Invest in the Next Lockheed Martin

Invest in the next Lockheed Martin

Eric Newcomer, one of the leading tech and startup journalists, conducted a survey of companies that 91 of the most respected VCs wish they had invested in. While some of the companies listed are well-known names, like SpaceX and OpenAI, the third spot falls to a relatively lesser-known company, Anduril. Even more surprising is that while most of the companies focus on consumer applications (like OpenAI) or accelerating enterprise (like Databricks), Anduril is a defense-tech company.

How is it that a defense company became the envy of the most well-respected, forward-looking investors?

Since the rise of the silicon wafer, Silicon Valley has been synonymous with solving the world’s most cutting-edge problems—building computers, software, and robots with robust applications used globally. But one sector that has seen little disruption is the military.

This absence left the U.S. government dependent on traditional defense contractors, known for producing critical technologies at an unhurried pace. Enter Anduril. Just as SpaceX transformed NASA and the space industry, Anduril is poised to disrupt the defense sector. Unlike OpenAI, which competes against trillion-dollar tech giants like Google and Microsoft, Anduril’s rivals are legacy contractors who have long operated without serious competition.

Anduril’s rise coincides with a pivotal moment. The world is grappling with escalating geopolitical tensions and increasing risks of large-scale warfare. As a result, the U.S. government has intensified investments in defense technology. This convergence of need and innovation is Anduril’s sweet spot.

Anduril has flipped the script on what it means to be a defense contractor in the modern era. By bringing Silicon Valley’s speed and innovation to a historically slow-moving industry, it has positioned itself as a potential leader in shaping the future of warfare. Investors and analysts alike are watching closely as Anduril redefines what’s possible in defense technology.

Traction

Anduril’s growth trajectory is nothing short of remarkable for a startup in the defense sector.

2017

Anduril is founded by Palmer Luckey, Brian Schimpf, and Trae Stephens. The company secures its first contract: a $12.5M deal with the U.S. Marine Corps for autonomous systems, just one year after its inception.

2020

Wins a $1B System Integrator Partner (SIP) contract with the Department of Defense—its first ACAT I contract, the largest category of military acquisitions. This major milestone establishes Anduril as a serious competitor to legacy defense contractors.

2021

Revenue hits $150M, driven by new contracts and product deployments across U.S. military branches and border security initiatives.

2022

• Revenue grows to $236M (+57% year-over-year).

• Secures a $250M Customs and Border Protection contract, deploying over 176 sentry towers to monitor the U.S.-Mexico border.

2023

• Revenue soars to $420M (+78% year-over-year), with $670M in new government contracts—a 50% increase from 2022.

• Key contracts include counter-drone and border security solutions, as well as international deals with allies like Australia and the U.K.

2024 (Projected)

• Revenue is expected to surpass $1B, fueled by growing demand for Anduril’s AI-driven and autonomous systems.

• Gross margins are forecasted to increase to 45%, showcasing the efficiency of its innovative business model.

Cash Reserves

With $750M in cash on hand as of Q1 2024, Anduril is well-equipped to fund its ambitious R&D pipeline and expand globally.

Business Model

Traditional defense contractors rely on "cost-plus" contracts, where the government covers all expenses and adds a small profit margin. This approach limits innovation and keeps margins low (8-10%). Anduril flips this outdated model on its head.

Instead of waiting for government contracts, Anduril invests its own money upfront in research and development (R&D). By the time they approach the Department of Defense (DoD) or other clients, they already have fully-developed, cutting-edge products ready to deploy. This allows them to avoid bureaucratic delays and deliver faster, more innovative solutions.

How It Works:

1. Fixed Pricing: Unlike traditional contractors, Anduril sells its products at firm, fixed prices. This approach enables gross margins of 40-45%, far above the industry norm.

2. Integrated Ecosystem: At the center of Anduril’s offering is Lattice, an AI-powered software platform. Lattice integrates seamlessly with Anduril’s hardware—like drones, counter-drone systems, and underwater vehicles—creating a comprehensive defense solution.

3. Cross-Selling Opportunities: Customers who adopt Lattice can enhance their capabilities by adding Anduril hardware, such as Sentry Towers for border security or Ghost drones for surveillance.

This combination of software and hardware creates a "sticky" ecosystem that encourages customers to keep coming back for upgrades and expansions.

Why It’s Different

By taking on the R&D risk upfront, Anduril bypasses the slow government contracting process, allowing it to innovate faster than legacy competitors. The company also ensures its products remain cutting-edge by offering regular software updates—keeping clients ahead of emerging threats without the need to replace hardware.

Opportunity

The defense sector is undergoing a seismic shift, driven by the increasing importance of AI, autonomy, and real-time data in modern warfare. Anduril is perfectly positioned to capitalize on this transformation, making it a compelling investment opportunity.

Massive Market Potential

• U.S. Defense Spending: In 2022, the Department of Defense allocated $727 billion, with over $1.7 billion specifically for autonomous technologies. The U.S. military’s annual investments in AI and autonomy programs average $5.2 billion, creating a fertile ground for Anduril's offerings.

• Global Defense Budgets: When combined, NATO countries allocate over $1 trillion annually to defense. This global market presents enormous opportunities for Anduril to expand its reach.

• Beyond Defense: Anduril also serves commercial sectors like critical infrastructure (e.g., pipelines, airports), where its technology can prevent threats and ensure operational security.

Revenue Explosion

• 2023 Performance: Revenue skyrocketed to $420M, up 78% year-over-year, thanks to $670M in new government contracts.

• 2024 Projections: Revenue is expected to exceed $1B, more than doubling in two years. Gross margins are forecast to improve to 45%, signaling the strength of Anduril’s business model.

Valuation and Investor Demand

• Current Valuation: Anduril is valued at $14 billion as of its Series F funding round in 2024. This reflects a 14x revenue multiple based on 2024 projections, underscoring its high-growth potential.

• Strong Backing: Anduril has raised $3.76 billion to date, with participation from leading investors like Founders Fund, Fidelity Management, and Baillie Gifford. Its $750M in cash reserves as of Q1 2024 provides ample runway for continued innovation and expansion.

Competitive Edge

• Faster Innovation: Unlike legacy contractors, Anduril develops its products upfront, enabling quicker deployment and adaptation to emerging threats.

• Integrated Ecosystem: Anduril’s Lattice software ties together its hardware products, such as drones and counter-drone systems, creating a seamless, real-time defense solution.

• Gross Margin Advantage: At 40-45%, Anduril’s margins far outpace the industry average of 8-10%, reflecting the efficiency of its fixed-price, product-centric model.

Competition

The defense industry has enjoyed consistent market growth, with no negative ten-year period since 1963. Yet, this success is not due to exceptional products delivered at speed. Instead, it stems from a highly consolidated market with minimal competition, leaving the U.S. military reliant on a handful of legacy contractors. Two-thirds of major Department of Defense contracts receive only one bidder, and fewer than 10% attract three or more offers.

Anduril’s competition includes entrenched players like Lockheed Martin and Raytheon, which leverage decades-long relationships and lobbying power to secure contracts. Despite their dominance, these companies often lack the technical expertise needed to innovate in areas like AI and autonomy. Anduril’s ability to deliver cutting-edge solutions positions it as a key challenger in this stagnant space.

Beyond legacy contractors, Anduril faces competition from startups like Rebellion Defense and Shield AI. Rebellion focuses solely on battlefield software, while Shield AI offers autonomous piloting systems and drones. However, Anduril’s integrated approach—combining hardware and software—provides a more comprehensive solution, setting it apart.

Crucially, competition from like-minded startups accelerates the defense sector’s shift toward software and autonomy. This trend benefits Anduril, as the U.S. government increasingly prioritizes innovation to maintain military dominance.

Valuation and Investor Growth

Anduril has raised capital from some of the most prominent VC funds in the world, including the acclaimed Founders Fund and Andreessen Horowitz. What sets this backing apart is not just the initial investment but the consistent reinvestment over time. Founders Fund, for instance, has participated in every funding stage since 2017. This signals more than financial confidence; it reflects deep visibility into Anduril's inner workings through privileged access to its data room and a seat on its board. Trae Stephens, the partner leading the investment, has been on Anduril’s board since its inception, offering unparalleled insight into its performance and potential. Such sustained support is one of the clearest indicators of promise for an outsider evaluating a private company.

Pros and Cons

How to Invest

Anduril stock is not frequently available for trading. Prospective investors typically need significant capital to purchase large blocks of preferred shares or invest through funds that carry additional fees.

• Direct Purchase: Augment offers blocks of shares at $27/share, reflecting a modest increase from the previous round valuation of $21.74/share. However, participating in these blocks requires a substantial $10M minimum investment. Smaller blocks are available at $35/share with a $500K minimum, though this price premium may appeal only to seasoned investors with a deep understanding of the defense sector.

• Via Fund: UpMarket provides an alternative with a $50K minimum investment and shares priced at $21.73/share, aligned with the last funding round valuation. However, this option carries additional fees: a 2% upfront fee, a 1% annual management fee, and a 20% carry fee on any gains. While these fees are standard in venture capital, they can significantly impact long-term returns. The 20% carry fee, in particular, means a fifth of your profits will go directly to UpMarket. Despite these costs, for bullish investors who prefer a lower entry threshold, this fund remains an attractive option.

Key Considerations

• Accreditation: Private market opportunities require accredited investor status.

• Delays: Private market transactions can take time to close. Stay patient—other opportunities will follow.

If you’re interested in Anduril but can’t meet the current investment requirements, let us know. We’ll continue monitoring this stock closely. For any questions, email us at [email protected], and we’ll respond promptly.

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