"After Semiconductors, It's Defense"...VCs Pour Hundreds of Billions into the "Korean Palantir"[VCs Now]

Government Goal: "Nurturing 100 Defense Startups"
Defense Funds and Investment Inflows Line Up
Exit Uncertainty and Data Bottlenecks Remain Challenges

Defense is emerging as a promising theme in the venture capital (VC) industry. As the government recently announced a goal of nurturing 100 defense startups, the flow of capital is beginning to stir. Some VCs are adding drone, AI, and unmanned systems startups to their review lists. Concrete moves are also taking shape, such as attracting investments worth several billions of won through the Defense Innovation Fund, and actively participating in bids for policy-type funds targeting defense exports and defense startups.

According to the VC industry on the 27th, Crit Ventures, a VC affiliate of Com2uS, recently made an investment of 60 billion won in the drone specialist company UVify. Crit Ventures and UVify plan to participate in government defense drone policies such as the "Training of 500,000 Drone Warriors" initiative and work to build a technology ecosystem that links the private sector with national defense. Pablo Air, a swarm AI-based aviation and defense platform company, also successfully completed its "pre-IPO bridge" round, the final investment stage before an initial public offering (IPO), securing 11 billion won in new investment.

The government has also fired a starting signal for building a defense startup ecosystem. On the 23rd, the Ministry of SMEs and Startups announced its "Defense Startup Development Plan" and set a goal of nurturing 100 defense startups and 30 defense venture companies with annual sales of 100 billion won each by 2030. Investment attraction for defense startups will be handled by the 13 trillion won "Next Unicorn Project Fund" and the roughly 160 billion won "K-Defense Export Fund." The first investment program chosen this year by Korea Growth Investment Corporation was also "defense." Seven general partners (GPs) competed, and Hanwha Asset Management was selected on the 26th.

A New Perspective on Defense

Overview of Hyundai Rotem's booth at the 2026 Saudi International Defense Exhibition

Traditionally, defense has been a government procurement industry centered on large corporations. However, the battlefield has changed through the Russia-Ukraine war. Cutting-edge technologies such as drones, artificial intelligence (AI), autonomous robots, and data analytics have emerged as key factors that determine success or failure in actual combat. In the United States, companies such as Palantir Technologies and Anduril Industries have expanded their presence in the defense and security sectors based on Silicon Valley capital. These companies were able to scale up rapidly by adopting a "dual-use" model that targets both defense and civilian demand. When technologies proven in defense are successfully commercialized, there is also significant room for a re-rating of corporate value.

This shift is leading to a reinterpretation of defense not as simple manufacturing, but as a technology-based industry. And this naturally translates into VC interest. The advantages of defense as an investment target are clear. The Ministry of National Defense is one of the most stable "customers," managing a massive budget. Once a company is selected as a supplier, long-term contracts often follow naturally, which improves visibility on earnings. The high barriers in certification, security, and regulation can, paradoxically, function as a powerful moat once a company has managed to enter.

Another reason VCs are exploring defense is the desire to reduce dependence on China and to avoid geopolitical risks. A VC industry insider said, "Domestic and overseas capital is looking for industries that can reduce exposure to China," adding, "Security and defense tech is a domain where supply chain and security risks are relatively clear." Geopolitical tensions are influencing investment decisions, and each country’s defense strategy and pursuit of technological sovereignty are being woven into the investment thesis.

Structural Barriers to Defense Investment

However, there are considerable obstacles to VC investment in defense. Fundamentally, the investment cycle is long. There are many stages to clear, including regulatory and security reviews. This does not align well with the typical exit timeline of general VC funds. Exit routes are also relatively limited. A VC industry official said, "Acquirers for defense startups are often limited to traditional major defense contractors," and added, "It is also difficult to regard a technology-special listing (IPO) as an easy option."

The fact that many institutional investors (LPs) restrict investments related to weapons under ESG (environmental, social, and governance) criteria is another risk factor. Such LP constraints can become a burden when VCs try to set up defense funds or deploy capital.

In the industry, "data" is pointed out as a more fundamental issue than technology or capital. If data cannot be secured, the technological development of startups is also constrained. Yet, in the defense sector, data is tightly intertwined with security concerns, making disclosure difficult in practice. When access to data is restricted, performance improvement is slow, and this in turn leads to difficulties in generating revenue. Inevitably, this works to the disadvantage of companies when their valuations are assessed.

A representative of a defense startup said, "Companies need real-world data, so they demand more and more diverse datasets, while the military, for security reasons, provides data only in a limited way, causing frequent conflicts," and added, "We need a system that allows the safe use of military data and verification of models." This is why some argue that establishing a framework for data utilization must come first before VC capital can begin to flow in earnest.

This content was produced with the assistance of AI translation services.