Diversification is one of the golden rules of investing. That’s why, at GoHub Ventures, we used the 2024 edition of our Founders Day as an opportunity to explore industries like defense that, until recently, might have seemed distant from the typical focus of a tech-oriented venture capital firm.
When we think of defense, weaponry often comes to mind. However, this industry encompasses a wide array of subsectors beyond the development of conventional arms. These are the areas that truly interest us and ignite our curiosity. After all, the Internet itself began as a military communication project before evolving into the vast global cyberspace we know today.
Far from Weaponry: VCs on Defense Tech
Tech venture capitalists’ interest in the defense industry focuses on technological innovations with dual-use applications that transcend the military. Here are some prominent areas drawing attention:
- Cybersecurity: In today’s hyperconnected world, every networked device becomes a potential vulnerability for hackers. Innovations in threat detection, encryption, and network resilience are essential for both military operations and civilian applications.
- Drones and Autonomous Mobility Systems: Unmanned vehicles, whether aerial, terrestrial, or maritime, are increasingly prevalent. Beyond their military uses, these systems have applications in surveillance, logistics, agriculture, and even passenger transport.
- Satellites and Communications: Satellite technology exemplifies how defense innovations impact civilian life. Initially designed for military applications like cartography, surveillance, and secure communications, satellites now enhance GPS navigation, enable early warning systems for natural disasters, and fuel a new era of space exploration.
- Artificial Intelligence and Data Analytics: AI is reshaping every industry, and defense is no exception. For instance, China reportedly used an open-source AI model from Meta to develop a military-focused tool for intelligence gathering and operational decision-making. Strategic automation, scenario simulations, and predictive analytics have potential applications beyond defense, influencing industries such as healthcare and automotive.
The Geopolitics of Technology
As investors, it is crucial to stay attuned to advancements in technology that bridge the gap between military innovation and civilian applications. By focusing on solutions that transcend purely military uses, we can support technologies with the potential to address broader societal challenges.
To expand our knowledge and spark curiosity, we invited a key thought leader in the defense sector, José Ignacio Torreblanca, Head of the Madrid Office at the European Council on Foreign Relations (ECFR), to speak at GoHub Ventures Founders Day 2024.
Through his keynote, The Geopolitics of Technology, we gained critical insights into:
- The potential for conflict between the United States and China.
- The motivations behind China’s expanding imperial ambitions.
- Europe’s strategic role in this complex and evolving global dynamic.
- Why natural resources critical to technology, such as rare earths, have become the “new gold rush.”
Here are the key takeaways from this enlightening session.
United States vs China: Destined for War?
Throughout history, great powers have often clashed as they sought to expand their spheres of influence, leading to prolonged tensions and, in many cases, armed conflicts.
A notable example is the Cold War, where the United States and the Soviet Union engaged in a decades-long rivalry that spanned military, nuclear, and space races. Although the two superpowers avoided direct conflict, much of their competition was driven by the fear of potential aggression from the other side, creating a self-perpetuating cycle of escalation.
This dynamic is encapsulated in the concept of the Thucydides Trap, which derives from the ancient historian Thucydides’ observation about the Peloponnesian War: “It was the rise of Athens and the fear that this instilled in Sparta that made war inevitable.” The theory suggests that when a rising power threatens to displace an established one, tensions are likely to lead to conflict.
Today, the West finds itself in a similarly precarious position with China as the new emerging actor. Beijing’s growing economic and military power, combined with its assertive foreign policy, challenges the dominance of the United States and its allies. This has led to heightened competition in areas like technology, trade, and military advancements, echoing the dynamics of past power struggles.
The critical question is whether the current US-China rivalry can avoid falling into the Thucydides Trap through diplomacy, mutual restraint, and global cooperation, or whether it will escalate into a new form of cold or even open conflict.
Europe’s Tipping Point: from Neutrality to Action
Russia’s invasion of Ukraine has marked a significant shift in decades of European diplomacy, characterized by relative neutrality and restrained defense spending. The conflict, now surpassing 1,000 days, has prompted Europe to rethink its stance on military involvement and drastically increase its defense expenditures.
European nations have collectively boosted their defense budgets, with countries like Germany committing to a historic €100 billion investment in modernizing its armed forces or Finland joining NATO.
NATO allies have also met or surpassed the 2% GDP spending target, signaling a clear departure from prior hesitation to prioritize military readiness.
However, as Torreblanca explained during his keynote, while EU catches up on military spending it also has to navigate other dilemmas:
- Super-regulation vs. Innovation: The bloc’s strong regulatory framework often stifles competitiveness. However, fostering industrial ecosystems and competitive markets is essential to bridge this gap.
- Economic Security: As technological relations become weaponized, Europe must balance openness with strategic autonomy.
- Global Influence: Standards-setting in AI, 5G, and cybersecurity has become a critical area where Europe could assert its values globally.
A New ‘Gold Rush’ on Natural Resources
Another lesson learned during our expert chat is that technology-related dependencies are reshaping global alliances. Europe and other regions are highly reliant on:
- Rare Earths: Essential for high-tech industries.
- Submarine Cables: These infrastructures carry 97% of internet traffic and $10 trillion in daily transactions. China’s increasing role in undersea cables threatens Europe’s digital sovereignty. Latest news involve possible sabotage on internet cables at the Baltic Sea.
- Data Centers and Cloud Infrastructure: Chinese and US firms dominate, limiting Europe’s capacity for technological self-determination.
Also, regions in the Global South and Latin America are critical yet underrepresented in the digital age. China’s significant investment in Latin America, particularly in minerals and infrastructure, contrasts with Europe’s limited engagement.
Conclusion: A Surge in Opportunity
The evolving global landscape has catalyzed a momentum in defense spending, driven by the imperative for countries to anticipate and prepare for a broad spectrum of threats. This unprecedented focus on prevention and readiness not only addresses immediate security concerns but also fosters innovation across various technological domains.
For venture capitalists like GoHub Ventures, this creates a fertile ground for supporting startups that develop solutions with dual-use potential, military applications that carry over into civilian life, such as our most recent investment, XRF. From autonomous drones revolutionizing logistics to quantum security enhancing data integrity, the possibilities for crossover impact are vast. By investing in these technologies, we have the opportunity to contribute to safer, more resilient societies while unlocking transformative innovations for everyday use.
