When Andrew Kreitz was an investment banker at The Goldman Sachs Group from 2016 to 2020, his area of expertise – aerospace and military equipment – was “one of the sleepiest sectors you can imagine.”
Indeed, during Kreitz’s tenure at the company, the industry was largely dominated by large defense primes like Lockheed Martin Corp., RTX Corp. (formerly known as Raytheon) and The Boeing Co. It was considered a slow growth and low margin industry, largely neglected by federal and venture dollars.
Yet somehow, the sector has undergone a dramatic shift in the last two years.
Of all the funding from venture capitalists in Los Angeles this year, 38% went toward military and aerospace companies – more than any other industry in the region, according to PitchBook. Half of the companies inducted into the unicorn club this year belong to the space and national security sector. Today, all aerospace and military unicorns are valued at a combined $416 billion – making up around 78% of all unicorn value in Los Angeles.
“It’s really exciting for me. It’s actually also a little bit surreal that this is a sector that I’ve spent most of my career in, and now all of a sudden there’s all of this capital from all different quarters flowing in,” said Kreitz, who is now co-founder of El Segundo-based weapons manufacturer Castelion Corp. – reportedly valued at $2.82 billion after raising $350 million in July. “That is a drastic increase and it’s a big zeitgeist shift since the late 2010s.”
When the U.S. began winding down its massive arms race during the Cold War, industries of national interest consolidated into a few key companies known for creating well-made, premium weaponry at a high cost and slow pace. Venture companies avoided investing in new entrants because war was considered a morally controversial industry, based on PitchBook research. It was also deemed a financial dead end because the U.S. was no longer as interested in buying weapons as it was 60 years ago.
Now the tides have turned, thanks to a combination of rising geopolitical tension and economic uncertainty. As U.S. allies in Europe and the Middle East engage in war, it has become clear that the well-crafted weapons manufactured domestically can’t keep up with nimble, cost-effective technology used abroad.
“The multimillion-dollar equipment that’s being made by Lockheed and Raytheon are not necessarily tailored for the type of fighting that’s going on right now,” said Jim Corridore, a senior analyst at PitchBook. “They’re very expensive, you can’t manufacture them as (quickly), Ukraine can’t afford them, and then they’re sometimes very easily overcome by electronic jamming.”
In recent years, both former President Joe Biden and President Donald Trump have pushed legislation to secure U.S. self-reliance. Biden signed into law the CHIPS and Science Act, which began the process of de-emphasizing manufacturing reliance on other countries and boosting U.S.-made hardware and material sourcing. Trump has proposed and signed a slew of tax incentives and tariffs to incentivize companies to manufacture domestically.
The tariffs have also driven economic uncertainty for industries that rely on sourcing parts overseas. The space and military readiness sector, by comparison, is far more stable for investors.
“If you look at what’s going on in the Trump economy, there’s a lot of uncertainty related to tariffs, related to reshoring, related to all the different priorities that the government has,” Corridore said. “Aerospace and defense is the one area that is completely insulated from that. We have a one trillion-dollar defense budget, which is the highest in U.S. history.”
When Torrance-based K2 Space Corp. announced it raised $250 million at a $3 billion valuation in December, perhaps the most interesting part of the news was the company’s cap table. The round was led by Redpoint Ventures, a longtime Bay Area venture firm known for its portfolio of prolific enterprise software investments.
Hardware-intensive companies like K2 Space often require more upfront capital and operate on longer lead times than business-to-business software, which means investors wait significantly longer to see a return on investment. But early wins in aerospace and defense funding have piqued the interest of more generalist venture firms like Redpoint.
“What we’re seeing right now is a rotation of capital from typical enterprise software to hard tech, to hardware in general,” said Karan Kunjur, the chief executive of K2 Space. “They’re seeing the business models that are emerging and are seeing the potential. It’s now become possible to build a profitable business selling hardware in space in a way that was never previously possible.”
Space has long been a quiet but steadfast part of America’s strategy as a global superpower. Though Europe, Russia and China have developed their own navigation satellite systems, much of the world uses Google Maps, Doordash and Uber through a 32-satellite constellation in the sky owned and operated by the U.S.
K2 Space is developing a satellite that bridges the gap between incredibly powerful satellites that take ten years to produce and cost around a billion dollars each and smaller satellites that are easy to manufacture but have less capability. The goal for companies like K2 is to eventually bring all connectivity infrastructure – from fiber optic cables stapled to the earth to geographically limiting cell phone towers – into space.
“What that means is more connectivity for everybody – greater access to high-speed networks for everyone regardless of where they live or what their economic status is,” Kunjur said. “(It’s also) generally a resilient backbone. If the terrestrial networks go down, you have another option to revert back to ensure that mission critical applications that need communications can continue to happen.”
K2 is part of a large patchwork of L.A. companies finding themselves popular in a new venture economy. Hawthorne-based Chaos Industries raised a whopping $510 million in November and raised more than $1 billion since it began in 2022. Culver City-based Apex raised $200 million in May.
Los Angeles is geographically primed for renewed interest in aerospace and military-related technology. The South Bay – with its geographic proximity to the two largest ports in the country and military bases in Southern California, as well as its reputation as a heavyweight industrial manufacturing hub – is now bustling with increased activity. Half of all vehicles and satellites currently in space are manufactured in El Segundo.
Though startups in the South Bay make up less than half of all unicorn-valued companies in Los Angeles, they make up 88% of total unicorn value, per PitchBook data.
A report from Los Angeles County Economic Development Corporation showed that aerospace and defense sector in L.A. County – which encompasses several verticals like manufacturing, software, and engineering – added 11,000 jobs into the region between 2022 and 2024. In total, the industry has generated 58,700 jobs.
The industry still has a lot of ground to make up to reach its historic levels in the early 1990s. In June 1990 alone, there were about 132,000 jobs in the aerospace products and parts sector in county, based on figures from the state’s Employment Development Department.
Still, “L.A. really is unique, and a big part of it is the density of talent both from an engineer perspective and a technician perspective,” Kunjur said. “There are not many places where the talent pool is so deep to go off and build hardware and space companies the way we’re building. You combine that talent pool with capital coming in, and L.A. becomes a really interesting place to build an aerospace company.”
Keerthi Vedantam
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