Introduction
The shifting dynamics of global defense and national security strategies are being heavily influenced by rapid technological advancements, especially in unmanned aerial systems (UAS) and drones. As countries like China push forward with their advancements in defense technologies, including hypersonics, artificial intelligence (AI), and quantum computing, nations like the U.S. must determine how to adjust their military strategies to retain superiority. The debate between continuing to invest in manned fighter jets or transitioning toward drones has become central to modern military strategy.
As a venture capitalist (VC) with experience in both national security and defense sectors, this white paper examines the investment opportunities surrounding this transition, providing insight into where to invest and divest, taking into account long-term national security objectives, the challenge posed by China, sustainment costs, and the impact of emerging technologies such as hypersonics, AI, and quantum computing. The goal is to help investors understand how emerging technologies are reshaping tactics, operations, and strategy, and to provide actionable insights for the future of military investments.
The Venture Capital Mindset in Defense
Venture capitalists have a unique decision-making approach, which is crucial when evaluating long-term strategic investments in the defense sector. VCs are often willing to embrace failure as part of their strategy, understanding that the potential for one breakthrough technology can offset the losses from other shortcomings. This mindset allows for identifying high-risk, high-reward opportunities that large corporations or traditional defense contractors might overlook.
In defense, the venture mindset can be used to evaluate whether investing in manned fighter jets or drones is the smarter long-term play. Unlike traditional corporations, VCs focus on maximum optionality, enabling them to fund projects that could lead to disruptive innovations—even if the outcome is uncertain. This focus on optionality is essential when evaluating military technologies like drones, which have the potential to redefine modern combat strategies.
National Security Objectives and the China Factor
One of the most pressing national security objectives in the current geopolitical climate is countering China's rising influence and technological advancements. China has made substantial investments in AI, hypersonics, and quantum technologies, all of which can potentially disrupt the traditional balance of power in the air, on the ground, and at sea.
To ensure continued military and strategic dominance, the U.S. must focus on innovations that offer a technological edge over China. This is where drones and autonomous systems can play a crucial role. They offer cost-effective scalability, increased operational flexibility, and enhanced survivability in contested environments—areas where traditional manned systems are beginning to show limitations.
While manned fighter jets like the F-35 remain important for specific missions, drones offer significant advantages in countering threats like China's advanced air defense systems and hypersonic missile technology. Drones can be deployed more rapidly and at a fraction of the cost, providing a strategic advantage when facing adversaries with comparable technological capabilities.
Sustainment Costs: Manned Fighters vs. Drones
The cost of sustaining manned fighter jets like the F-35 is a crucial consideration when evaluating future investments. The F-35 program's lifetime sustainment costs are projected to exceed $1.7 trillion, with each aircraft requiring significant ongoing investments in maintenance, spare parts, and pilot training. This translates into an annual operating cost of around $6.6 million per jet, which is difficult to justify in an environment where cost-effectiveness is paramount.
In contrast, drones offer a more cost-effective solution. While high-end military drones like the MQ-9 Reaper can cost millions of dollars, their operational costs are far lower than those of manned aircraft. Low-cost drones, including commercial systems that can be militarized, offer a significant advantage in terms of affordability. These drones can be mass-produced, rapidly deployed, and easily replaced, offering the flexibility and scalability needed in modern combat scenarios.
Additionally, Target Arm's Tular system, a launch and recovery platform for UAVs, allows drones to be deployed from moving vehicles, increasing their operational flexibility and reducing dependency on fixed infrastructure. This innovative technology makes drones even more cost-effective by enhancing their mobility and survivability in contested environments. These capabilities make drones a highly attractive investment for future defense and security operations.
Maximum Optionality: Diversification of Capabilities
VCs typically focus on diversification—spreading capital across a range of high-potential opportunities to maximize the likelihood of success. Similarly, defense strategies should prioritize investments in systems that offer maximum optionality. This could involve developing drones, manned fighter jets, hypersonic missiles, and AI-driven technologies in parallel, allowing for the most flexible and adaptable military forces.
One example of maximizing optionality is integrating drones as "wingmen" for manned fighters. Drones can complement traditional fighter jets, extending their operational reach and capabilities while reducing costs and risk. For example, drones can conduct surveillance or provide close-air support, allowing manned fighters to focus on more complex missions. In this scenario, drones and manned aircraft enhance each other's capabilities, creating a more robust and effective air force.
Impact of Emerging Technologies: Hypersonics, AI, and Quantum
Emerging technologies like hypersonic missiles, AI, and quantum computing will play a pivotal role in shaping the future of warfare.
Hypersonic Weapons: These high-speed missiles, capable of traveling at speeds greater than Mach 5, will challenge traditional defense systems, including both manned and unmanned aircraft. However, drones, especially those integrated with hypersonic missiles, offer an advantage in speed and precision, as they can be deployed rapidly and at a fraction of the cost of manned aircraft.
Artificial Intelligence (AI): AI will revolutionize combat strategies by enabling drones to make autonomous decisions in real-time. AI-powered drones will enhance the effectiveness of military operations by adapting to rapidly changing battlefield conditions, making them essential in future defense strategies.
Quantum Computing: Quantum computing will profoundly impact military communication and data security. Drones equipped with quantum encryption technologies can operate securely in contested environments, where traditional communications may be intercepted or jammed by adversaries.
These technologies are expected to reshape tactics, operations, and overall defense strategies, making autonomous drones a central component of future warfare.
Investment Recommendations: Where to Invest and Where to Divest
In light of the long-term national security objectives, the rise of China as an adversary, and the growing importance of emerging technologies, venture capitalists should consider the following investments:
- Drones and Autonomous Systems: Focus on developing autonomous drones capable of performing a wide range of missions. This includes the investment in technologies like Tular for drone launch and recovery, AI for autonomous operations, and quantum encryption for secure communications.
- Hypersonic Weapons and Directed Energy Systems: Invest in hypersonic technologies and directed energy systems, which are expected to play a critical role in future warfare.
- AI and Machine Learning: Invest in companies developing AI technologies that can be integrated into drones, allowing for autonomous decision-making, enhanced targeting, and improved efficiency in military operations.
- Quantum Technologies: Given the increasing importance of cybersecurity in defense, investing in companies working on quantum encryption and secure communications systems will be crucial for maintaining operational security in a future dominated by drones.
On the other hand, while manned fighter jets like the F-35 will continue to be relevant in certain high-intensity combat scenarios, their high sustainment costs and vulnerabilities to emerging technologies suggest that long-term investments should focus on autonomous systems.
Conclusion
The future of warfare is rapidly shifting, with drones and autonomous systems playing an increasingly central role. Venture capitalists should embrace this shift, focusing on investment opportunities in drones, AI, hypersonic weapons, and quantum technologies. These innovations offer the potential to revolutionize modern combat by providing cost-effective, scalable, and adaptable solutions to national security challenges. By diversifying investments and maximizing optionality, the U.S. can maintain its strategic advantage in an era of rapid technological disruption.