The digital frontier of deterrence
Venture capitalists are speaking about cybersecurity with the kind of conviction once reserved for semiconductors or aerospace. As the global defence sector enters a new expansionary phase, the boundary between military and digital security is dissolving fast. From Washington to Tel Aviv to London, investors are positioning themselves for what they increasingly regard as a once-in-a-generation opportunity — a defence boom led not by hardware, but by code.
The shift reflects both geopolitical reality and economic logic. The wars in Ukraine and the Middle East, together with rising tensions between the US and China, have set off a global rearmament. But the front lines are no longer only physical. Cyber warfare has become a defining feature of modern conflict, and governments are pouring money into shoring up their digital defences. To investors, the message is simple: the next great industrial cycle may be fought in cyberspace, and the private sector will build much of the arsenal.
Silicon Valley rediscovers defence
In Silicon Valley, firms that once specialised in consumer software are refocusing on “dual-use” technologies — tools that can serve both civilian and military purposes. Cybersecurity sits at the centre of this pivot. It promises not just government contracts but also the commercial scale and recurring revenue streams that venture investors prize. As one US-based partner put it recently, “Cyber is the only part of defence that behaves like software. You can’t build tanks overnight, but you can ship updates globally.”
Startups that once pitched to banks or cloud providers are now courting defence contractors and intelligence agencies. In Europe, NATO’s renewed focus on cyber readiness has opened the door to companies specialising in threat intelligence and digital infrastructure resilience. In the US, the Pentagon’s Defence Innovation Unit and the CIA-backed In-Q-Tel have become conduits for venture-backed firms to test and deploy new technologies. Israel, long regarded as the crucible of cyber innovation, remains both a model and a magnet for investors hoping to back entrepreneurs with frontline experience.
The irresistible logic of digital defence
The attraction is structural. Cyber capabilities are relatively inexpensive to develop but have become central to national power. Meanwhile, much of the infrastructure that governments rely on — from energy grids to financial networks — sits in private hands. Protecting it requires constant collaboration between state and industry, and that interdependence makes cybersecurity spending remarkably durable.
The numbers reinforce the story. Global cybersecurity expenditure is on track to surpass half a trillion dollars annually within a few years, with defence-related projects claiming an ever-larger share. After a slump during the 2023 technology downturn, funding for cyber ventures has begun to rebound. Dedicated “defence tech” funds are being launched on both sides of the Atlantic, while traditional firms quietly earmark capital for the sector. The mood is notably more measured than in previous hype cycles: investors see an arms race, not a speculative bubble.
From hardware to hybrid warfare
The most promising opportunities, VCs argue, lie where cyber and physical defence converge. AI-driven threat detection, autonomous response systems, encrypted battlefield communications, and software that hardens critical infrastructure are all attracting investment. Modern militaries run on code, from logistics to targeting, and each new digital layer broadens the attack surface. The more connected the arsenal, the more crucial its protection.
Investors now talk of “security by design” — a principle that sees cyber protection built into every piece of hardware and every process. It is both a strategic necessity and an investment thesis. As one European investor remarked, “The next generation of defence platforms will be born cyber-native. It’s not a feature; it’s the architecture.”
A new kind of safe haven
The appeal of the sector also lies in its relative insulation from economic cycles. While consumer tech remains exposed to advertising budgets and interest rates, defence and cybersecurity spending are driven by state priorities. Governments do not cut such budgets in recessions; crises usually justify increases. That stability is drawing not only US capital but also European sovereign funds and Asian investors keen to align with Western defence ecosystems.
This has created a quiet remilitarisation of venture capital. Funds that once avoided association with defence are reframing it as a national resilience play — essential to energy, communications, and industrial continuity. For limited partners wary of political controversy, “cyber” provides a softer entry point than lethal hardware. The sector can be cast as protective rather than offensive, as infrastructure rather than armament.
Ethical friction and market reality
Yet the enthusiasm is not without unease. The line between commercial and military application is thin, and investors must navigate export controls, dual-use regulations and ethical debates over surveillance technologies. Some fear being drawn into geopolitical flashpoints, particularly as US-China rivalry intensifies. Others note that valuations in the space have begun to stretch, with dozens of startups competing for the same government contracts.
Veterans of previous booms warn against mistaking urgency for opportunity. “Cybersecurity is a trust business as much as a tech business,” one London investor said. “You can’t just iterate your way into national defence.”
Building digital deterrence
Few, however, doubt the long-term trajectory. Each wave of cyberattacks — on pipelines, hospitals, satellites or election systems — reinforces the perception that digital resilience is synonymous with sovereignty. Policymakers now speak of “digital deterrence” alongside nuclear and conventional deterrence. For venture capitalists, the implication is that cybersecurity has become a pillar of modern statecraft — and, by extension, a core growth market.
In Europe, funds are aligning with government programmes aimed at developing sovereign defence capabilities, with cyber presented as the most exportable and politically neutral component. In Washington, the sector is being recast as critical infrastructure, no less essential than energy or transportation. Tel Aviv continues to serve as the template for how private innovation and national security can coexist, with foreign investors competing to back alumni of elite cyber units.
The new industrial cycle
The parallels to the early internet are striking. Then, too, investors sensed a technological shift before they fully grasped its consequences. Today, they see cybersecurity as the scaffolding of a connected, contested world — the layer on which both commerce and conflict will depend.
Cynics might call this a rebranding of the old military-industrial complex. Proponents prefer to think of it as a necessary adaptation to a digital age. Either way, venture capital is moving decisively into the defence arena, and cybersecurity is leading the charge. The investors may not build the weapons, but they are financing the shields — and in an era where power is measured in lines of code as much as in battalions, those shields could prove the most valuable assets of all.
