Defense Tech - Only For The Braves

Oded Hermoni is a co-founder and Managing partner of J-Ventures VC group, which manages $100m. Oded is based in Silicon Valley and invested in over 70 companies, had over 25 exits and founded large unicorns in different industries. He is also one of the seed investors in Hidden Level, a leading Defense tech company which raised in 2024 $100m in two rounds. Oded led the Israeli VC and Tech industries and was a VC in Israel and US for over 20 years.

Recognizing Oded Hermoni’s extensive expertise in venture capital and defense tech at J-Ventures, this exclusive feature offers invaluable insights into the challenges of navigating the defense tech sector and strategies for overcoming political, regulatory and operational hurdles to achieve success in this high-stakes, rapidly evolving industry.

Defense tech is booming—or at least, the promise is. And when defense tech is booming, it’s usually a sign the world is veering off track: more wars, more fear and more conflict. There’s certainly a lot of money circulating in this sector, but it can be illusive as well.

For those who’ve been in venture capital long enough, it’s a déjà vu. Twenty-five years ago, the term was “Homeland Security.” In the aftermath of 9/11, companies flooded the space and investors rushed to declare it the next major wave. With the lure of huge government budgets and a global appetite for safety, many founders and VCs dove in. But for most, that wave crashed hard. Aside from a few standout names like Aeronautics, very few scaled and the hype faded.

Now, the game has a new name—“Defense Tech”—and the excitement has returned. This time, it comes with bolder headlines, bigger promises, and a more diverse crowd. Venture funds are pouring in, events are popping up and everyone seems to know someone launching a defense startup. But the question remains: have we learned anything from the last time?

Historically, wars have accelerated innovation. They shorten development cycles, clarify urgent needs, and open the floodgates of public funding. Today’s world is filled with triggers: the war in Ukraine, tensions in the Taiwan Strait and Israel’s multi-front conflict with Hamas and Hezbollah. The appetite for battlefield solutions is growing fast. Startups, investors, ex-generals, arms dealers and engineers are all circling this space, chasing opportunity.

Challenges and Opportunities in the Defense Tech Sector

But behind the excitement lies one of the most challenging sectors in tech. Government contracts may seem large and predictable, but the path to securing them is anything but. The defense world operates on politics, regulation and rigid hierarchies. For new entrants—especially startups—the barriers to entry are steep.

Militaries tend to prefer established vendors. No commander advances their career by choosing a risky, untested supplier over a legacy contractor. Procurement is slow, complicated, and often derailed by politics. Remember the first few months of the current U.S. administration? Several top commanders were sent home, reshaping priorities overnight. Budget allocations are influenced by defense departments, finance ministries and government leadership—none of whom move at startup speed.

Even if a startup wins a contract, the next challenge is execution. A company ready to produce 1,000 units may be asked to deliver one million—with little warning or ramp time. Scaling at that level, especially with fragile supply chains and modest funding, can be crushing. What validates a startup can also break it.

“Defense Tech Is Slow, Hard And Full Of Landmines—Literal And Figurative. It’s Only For The Braves—And That’s Exactly Why Only A Few Will Win”

Political volatility is a constant variable. Shifts in government or defense leadership can freeze deals, cancel tenders, or change entire program agendas. While commercial markets respond to demand, defense markets are influenced by elections, geopolitics and bureaucratic inertia.

Then there’s access. Israeli startups, for example, cannot sell directly to the U.S. military. They must go through American integrators or defense primes. The same is true in reverse—American companies rarely engage directly with the Israeli MOD or most European militaries. Across all markets, dominant players like Lockheed Martin, Booz Allen, Rafael, Elbit, and IAI act as gatekeepers. Startups must align with them or risk being completely locked out. It’s less a shark tank, more a scavenger arena.

IP protection is also a quiet but serious issue. Many defense startups avoid filing patents to prevent rival militaries from gaining access to sensitive technology. But that also makes them vulnerable to IP theft or corporate absorption. Larger players, with their political connections and deeper pockets, can quietly replicate a concept and shut smaller firms out.

But perhaps the biggest structural challenge is that the defense world is fundamentally misaligned with the venture capital model. VC thrives on exits—IPOs, M&A, secondaries. In defense, exits are difficult, delayed, or entirely blocked. Governments can restrict who a company sells to, veto acquisitions, or declare a technology a national asset. They can demand citizen-only leadership, impose security clearances, or nationalize critical assets outright. Suddenly, a venture-backed company looks more like a public utility than a tech startup.

Still, for those who make it through the gauntlet, the rewards can be massive. A startup that breaks in and scales can become a pillar of national defense—and deliver exceptional returns. But it’s rare. Success in this field demands more than capital. It takes deep operational resilience, long-term thinking, and navigation skills to work through systems built on secrecy, hierarchy, and state power.

Some models show promise. In Israel, Elron’s joint venture with Rafael via RDC offers a structured path for early-stage defense ventures. Funds like 10D and Team8 are tapping into their cybersecurity and mobility experience to enter defense more thoughtfully. Startups addressing adjacent markets— like infrastructure protection, water safety and AI-driven threat intelligence—may find more flexible entry points with dual-use applicability.

But the current buzz—driven by retired generals, defense contractors-turned-founders, and overenthusiastic media— is setting unrealistic expectations. Defense tech is not the next gold rush. It’s not crypto, and it’s not SaaS. It’s slow, hard and full of landmines—literal and figurative.

Investors should take note: the danger is not only in overestimating the opportunity. It’s in underestimating the system itself. Defense tech is only for the braves—and that’s exactly why only a few will win.