The Neoprime Membership: Silicon Valley and The Rise of Protection Disruptors

OPINION — At the moment, after a post-9/11 period outlined by international counterterrorism and uneven warfare, the U.S. is getting ready for potential near-peer conflicts amid a brand new period of nice energy competitors, sophisticated by disruptive applied sciences. In response, a brand new wave of protection contractors is rising from the epicenter of American technological innovation: Silicon Valley. These corporations are addressing important expertise gaps in areas equivalent to synthetic intelligence, autonomous techniques, house providers, cyber operations, small drones, and extra. They’re deploying cutting-edge options to fill functionality shortfalls the U.S. authorities has acknowledged—they usually’re scaling quick. Successful high-profile contracts, they’re reshaping how the Pentagon engages with the personal sector.

Amongst these within the protection tech business, there’s been rising chatter concerning the rise of those protection disruptors—what you may name the neoprimes. We—one in all us a expertise investor, the opposite a former portfolio supervisor on the DoD’s Protection Innovation Unit—are sometimes requested: Is the rise of neoprimes actual? What precisely is a neoprime? What defines one? We got down to reply these questions, utilizing information to help our observations. We imagine neoprimes are altering the tradition of protection acquisitions and creating applied sciences that can reshape how wars are fought. Shifts in protection spending and coverage are empowering neoprimes to develop and transfer quicker.

To grasp how we obtained right here, we will revisit a pivotal 1993 assembly now generally known as the “Final Supper.” Following the top of the Chilly Warfare, U.S. protection spending plummeted, prompting a significant drawdown. The Division of Protection confronted intense strain to chop prices, with budgets falling by about 30%—from $772 billion in 1989 to roughly $531 billion by 1998 (adjusted for inflation). Towards this backdrop, then-Deputy Secretary of Protection William Perry convened a important assembly with executives from the highest protection contractors. His message was clear: the Pentagon might not maintain a sprawling ecosystem of dozens of main corporations, and consolidation was inevitable. The business responded accordingly—over 50 corporations merged into the 5 dominant primes we all know as we speak. These survivors—Lockheed Martin, Raytheon, Northrop Grumman, Boeing, and Normal Dynamics—turned huge, vertically built-in organizations that managed roughly 60% of DoD contracts by 2000. For many years, they dominated authorities contract spending to construct and maintain the nation’s safety equipment, supported by an enormous internet of companions and subcontractors. However with predictable, annual funding streams and restricted aggressive strain, innovation inside these primes arguably stagnated.

Whereas many of those conventional primes hint their roots again over a century, a brand new tribe of Silicon Valley gamers has entered the world. They’re accelerating deployment timelines and pioneering a unique mannequin—outlined by fast iteration, software-first architectures, and a larger urge for food for danger. They’re deploying operational techniques in months reasonably than years or a long time. They’re not simply constructing prototypes for demos and workouts—they’re scaling manufacturing and securing billion-dollar contracts. Whereas they might not but match the normal primes in whole contract quantity, they’re closing the hole 12 months over 12 months. A handful of key corporations are main the cost, with an increasing set of startups gaining traction. Backed by enterprise capital and supported by a rising community of influential advocates shaping coverage and public opinion, neoprimes are beginning to redefine how the federal government approaches the acquisition, fielding, and sustainment of latest applied sciences. They’re turning into mission-critical to the protection industrial base of America.

As this new era of protection contractors positive factors momentum, what precisely is a neoprime? To reply that, we analyzed information from USAspending.gov (the federal authorities’s official platform for monitoring public expenditures), reviewed SEC filings from public protection corporations, and compiled press releases from personal corporations. We additionally interviewed founders and enterprise capitalists centered on nationwide safety innovation.

By way of this analysis, we recognized a number of defining traits of neoprimes and rising market tendencies. Our evaluation focuses on a set of present neoprimes—SpaceX, Palantir, and Anduril Industries—alongside a cohort of rising corporations like Protect AI, Skydio, Saildrone, Saronic, Hidden Degree, Epirus, Relativity House, Axiom House, HawkEye 360, Vannevar Labs, and others. These corporations are starting to guide main protection applications with superior applied sciences and a essentially completely different method to hurry, software program integration, and supply.

Beneath, we define our findings and outline the traits that distinguish neoprimes. We imagine these corporations signify the way forward for nationwide safety—and to protect America’s strategic edge, we should quickly undertake and scale their options throughout the protection industrial base.

Neoprimes are Racing Forward in Division of Protection’s Important Expertise Areas

At their core, neoprimes are constructed round rising, frontier applied sciences—fields like AI and autonomy, built-in networks, biotechnology, quantum science. Lately, the Division of Protection has formally emphasised the significance of those applied sciences, figuring out fourteen Important Expertise Areas that mirror a rising urgency to meet up with and surpass international rivals.

To higher perceive this pattern, we evaluated the highest 5 mostly used Product Service Codes (PSCs) for a set of presidency contractors from 2018 to 2023. PSCs are utilized by the U.S. federal authorities to explain the merchandise, providers, and analysis being bought by contracts, and we gathered this information from USAspending.gov’s contract award summaries by vendor. For Palantir, SpaceX, and Anduril, we then recognized the most well-liked PSCs throughout all three. We carried out the identical evaluation to find out the highest PSCs among the many conventional protection primes—Lockheed Martin, Raytheon, Northrop Grumman, Boeing, and Normal Dynamics.

Palantir’s prime PSCs had been predominantly within the info expertise class, in keeping with their core energy in information platforms and software program integration. Many of the PSCs related to Anduril had been concentrated in engineering providers.

In distinction, for conventional primes equivalent to Normal Dynamics, Boeing, Lockheed Martin, Northrop Grumman, and Raytheon, the commonest PSCs had been closely concentrated in {hardware} classes—overlaying gadgets like airframe structural parts, helicopter rotor blades, and shock absorbers. In comparison with newer entrants, their portfolios featured far fewer PSCs associated to software program or IT providers.

Prime PSCs Throughout Neoprimes and Conventional Protection Corporations (2018-2023)

Neoprimes

Conventional Primes

Whereas conventional primes proceed to supply legacy platforms just like the F-18, B-2, and AMPV, even when Silicon Valley’s protection startups develop superior {hardware}, their techniques are essentially software-driven. These platforms usually depend on swarms of unmanned techniques powered by cutting-edge AI and autonomy. They don’t seem to be simply assemblies of metallic—they signify complicated software program and techniques integration challenges, being solved in actual time with applied sciences that did not exist a decade in the past. Notable examples embody Anduril’s Lattice platform; small tactical drones from Skydio and Teal Drones; bigger techniques like Protect AI’s V-BAT, autonomous floor vessels from Saildrone and MARTAC; and Palantir’s determination making and analytics platforms that proceed to unfold throughout the Division of Protection.

Neoprimes are additionally centered on interoperability. Conventional contractors are infamous for proprietary techniques that require their very own distinctive management techniques and restricted third-party integrations—like drones that may solely be operated with particular controllers, computer systems, or discipline kits. However proprietary every thing would not scale on a battlefield more and more stuffed with robots, sensors, and drones, particularly as troopers are restricted by the variety of management techniques they will carry into the sphere. In distinction, neoprimes are designing software program with interoperability in thoughts from the beginning—constructed to combine seamlessly with legacy techniques and ingest any information the federal government permits.

Total, the options neoprimes are creating are particularly related as we speak, as many Chilly Warfare-era instruments are failing to scale to the calls for of the trendy battlefield. For instance, Ukrainian troopers are actually utilizing low-cost drones to disable costly Russian platforms—within the current Spider’s Internet operation, 117 drones struck 4 Russian navy airbases and focused at the very least 40 warplanes. The operation dealt a major uneven blow to the Russian navy and broader economic system, with estimated losses reaching as much as $7 billion.The inevitable shift towards extra inexpensive, extra attritable platforms is forcing governments to rethink how they develop and fund main protection techniques. Neoprimes and the Division of Protection are racing to develop low cost-to-kill applied sciences—whereas additionally creating defenses towards them—as these small deadly platforms grow to be more and more frequent on trendy battlefields world wide.

Be a part of us in Sea Island, Georgia for The Cipher Temporary’s 2025 Risk Convention from October 19-22. See how one can save your seat at tcbconference.com

Prototyping and Collaborating Straight with Servicemembers

Neoprimes construct working prototypes rapidly and make a behavior to iterate with finish customers in actual time—making adjustments on the fly, within the discipline. We’ve got noticed that these corporations do not essentially anticipate the Division of Protection to fund their R&D as an alternative, they develop options they imagine are apparent solutions to present urgent issues and discover methods to get them into the fingers of warfighters—usually effectively earlier than any massive procurement orders have even been positioned.

These corporations will ship prototypes “downrange” with prepared servicemembers, generally years earlier than extra formal procurement contracts materialize. Protect AI, for instance, deployed working prototypes of their AI-enabled drones to Particular Operations Forces in fight within the Center East, gaining important suggestions whereas additionally delivering real-world outcomes for these early adopters. Different corporations have taken comparable approaches: ship cutting-edge expertise to warfighters first—even earlier than any formal requirement exists—refine it within the discipline, and let the paperwork catch up later.

Delivering On Time and Inside Finances

Neoprimes usually prioritize outcomes over processes. As an illustration, Palantir was lately awarded a $178 million contract by the U.S. Military to develop the TITAN system, beating RTX Company in a aggressive choice course of. Remarkably, Palantir delivered the challenge on time and inside funds—historically a uncommon feat in protection contracting.

As one instance of neoprimes’ outcome-first method, we’ve noticed a rising desire for fixed-price contracts over the normal cost-plus mannequin. Underneath a fixed-price construction, corporations are incentivized to innovate effectively, as they’re paid a set quantity no matter overruns. This stands in stark distinction to cost-plus contracts, the place incumbents are reimbursed for all bills and earn a revenue margin on prime—eradicating a lot of the strain to function leanly.

When analyzing authorities spending information, we noticed that almost 100% of Palantir and SpaceX’s contracts are fixed-price, whereas 65-80% of Anduril’s contracts comply with the identical mannequin. Among the many conventional primes, Normal Dynamics has steadily secured an rising variety of fixed-price contracts, and the pattern is much less clear for others.

That stated, each neoprimes and conventional contractors proceed to depend on cost-plus contracts, as they continue to be the prevailing norm throughout a lot of the protection business. We additionally acknowledge that ongoing debate surrounds using agency fixed-price versus cost-plus fashions in protection procurement. Whereas advocates of fixed-price contracts view them as the best manner for the federal government to make sure worth and accountability, critics argue that fixed-price fashions could be too dangerous for complicated scopes of labor. A typical argument in favor of cost-plus is that it offers the mandatory flexibility when challenge necessities are unsure or evolving.

Fraction of Fastened-Value Contracts (2012-2024)

Maximizing Income and Contract Worth per Worker

Neoprimes function with small, agile groups—usually with only a fraction of the headcount of conventional protection contractors. However what they lack in dimension, they make up for in velocity and output. Many of those corporations are producing greater income or contract worth per worker.

SpaceX and Anduril have outperformed a number of main conventional protection contractors by way of obligations per worker, exceeding the ratios of Raytheon, Northrop Grumman, Boeing, and Normal Dynamics. And whereas Lockheed Martin has outperformed all in absolute phrases, which may be attributed to its considerably bigger income—roughly $51 billion in comparison with SpaceX’s $3.8 billion.

Notice that as a result of Anduril and SpaceX are nonetheless personal corporations, we based mostly their worker counts on estimates from public studies. Palantir and all conventional primes report worker numbers of their SEC filings.

Obligations per Worker (FY 23)

Rising Use of OTAs in Protection Contracting

Whereas Palantir, SpaceX, and Anduril are main neoprimes, a number of different corporations are quickly rising on this class. Protect AI, which started with AI-powered quadcopters for U.S. Navy SEALs and different particular operations forces, is now fielding its V-BAT unmanned aerial automobile in Ukraine, Japan, and Brazil. Corporations like Saildrone and Saronic are deploying a spread of autonomous drones above and under the water. Cybersecurity leaders equivalent to Palo Alto Networks, Fortinet, and Crowdstrike have gotten key gamers in areas like trusted networks and digital protection. Industrial house corporations like Varda, HawkEye 360, and Astranis are constructing capabilities for on-demand house entry, persistent satellite tv for pc protection, and high-speed space-based information switch.

With the rise of neoprimes, the Division of Protection has considerably elevated its use of Different Transaction Agreements (OTAs) lately, reflecting a strategic shift towards extra agile and versatile procurement strategies. OTAs, which aren’t certain by the normal Federal Acquisition Regulation (FAR), enable the Division of Protection to collaborate extra simply with nontraditional contractors, together with startups and analysis establishments. When correctly executed, we imagine that OTAs can result in higher, quicker, cheaper outcomes for everybody concerned—saving time, cash, and energy.

Additional evaluation exhibits that OTA utilization is clearly trending upward inside the Division of Protection. Despite the fact that OTA awards have elevated tenfold since 2017, nonetheless, they nonetheless account for less than about 0.01% of the whole contracts awarded by the Division of Protection—it is nonetheless removed from mainstream within the broad acquisition neighborhood. Given what OTAs have already delivered, we will solely think about the impression if extra contracts had been accelerated this manner.

OTAs Awarded vs Whole Contracts Awarded (FY17-FY22)

The Highway Forward: Partnering with Neoprimes to Meet Rising Nationwide Safety Wants

At the moment, we imagine the U.S. authorities is starting to acknowledge the strategic worth of neoprimes in addressing important functionality gaps. The Division of Protection has acknowledged its lag in a number of key expertise areas and has taken deliberate steps to shut the hole. Along with encouraging the providers to increase their use of OTAs, the Division of Protection launched the Industrial Options Opening (CSO) framework to draw non-traditional distributors. It additionally launched the Workplace of Strategic Capital to offer extra versatile financing choices and created the Nationwide Safety Innovation Capital initiative to help dual-use {hardware} improvement. Over the previous 20 years, the Division of Protection has invested greater than $20 billion in small enterprise initiatives—all promising indicators of progress, however extra work stays.

Throughout the nation, dozens of rising expertise corporations are profitable contracts that may have defaulted to conventional primes only a few years in the past. These startups aren’t merely disrupting the protection industrial base; they’re actively shaping the way forward for warfare. Their applied sciences are starting to affect navy doctrine, operational planning, and frontline techniques.

This shift displays a broader transformation in nationwide safety priorities—one we strongly help and imagine should be accelerated. As these threats grow to be more and more software- and technology-driven, we’re inspired to see Silicon Valley and its neoprimes emerge as pure leaders in enabling the subsequent era of navy readiness. Now could be the time to double down.

Editor’s Notice: The authors of this text are affiliated with Courageous Capital and MVA (MilVet Angels), which have invested in nationwide safety corporations like Anduril Industries, Protect AI, Aetherflux, Hermeus, Ursa Main, and others.

Join the Cyber Initiatives Group Sunday e-newsletter, delivering expert-level insights on the cyber and tech tales of the day – on to your inbox. Join the CIG e-newsletter as we speak.

The Cipher Temporary is dedicated to publishing a spread of views on nationwide safety points submitted by deeply skilled nationwide safety professionals.

Opinions expressed are these of the creator and don’t signify the views or opinions of The Cipher Temporary.

Have a perspective to share based mostly in your expertise within the nationwide safety discipline? Ship it to Editor@thecipherbrief.com for publication consideration.

Learn extra expert-driven nationwide safety insights, perspective and evaluation in The Cipher Temporary