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Y Combinator, the San Francisco start-up incubator that launched Airbnb, Reddit, Stripe and Coinbase, is backing a weapons company for the first time, entering a sector it has previously shunned.
Ares Industries, which launched last week, has pitched its “low-cost cruise missiles” as suited for use in a potential war between the US and China in the Taiwan Strait. The start-up claims that US weapons stockpiles would be exhausted within weeks in such a conflict, and that “recent conflicts in the Middle East and Ukraine have shown that our weapons are too large, too expensive for the wars of today”.
Ares’ founders, Alex Tseng and Devan Plantamura, say their $300,000 anti-ship cruise missiles “will be 10x smaller and 10x cheaper” than today’s alternatives. On the YC website, Tseng’s biography consists of a single sentence: “Missiles are cool.”
The pair did not respond to a request for comment.
Underwriting weapons is a departure for Y Combinator, a finishing school for founders that has become one of Silicon Valley’ pillars over its 19-year history. YC has historically backed software start-ups, ecommerce businesses and financial technology companies.
Against the backdrop of conflict in Europe and the Middle East, technology investors have ditched red lines against investment in military hardware. They have also been encouraged by the emergence of a crop of fast-growing companies that want to update America’s armoury in return for a slice of an annual defence budget of roughly $800bn.
The US defence industry is dominated by an oligopoly of contractors such as Raytheon and Boeing that receive an overwhelming majority of government contracts.
Anduril Industries, the most prominent defence tech start-up, raised $1.5bn this month to accelerate the production of autonomous weapons for the US military and its allies. That investment was led by Peter Thiel’s Founders Fund, one of the first big venture capital firm to embrace defence technology.
Since then, venture investment has flooded in from mainstream companies such as Andreessen Horowitz and General Catalyst. In the past year, Sequoia Capital, one of Silicon Valley’s pre-eminent firms, made its first investments in defence and weapons. It backed Mach Industries, which makes hydrogen weapons, and Neros, a drone-maker aiming to boost the supply of quadcopters to Ukraine for use in data gathering, mine clearing and offensive missions.
There is “a very interesting situation where geopolitical heat and the end of zero-interest rate policies have made people become more pragmatic,” said the founder of one start-up that was in the same group of YC-funded companies as Ares. The response to the weapons company among other founders in the group had been positive, they added. “People support builders doing cool, hard stuff.”
Rather than building massive, complex weapons systems, the start-ups are focused on cheaper weapons and drones that can be produced quickly at scale. Anduril’s new funds will go towards a network of weapons factories which the company says will adopt the manufacturing techniques used by Tesla to boost production.
Jared Friedman, a partner at YC, said the company started actively encouraging defence tech start-ups to apply earlier this year. “Why now? It’s not that we wouldn’t have funded this earlier, but simply that this is the first time that a great company like this applied,” he said.
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