Amid increasing geopolitical tensions – which include the ongoing Russian invasion of Ukraine and increasing hostility between the United States and China – weapons and defense manufacturers are seeing more investment.
Castelion, an El Segundo-based weapons manufacturer, announced in late January it collected $100 million in a combination of debt and equity financing. The company was started by three SpaceX veterans: Bryon Hargis, the chief executive who previously led the development of SpaceX programs like Starlink and Starshield; Andrew Kreitz, the chief financial officer who analyzed classified programs at SpaceX; and Sean Pitt, the chief operating officer who worked on spaceflight sales in Europe.
The three left SpaceX in 2022 to create Castelion, which aimed to create long range hypersonic strike weapons at a lower cost.
“The three of us all shared this concern that the U.S. had been falling behind in this capability area and knew that there was both a need and an opportunity to go focus on lower cost, highly manufacturable hypersonic systems so the U.S. could maintain a competitive advantage,” Pitt said.
A changing defense industry
Over the last 60 years, the defense industry in the U.S. slowly consolidated down to a few key companies. Now, the biggest players in weapons manufacturing include Lockheed Martin and RTX (formerly known as Raytheon). Venture firms have long been cautious about defense companies due to agreements with limited partners and the controversy risk defense funding posed. Even Google declined to renew its military contract with the Pentagon in 2018 after receiving internal backlash from employees.
“You have sort of this combination of lack of competition, lack of competitive pressure both within the private sector, but then also competitive pressure between the United States and potential adversaries,” Kreitz said. “There wasn’t pressure to develop things quickly or as efficiently. And that’s sort of resulted in a defense sector that has limited capacity to manufacture at scale and at low cost.”
That’s starting to change. The defense sector raised around $1.12 billion in 2016, according to Pitchbook. In 2021, the sector raised $20 billion. Companies like SpaceX, Palantir, Anduril and Scale AI have received millions in funding.
Mountain View-based Startup accelerator Y Combinator admitted its first defense startup in August. That company, El Segundo-based Ares Industries, is aiming to build low-cost cruise missiles.
Castelion designs and engineers its hypersonic weapons at its headquarters in El Segundo, but also has two sites in Texas, one of which is used to test solid rocket motors. The fresh funding will be used in part to fund the demonstration of its first product scheduled for summer 2026. Early prototypes are currently being tested in the Mojave Desert.
However, defense companies still haven’t shaken the controversial reputation of the military. The annual South by Southwest festival had to sever ties with the U.S. Army after artists threatened to withdraw from the festival. Google came under fire in early February for removing language that promised it would not use its artificial intelligence capabilities for weapons.
“At the end of the day, we are still in a condition where having more weapons actually helps keep peace,” Pitt said, “even though that’s sort of counterintuitive.”
