In early June, at the SmallSat Symposium, a panel issued a sobering warning to startups: do not chase defense dollars at the expense of long-term sustainability. Why? Because companies, particularly in the space sector, may be tempted to prioritize profits over producing valuable products and services with broader, longer-term applications. It is, of course, true that any company should be wary of ‘leaning in’ too closely into what seem like fads. But the warning overlooks an important reality: the shift towards defense investing is not a trend. It’s a transformation in space and space investment, and one that will have positive—albeit unintended—consequences.
Across the space sector, there has been a noticeable shift toward focusing on pure defense investing. Companies that once prioritized commercial applications or, at most, maintained dual-use business models are now making full-scale pivots to defense. That move isn’t random. It’s the product of geopolitical changes, such as the ongoing conflict in Ukraine, and a widespread perception that the world is undergoing a significant transformation. As Michael Gove, who served in the Cabinets of four British prime ministers, put it recently: ‘The ideal of a rules-based international order, where multilateral institutions restrain states pursuing their self-interest, has proved to be a false hope…we are back to a world closer to that of Thucydides in which the strong do what they can and the weak suffer what they must.’
The change is also happening at the public sector level. In 2024, global government expenditure on space programs surged to $135 billion—up 10% from the previous year. The primary driver was rising defense budgets. A recent Bruegel report concluded that without the United States’ support, “Europe could need 300,000 more troops and an annual defense spending hike of at least €250 billion” to keep the continent safe. Governments worldwide have been investing in space-based defense technology, recognizing that the sector is the cornerstone of any modern military.
One of the unintended yet highly beneficial consequences of this shift among startups is its impact on the private space sector. Increased defense investment is breathing new life into aerospace and deep-tech innovation. Companies that previously struggled to secure commercial funding are now benefiting from sustained government investment, allowing them to work on cutting-edge technologies. These include (among many others) optical communications, necessary for secure and high-speed space-based data transmission; Earth observation, essential for climate monitoring, disaster response, and resource management; and synthetic aperture radar (SAR), which enables all-weather, day-and-night imaging capabilities with high precision.
Despite the opportunities that await here, moving from purely commercial to defense markets is not without its hurdles. Startups can face significant challenges. Government contracts often come with delayed payments and lengthy procurement cycles, creating cash flow issues for smaller firms that lack financial reserves. Defense-related technologies are subject to stringent export controls and compliance requirements, heaping bureaucratic burdens on startups that many are ill-equipped to bear.
But for those companies that make the pivot successfully, the rewards far outweigh these obstacles. Defense funding provides long-term stability and a runway for companies to develop world-class technology that may later be commercialized in other sectors. In other words, to pivot into space doesn’t necessarily mean leaving behind the commercial world.
Some startups are making full-blown pivots to defense, but the real sweet spot remains in the world of dual-use technology—those innovations that serve both commercial and defense markets. Companies that maintain this balance benefit from diverse revenue streams, greater resilience to market fluctuations, and the ability to shift emphasis as commercial demand evolves.
The success of this dual-use approach is evident in the companies that have seamlessly integrated their offerings across various sectors. Take the SAR satellite company ICEYE, whose data is used in flood response, maritime activity monitoring, and conflict zones, such as Ukraine. Or FibreCoat, whose advanced materials protect satellites from the harsh conditions of space, regardless of their intended use.
As I’ve suggested, given the scale of government investment, as well as the ongoing volatility in the broader geopolitical landscape, it’s doubtful that the present shift in focus towards defense is merely a fad. A new world order is in place, and national security considerations will continue to play a defining role in geopolitics for years to come.
The space sector should aim for a balanced ecosystem where defense and commercial activities support each other. The current surge in defense spending is helping to accelerate technological innovation, funding infrastructure that will ultimately benefit the commercial sector. As companies continue to develop dual-use applications, they can ensure that the innovations sparked by defense priorities also drive broader commercial progress.
That’s good news because space touches almost every area of modern life. It’s the backbone of the world economy. It plays a vital role in navigation, communication, connectivity, and sustainability. The space economy is projected to reach $1.8 trillion by 2035, according to a report by McKinsey and the World Economic Forum. We may well be entering a new golden age for the industry, one in which entrepreneurs have access to more capital, investors are more willing to back high-risk ventures, and technology development is progressing at an unprecedented pace.
If companies can navigate the challenges of defense contracting while remaining mindful of the broader commercial applications of their products, the entire space ecosystem stands to benefit. For startups, the key will be balancing short-term defense opportunities with long-term strategic growth, so ensuring that today’s pivot does not become tomorrow’s dead end. But if the evolution towards more significant defense investment is managed wisely by all involved parties, it could propel the space industry into its most vibrant era yet.
Bogdan Gogulan is C.E.O. and Managing Partner of NewSpace Capital
