In 2021, Los Angeles saw a rush of unicorns. Through generous funding cycles, approximately 18 companies reached unicorn status by the end of the year.

The Covid-19 pandemic tech boom funneled money into software and business productivity platforms that would become critical in a world where remote work seemed permanent. After the dust cleared, sky-high valuations suddenly seemed indefensible, and the 2021 bubble burst. What followed was an austere, cautious funding environment that forced companies to either eat through their runway or, in some cases, accept a down round, losing their high valuation with it.

A similar pattern is emerging. In 2025, 10 companies were inducted into the unicorn club, the most L.A. has seen since 2021. The majority of those companies work in aerospace and defense, potentially provoking a resurgence in a sector that once practically defined Los Angeles.

The industry is flushed with both private and public investment. Amca, an El Segundo-based manufacturing company, recently raised $300 million in series B funding in late May, and with it came an updated valuation of over $1 billion. Most notably, Amca’s induction into the unicorn club comes a mere 18 months after it was founded, making it the youngest member in a growing class of startups. 

The company, which manufactures parts for aerospace and defense companies, is one of many in the South Bay reviving the area’s storied history in wartime manufacturing. But as founders and venture capitalists navigate this budding industry, what happens when the funding dries up?

“There’s just not enough demand from the war fighter to support 10 or 15 or 20 different defense tech startups who are selling straight to the government,” said Jai Malik, chief executive of Amca.

The golden age

Today’s defense manufacturing sector looks a lot like it did during the Cold War, when the U.S. funneled money into an unspoken arms race and spat out new innovations in weaponry, aerospace and satellite communications.

A lot of that is due to the changing battlefield. Since the early days of the war between Russia and Ukraine – which saw mostly conventional skirmishes involving mechanized support from tanks and other heavy weaponry – the conflict is now dominated by cheap aerial drones that can pick off armored vehicles at a favorable cost ratio and expose infantry attempting to infiltrate enemy lines.

U.S. adversaries like China also began developing weapons that were cheaper and nimbler compared to America’s expensive, hard-to-scale primes.

“By the 2020s, (China’s) production rates of ships and missiles, their technological capability was no longer deniable,” said Andrew Kreitz, co-founder of El Segundo-based weapons manufacturer Castelion Corp. “We used to kind of tell ourselves a story of, ‘Ah, they’ll never quite get there.’”

That led to a surge of funding into new technology that could update the United States’ arsenal of software and hardware to prepare for the battlefield. For the first time, generalist venture capital began joining in on the action. Thirty-eight percent of venture funding in Los Angeles in 2025 went into aerospace and defense startups, more than any other sector saw that year.

“I think when you think about traditional aerospace and defense, its long lead times, hardware, manufactured in a facility with people working things. But when you think about startups and you think about VC, this is all very techie stuff,” said Jim Corridore, a senior analyst at PitchBook. “So that would be the reason why generalist firms in California would be investing in this space.”

But with all that funding, many of these companies have yet to fully reach proof of concept. Castelion is coming close – the unicorn company signed an agreement in May with the Department of Defense to manufacture 500 of the company’s first low-cost hypersonic missile, Blackbeard. It’s the first low-cost, mass fielded hypersonic weapon in the U.S. military’s arsenal, and it was built by a company that is only four years old.

“The government understands that if we are going to be able to raise private capital, do things at risk, build large production sites and invest in this technology, we need to know that as long as we execute, there’s going to be an opportunity to sell these to the government,” Kreitz said.

What comes next?

The Defense department is the largest – and in many cases, the only – customer for these defense tech companies. There’s no shortage of money there. The White House proposed a $1.5 trillion defense budget for the 2027 fiscal year, the largest amount requested in history.

“We have a $1-trillion defense budget, which is the highest in U.S. history, rising steadily every year,” Corridore said. “We have Europe steadily trying to increase its defense spending because they’re a little bit afraid that they don’t have a reliable ally in the United States anymore and they have the Ukraine war on their back on their doorstep. So they are increasing their spending as well.”

But founders are bracing for the downturn. Malik decided to build Amca after funding defense tech through his own venture capital firm, Countdown Capital. He admits not all companies are going to make it in defense.

“Over the past two or three years there have been a lot of defense system-integrated companies that are looking to pick off what Anduril does, or trying to compete with Anduril, or trying to compete with the primes not necessarily in the manufacturing world but more in the systems development and innovation world,” he said. “I think you will find, over the next two or three years, a fair amount of consolidation, or a lot of the wins going to Anduril and maybe one or two other companies.”

The likely reality is that a lot of companies will pivot, according to El Segundo mayor Chris Pimentel. Companies are going to have to use their resources – their technology stack, factories, and funding – to manufacture other things outside of defense applications.

“I think that dual-use piece was such an important part of driving investment, that these things have applications outside of the military, and that insulates a bit of the product from any kind of great consolidation,” he said.

“I do think that a little ways away, some of the things that we’re developing actually do have commercial applications,” Kreitz said of Castelion. “I think that we have the hope that a ways from now, we have an opportunity to commercialize some of these things.”