National Security Sector Overview
High-growth. High-return. Mission-driven.
The national security (natsec) sector has consistently outperformed most others, delivering outsize multiples to investors and significant revenue and valuation boosts to early-stage entrants.
NatSec Sector Overview
The natsec sector consists of hardware and software technologies primarily for aerospace, defense, and intelligence. Given the specific use cases for these capabilities, their distinct customers, and the legal and regulatory considerations that govern their users and applications, companies building for natsec require characteristic product, go-to-market, and talent strategies to ensure success.
Investing in or entering natsec similarly requires familiarity with the dynamics of the industry and its use cases to evaluate the viability of an investment or opportunity. Though it may seem like a Gordian knot of complexity, natsec is not only economically fruitful, it is also a uniquely purposeful area that drives the most valuable return of all: our way of life.
Sector Priorities & Trends
Defense Spending
$842B (2024) → $922B (2038)
Global military spending hit $2.4T in 2023 (+6.8%)
Drivers: China focus, Ukraine war, NATO 2% commitments
Space
$415B (2024) → $1T by 2032
71% of global space economy, 2,700 satellites launched (2024)
Drivers: SpaceX dominance, Starlink, defense satellite demand
AI/ML
$28B (2025) → $65B by 2034
$1.8B DoD AI budget (2024), JADC2 deployment
Drivers: Autonomous systems, predictive maintenance, cyber defense
Quantum
$950M US vs $15B China investment
Q-Day threat by 2025-2035, PQC standards released Aug 2024
Drivers: Cryptography arms race, quantum sensing, navigation
Cyber
$39B (2024) → $97B by 2034
CMMC 2.0 mandates, 55% orgs hit by incidents
Drivers: Zero-trust, ransomware, supply chain security
Chips
$6.8B (2024) → $11.4B by 2032
CHIPS Act $52B, 92% advanced chips from Taiwan
Drivers: Supply chain resilience, AI chips, radiation-hardened ICs
Critical Applications & Use Cases
JADC2 & Decision Advantage ↑↑
Joint All-Domain Command & Control needs AI to connect sensors-to-shooters. Predictive maintenance saves $90B annually. Combat simulations vs China/Russia.
Post-Quantum Cryptography ↑↑↑
NIST PQC standards Aug 2024. NSA mandates quantum-resistant algorithms by 2035. "Harvest now, decrypt later" threat to all current encryption.
AI Chip Arms Race ↑↑
7nm-5nm chips needed for defense AI (TSMC Arizona fab). Intel 10nm FPGAs trail China by one generation. "1000x efficiency = 26 years Moore's Law".
Supply Chain Vulnerability ↑
Russia scrapped appliance chips during Ukraine invasion. $49B for advanced packaging. Taiwan dependency is critical national security risk.
Military Satellites & ISR ↑
DoD relies on commercial LEO constellations (Starlink) for tactical comms. Space Force GPS-3F satellites. Proliferated architecture replacing big GEO birds.
Autonomous Satellites ↑↑
On-board AI for collision avoidance, threat detection. 800+ remote sensing satellites use ML for real-time analysis. SpaceX 83% of commercial launches.
JADC2 & Decision Advantage ↑↑
Joint All-Domain Command & Control needs AI to connect sensors-to-shooters. Predictive maintenance saves $90B annually. Combat simulations vs China/Russia.
Post-Quantum Cryptography ↑↑↑
NIST PQC standards Aug 2024. NSA mandates quantum-resistant algorithms by 2035. "Harvest now, decrypt later" threat to all current encryption.
AI Chip Arms Race ↑↑
7nm-5nm chips needed for defense AI (TSMC Arizona fab). Intel 10nm FPGAs trail China by one generation. "1000x efficiency = 26 years Moore's Law".
Supply Chain Vulnerability ↑
Russia scrapped appliance chips during Ukraine invasion. $49B for advanced packaging. Taiwan dependency is critical national security risk.
Military Satellites & ISR ↑
DoD relies on commercial LEO constellations (Starlink) for tactical comms. Space Force GPS-3F satellites. Proliferated architecture replacing big GEO birds.
Autonomous Satellites ↑↑
On-board AI for collision avoidance, threat detection. 800+ remote sensing satellites use ML for real-time analysis. SpaceX 83% of commercial launches.
Emerging Considerations
Commercial Space Dominance
71% of global space economy is now commercial, yet militaries increasingly rely on it for tactical communications.
Quantum Asymmetry
China invested $15B vs US $950M, creating encryption threat where quantum could break all current security by 2025-2035.
Chip Geopolitics
Taiwan manufactures 92% of advanced chips. More efficient AI chips = years' worth of Moore's Law in accelerated military capabilities.
Cyber Economics
Defense cybersecurity spending – now $39B – to grow ~3x by 2034. CMMC 2.0 obligated entire defense supply chain to upgrade security.
Sector Performance
Defense technology is experiencing an upward inflection, rooted in private sector innovation, that we haven’t seen since the Cold War. The difference today, however, is the surge of national security startups driving that innovation with each one presenting potential investment opportunity.
Traditional procurement cycles are giving way to rapid acquisition as the Pentagon and other federal agencies emphasize commercial solutions, giving startups unprecedented direct access to defense, intelligence, and other government customers. For investors, this represents a rare opportunity to capitalize on a combination of strong fundamentals, policy tailwinds, and urgent national need.
Ready to Explore NatSec Opportunities?
Passway supports angels, VCs, and family offices to navigate the national security sector with confidence. From pre-investment diligence to deal flow and market analysis, we provide the expertise you need to make informed decisions in this growing space.