Ventures. Other marquee, venture-backed names in defense include Anduril, Hadrian, and Shield AI.

Our firm is striving to remain well-positioned to execute and seek out attractive investments in companies focused on forwarding American defense and national security. We believe that this will be the secular tailwind to drive the next decade of hard tech venture investing.

We’ll let Warren Buffett cap us off. In his 2021 Berkshire Hathaway annual letter he said, “Never bet against America.”

We agree.


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Republic Capital

Republic Capital is a venture capital firm focused on supporting remarkable founders in building a non-obvious future across deep tech, fintech, and web3