Why we believe in defense

Published by Nathan Benaich and Alex Chalmers on 18 October 2023.

Our investment in Lambda Automata, the defense tech ecosystem, and why investors have a responsibility to act

AI is the one of the most powerful force-multipliers on technological progress in human history. It is already beginning to reshape everything from the way we conduct scientific research, automate day-to-day business processes and discover new medicines. We’ve backed ambitious founders working in all of these fields as part of a thriving venture ecosystem.

At the same time, there are certain challenges that have not attracted the same enthusiasm from investors. When there are powerful currents driving a new “why now”, we pay great attention and seek to find opportunities to invest in these themes.

The defense tech ecosystem, while growing, remains small. Rare blockbuster rounds disguise a sector that globally receives in the low hundreds of millions in venture backing every year. This is despite defense being one of the largest recipients of government dollars and the opportunities to apply AI clear and plentiful.

We believe that there are two main forces at work.

Firstly, ethical concerns from investors and some LPs. While anything involving matters of life-and-death is inevitably challenging, the nature of nation state conflicts is changing - whether or not financial institutions are comfortable with it.

We can either shape that change by backing mission-driven founders building robust, ethical technology, or we can opt to vacate the pitch and leave these decisions to those who don’t share our values or our squeamishness.

Beyond the pragmatic case, we unapologetically believe in the right of democracies to defend themselves. It isn’t the West’s expressions of solidarity that have supported the Ukrainians’ heroic defense of their country - it’s money, equipment and new technologies. Democracy isn’t sustained by good vibes and freedom doesn’t come for free.

A year and half after the Russian invasion of Ukraine, last weekend saw Hamas terrorists inflict the single deadliest day for Jews since the Holocaust. These horrific onslaughts, along with escalating tensions in other parts of the world, should remind us that conflict is not a distant phenomenon that comes with an opt-out option.

Secondly, defense challengers operate in a marketplace designed for the kinds of tanks and ships we see Ukrainian drones picking off from the sky. Many investors understandably worry about the ability of companies to break into this space and build sustainable businesses, rather than stay on the perpetual life support of government grant cycles.

It is precisely because it has been so challenging that we believe that there is opportunity. It is both urgent and inevitable that we narrow the gap between technology in national security and the private sector, especially as it relates to AI. We believe that by supporting great founders, working with those inside the system pushing for change, and partnering with the growing coalition of US and European investors who share our outlook - change is possible.

We also believe that action and financial commitment speak louder than words.

In 2021, we backed the team at Modern Intelligence. Based in the US, the company is building AI-powered software that fuses information about targets from different sensors into a clear picture to support informed and rapid decision-making. They do this at high levels of precision, with low compute and training data requirements, and without the integration and platform lock-in nightmares that accompany traditional solutions.

Today, we’re proud to lead the seed round for Lambda Automata, a UK/Greece-based team, building AI-first software and hardware designed to move transform ISTAR (intelligence, surveillance, target acquisition, and reconnaissance) in the data-driven age, from a cumbersome manual sequence to an automated process. Their first product, an autonomous surveillance tower, is already being used by the government for forest protection in Greece, while other use-cases explored include coastal monitoring, and land border surveillance. All from a standing start just a year ago.

Dimitrios, Lambda’s founder and CEO, left a senior role at Apple’s Special Projects Group to focus his energy and talent on the task of building a European defense challenger. He knew that it would involve embracing a significantly harder and riskier life. When we talk about European Dynamism at Air Street, we are envisaging a financial, political, and cultural climate that values and rewards that kind of mission-driven entrepreneurship.

While we undoubtedly face an uphill struggle, especially in Europe, we realize we are far from alone. Our friend Eric Slesinger, the founder of 201 Ventures, for example, is playing a crucial role in convening motivated European investors who want to inject much-needed life and capital into the defense tech scene. We believe that the ecosystem may be approaching a tipping point, and we hope others join us on this journey.

In the meantime, if you’re a founder in this space - whether you’re still working through your initial idea or are actively raising - we would love to hear from you.