Venture capital giant Y Combinator invests in defence

Y Combinator, the renowned startup incubator behind the success of companies like DoorDash, Airbnb, Reddit, and Instacart, is venturing into the defence industry for the first time.

Y Combinator—the start-up accelerator behind the success of companies like DoorDash, Airbnb, Reddit, and Instacart—is venturing into the defence sector for the first time by supporting a weapons manufacturer, Caliber.Az reports, citing foreign media.

This new company, Ares Industries, aims to revolutionize the defense industry with its low-cost, anti-ship missiles. Ares Industries plans to develop missiles capable of destroying ships hundreds of miles away, at a fraction of the size and cost of current options. Founders Devan Plantamura and Alex Tseng stated, “A conflict with China in the Taiwan Strait would differ significantly from wars in Ukraine or the Middle East. Wargames conducted by the DoD and military experts concur that long-range anti-ship missiles or cruise missiles would be most effective in such a scenario.” They cautioned that in a conflict, the US missile supply could be exhausted within weeks, with current manufacturing capabilities unable to replenish the stockpile quickly enough.

Plantamura and Tseng argued that $3 million, 3,000-pound missiles are unnecessary to sink smaller Chinese warships or to counteract swarms of $200,000 unmanned surface vessels. “The Department of Defense needs smaller, more affordable cruise missiles in large quantities, but so far, no one has fulfilled that need,” they emphasized. Ares Industries built several prototypes and conducted flight tests over the summer in California’s Mojave Desert. 

The company aims to deliver “early working missile systems” to its initial customers by mid-2025, according to the founders. Neither Ares nor Y Combinator immediately responded to requests for comment. Y Combinator partner Jared Friedman provided insight into the incubator's first foray into the defence sector through a series of tweets. “Two factors make this a particularly opportune time: existing missile producers have become inefficient and are struggling to meet demand, and the advent of drone ships necessitates smaller missiles,” he explained. Friedman compared today’s major missile manufacturers to the companies that dominated the rocket industry over 20 years ago, before Elon Musk founded SpaceX. 

By developing reusable rockets, SpaceX significantly reduced the cost of reaching orbit and became the leading space-launch provider. Recently, NASA chose SpaceX to return astronauts from the International Space Station following issues with Boeing’s Starliner capsule. “In 2002, when SpaceX entered the space launch market, Lockheed Martin and Boeing had formed a duopoly,” Friedman wrote. 

“Similarly, Lockheed Martin and Raytheon are the two primary suppliers of cruise missiles today.” While Silicon Valley and the venture capital community have traditionally steered clear of the defense industry, Russia's invasion of Ukraine in 2022 has sparked increased interest. From 2021 to 2023, investors poured $108 billion into defence tech companies, according to a February report by The Washington Post, citing PitchBook data. Companies like Palantir and defence tech startup Anduril have also generated significant attention in the sector.

During a panel discussion at Fortune's Brainstorm Tech conference on July 17 in Park City, Utah, investors highlighted a shift towards US nationalism and a growing conservative trend in Silicon Valley. "We're definitely seeing a move towards conservatism, and I think this is one of the reasons why investing in defence technology is no longer considered taboo," said Jenny Xiao, a partner at Leonis Capital.