While Silicon Beach pierced every industry with cutting-edge technology for many years, legacy defense manufacturers like Lockheed Martin Corp. have held steady as the U.S. government’s top contractors selling systems that were slowly becoming antiquated.

In recent years, the federal government has gained more options. For instance, in late May, it signed an agreement with Castelion Corp. to build 500 hypersonic missiles a year – proving the old rules no longer apply.

The deal was notable on multiple fronts. It’s the first of its kind: a low-cost hypersonic missile program built for mass production. But it won’t be the last. The federal government, which spent decades relying on a handful of seasoned defense contractors that have carried the U.S. through its wars, is increasingly working with defense tech startups.

“I think there was a perception that nobody’s going to be able to work their way in,” said Andrew Kreitz, co-founder and chief financial officer of the El Segundo-based company which launched in four years ago. “Nobody was going to be able to take a startup and go toe-to-toe with Lockheed Martin.”

As the United States marks its 250th year, the aerospace and defense industries find themselves in the middle of their own renaissance – one being led out of Southern California. More than 1,000 aerospace and defense companies in the region have garnered more than $15 billion so far in 2026, already making it the sector’s busiest and best-funded year, according to PitchBook.

For decades, the East Coast’s legacy contractors – which manufactured in L.A. and maintained strong workforces – set the stage for the region’s startups. These new firms – some of which have reached unicorn status – are armed with defense contracts to build the next generation of cheaper, faster, easily scalable frontier wartime technologies. Castelion raised nearly $500 million and achieved a $2.82 billion valuation in the years leading up to its landmark agreement with the Defense Department, proof that venture capital is willing to shoulder the risk that the federal government once undertook on its own. The firm’s deal represents one of many that the department has struck with young companies, offering paths to modernize the U.S. war arsenal as the battlefield evolves.

“What’s really exciting about this is the speed with which the government has moved and their willingness to work with (Castelion) as a new entrant,” Kreitz said. “…Historically, getting to this sort of agreement, taking this sort of step and actually moving towards production, would be an extremely lengthy process and be very, very challenging for a
new entrant.”

‘The Last Supper’

After the Cold War ended, U.S. defense funding began to dwindle slowly. The final blow came in 1993, when then-Defense Secretary Les Aspin and Deputy Secretary Bill Perry invited the top defense company executives to a dinner at the Pentagon. The candid message: the department wouldn’t be able to support every company on the market, and the industry needed to brace for consolidation.

Known as “The Last Supper,” the nation then witnessed the rapid collapse of a bustling defense sector. Within seven years, more than 50 companies that made up America’s defense manufacturing base collapsed into five dominant players, a grip they’ve held for decades. This was part of a larger decline in manufacturing overall. Factory jobs in L.A. County decreased by 65% between June 1990 and June 2025, according to the California Employment Development Department.

“The end result of that process is that they ended up with five client contractors, and they reduced the number of defense options by 80%,” said Nathan Mintz, co-founder of El Segundo-based CX2. “Well, when you reduce the number of options – as a consumer you know this – prices go up.”

The largest names in defense – Lockheed  Martin, RTX Corp., Northrop Grumman Corp. and The Boeing Co. – are all based on the East Coast and emerged as the winners of this country’s last defense tech boom, ending the Cold War.

“The way that they were operating, it was a low-growth industry,” Kreitz said. “Uncle Sam was not putting huge amounts of dollars in there. It’s not like you had any disruption going on.”

Wake-up call

That all changed in the 2020s, when the Russian invasion of Ukraine exposed just how far high-tech weapons and aerial systems had advanced since the West last fought for dominance. Western-made technology sent to Ukraine was slow to build and cost prohibitive. As the war has dragged on, both Russia and Ukraine have leaned on an arsenal of small-scale drones, cheap tracking devices and payload delivery systems that were easy to replace.

“No one was able to backfill inventories,” Kreitz said. “It was this big wake-up call for the whole defense industry that something is very broken here.”

As the COVID-19 pandemic ravaged the world, both the administrations of Presidents Joe Biden and Donald Trump pushed to bring manufacturing back to the U.S. in order to make the country more self-reliant.

“COVID permanently disrupted, I think, the status of supply chains across the world,” said Jai Malik, chief executive of El Segundo-based defense and aerospace manufacturer Amca. “That was a massive disruption to the status quo of just-in-time delivery and having always more than enough parts relative to what you needed to build.”

Unlike the last defense boom, fueled almost entirely by the federal government, venture firms are stepping up to the plate. So far in 2026, venture capital has accounted for 65% of all investments in the defense sector, a significant reversal for an industry that limited partners once deemed too controversial. 

“There was sort of a distaste,” Kreitz said,  “or there were moral qualms with investing
in defense.”

Why the boom won’t bust

Today, L.A.’s defense industry is thriving. Half of all the satellites and vehicles currently in space were built in El Segundo. The South Bay accounts for 88% of unicorn value in Los Angeles, according to PitchBook.

The aerospace and defense sector added 11,000 jobs between 2022 and 2024, according to the Los Angeles County Economic Development Corp. But industry insiders believe the current boom is unlikely to face its own “Last Supper.”

“What’s fascinating to the point of other booms, like aerospace, as it consolidated in the peace dividends in the ’90s, is that one of the things that has made this so attractive to the venture space is the dual-use nature of it,” said El Segundo Mayor Chris Pimentel. “Venture wouldn’t follow them (now) because the risk is so high and these things are capital-intensive.”