Anduril recently raised $1.5 billion, reaching a valuation of $14 billion. Meanwhile, Shield AI closed a funding round for $500 million. Additionally, Helsing, the German startup focused on defensive AI, has achieved a valuation of $4.5 billion. However, these cases are not isolated. By 2026, dual-use technology startups, which sell to both governments and enterprises, are expected to attract $49 billion in global investment. Isn't it impressive how these numbers grow each quarter?
Photo: David Goldman on Unsplash
Dual-use technology is not a new concept. But what's interesting is that what we're witnessing now is different. It's not just about tech companies occasionally selling to governments. We're seeing a structural shift: the best founders are building for two markets simultaneously from day one. The most sophisticated VCs are rewriting their investment theses to seize this opportunity. Therefore, the question to consider is not whether your startup should adopt this model, but why you've taken so long to do so.
The Shift No One Saw Coming: From "Forbidden Tech" to Investment Thesis
Over the past decade, collaborating with governments or the defense sector was stigmatized in Silicon Valley. The most talented engineers avoided military projects. Likewise, VCs stayed away from the sector due to long sales cycles and an archaic acquisition process. However, this situation changed dramatically between 2024 and 2026.
Three catalysts converged at once. First, the war in Ukraine highlighted that modern commercial software, such as Starlink or AI-coordinated drone systems, outperforms legacy military equipment that cost billions. Second, China has intensified its civil-military fusion strategy, forcing the West to rethink its tech supply chains. Third, and crucially, governments have finally learned to buy like a startup: they now prefer smaller contracts, rapid iteration, and less bureaucracy.
The Numbers That Reveal the Magnitude of Change
Of the $49 billion flowing into dual-use technology in 2026, approximately $23 billion comes from traditional venture capital funds. Andreessen Horowitz, Founders Fund, and Lux Capital are leading the charge, with funds specifically dedicated to this sector. Another $18 billion is sourced from sovereign funds and government investment vehicles, ranging from In-Q-Tel (the CIA's VC arm) to European funds like the European Defence Fund. Finally, the remaining $8 billion is corporate capital from prime contractors desperately seeking innovation.
What surprises me most is not just the amount of investment, but the speed at which it is happening. In 2024, these startups took between 18 and 24 months to close Series A rounds. However, by 2026, the most successful ones are closing in just 4-6 months. The reason? VCs have realized that selling to governments doesn't involve endless cycles, as long as the right product is built.
The Three Competitive Advantages That Go Unnoticed
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Everyone talks about big contracts and margins, but few understand the structural advantages that make dual-use technology defensible in the long run.
Inverse Regulatory Moat. While most startups fear regulation, dual-use companies embrace it. Each new cybersecurity regulation, every encryption standard, and each data sovereignty requirement act as barriers to entry that protect your market position. If your startup has already passed FedRAMP, ITAR, or equivalent European certifications, you have an 18-24 month head start over any competitor starting from scratch.
Real Risk Diversification. Most SaaS businesses live or die by unique market trends. If your vertical collapses, you collapse. In contrast, dual-use startups have two completely uncorrelated engines. When corporate budgets tighten, defense budgets tend to expand. When governments restrict spending, the private sector compensates. This is not just theory: it was clearly evidenced during the 2025 tech recession.
Data and Scale That Are Impossible to Replicate. By having clients like the Pentagon or the UK Ministry of Defence, you gain access to volumes and types of data that no purely commercial competitor can match. Shield AI trains its autonomous systems with real operational data. Meanwhile, Palantir refines its algorithms with intelligence problems that no Fortune 500 company faces. This data advantage amplifies exponentially over time.
The Playbook Being Used by Winners
Anduril didn't reach its impressive $14 billion valuation by pure luck. In reality, they followed a pattern that we can now identify in all successful dual-use startups.
Start Commercial, Scale Government. This approach may seem counterintuitive, but it's consistent. The best dual-use startups first launch commercial products to validate their technology, iterate quickly, and generate revenue. They then use that market validation to accelerate the government acquisition process. A good example is Helsing, which began by selling AI for corporate security operations centers before offering its services to the German Bundeswehr. Similarly, Scale AI developed data infrastructure for tech companies and then became a critical supplier for the Department of Defense.
Hire Hybrid Talent from Day One. It's impossible to build dual-use technology with a team made up solely of ex-Googlers or only ex-military personnel. You need both. The most effective teams combine product engineers from FAANG with veterans who truly understand how governments and militaries operate. Anduril, for example, has ex-Palantir employees working side-by-side with former Marines. That chemistry isn't improvised; it's built from foundational culture.
Design for Compliance, Not Retrofits. A common mistake made by traditional startups pivoting to dual-use tech is treating compliance and certifications as a simple checklist at the end of the process. Winning startups build their architecture, processes, and even their organizational culture from the ground up, assuming the most rigorous requirements. If you design for FedRAMP High from the start, you automatically comply with GDPR and most business regulations. The reverse approach doesn't work.
The Sectors Where Capital is Concentrating Now
Not all dual-use technology verticals are created equal. In 2026, four categories are absorbing the majority of capital:
AI and Autonomy ($19 billion of the total). This includes autonomous drones and AI-powered command and control systems. Startups like Shield AI, Anduril, and Rebellion Defense lead in this space.
Cybersecurity and Critical Infrastructure ($14 billion). This encompasses national infrastructure protection, incident response, and threat intelligence. Companies like Dragos and Claroty dominate this area.
Space Tech and Resilient Communications ($9 billion). This covers satellites, quantum communications, and GPS-independent navigation. Companies like Redwire and Varda Space are at the forefront.
Biodefense and Resilient Health ($7 billion). Early pandemic detection, sovereign medical supply chains, and biological countermeasures are key areas. This is where lessons learned from the COVID pandemic intersect with national biosecurity concerns.
Why This Isn't a Bubble (Even If It Seems Like One)
$49 billion in a year might sound like irrational exuberance. However, there are structural reasons suggesting this is just the beginning.
Western defense budgets are at historic highs and continue to grow. NATO has established a minimum of 2% of GDP, but countries like Poland are already allocating 4%. This represents hundreds of billions desperately seeking real innovation. At the same time, the private sector is prioritizing resilience over pure efficiency, from supply chains to cybersecurity, thus creating massive commercial demand for the same technologies.
The difference from past bubbles is clear: these startups are generating real revenue, have real margins, and are addressing real problems. Anduril, for example, generated over $500 million in contracts before its latest funding round. Palantir is profitable in the public market. We are not financing simple pitch decks; we are investing in critical capabilities that governments and companies will pay for regardless of the circumstances.
Dual-use technology has shifted from a controversial niche to a mainstream strategy in less than 24 months. If you’re a founder with technology that has dual-use potential, this is likely the best time in a generation to raise capital. On the flip side, if you’re an investor and don’t have a clear thesis on this sector, your LPs will start asking you uncomfortable questions.
Could your startup have a dual component that you’re overlooking? Or will you continue to compete solely in the commercial market while others build impossible-to-replicate barriers?