Conversation
Highlights

How Defense Tech Companies Are Rewriting the B2B Go-to-Market Playbook

Venture capital allocation to deep tech has surged from 10% historically to 35-40% in recent years. This isn’t capital chasing trends—it’s a rational response to deteriorating unit economics in SaaS, where AI has lowered barriers to entry and made traditional software moats increasingly fragile.

In a recent episode of Category Visionaries, Jeff Crusey, EVP of Technology & Acquisition at Blacklake, a defense holdco based in Austin that helps emerging defense companies accelerate across US government procurement and expand into Europe and Asia-Pacific, revealed how defense tech is developing an entirely new go-to-market playbook. The implications extend beyond defense.

Why Capital Is Rotating to Deep Tech

The SaaS economics that funded a decade of growth are breaking down. “I think part of that’s because it’s becoming hyper competitive,” Jeff explains. “The barriers to entry are lower thanks to things like AI. And a lot of these companies don’t necessarily need venture capital anymore to scale as they need so investors are looking elsewhere.”

When AI can generate functional MVPs in days and distribution costs approach zero, software companies lose pricing power and defensibility. Investors are reallocating toward markets with genuine technical barriers and capital requirements that create structural advantages.

The Lobbying-Revenue Correlation

Defense tech has uncovered a counterintuitive GTM lever: government affairs timing. “The companies that started lobbying and appropriations the second they started applying for SBIR grants achieved higher revenue targets much faster than their counterparts,” Jeff observes.

This isn’t about policy influence—it’s about pipeline development. SBIR grants validate technology feasibility, but scaling requires appropriations. Companies that treat these as sequential lose 12-18 months. Those running them in parallel compress the path to program of record.

The implementation pattern: external lobbying advisors at seed, in-house government affairs at Series A. “Initially I’ve seen companies work with advisors, lobbying advisors that will do that on their behalf through their own organization,” Jeff notes. “But as you start to get into like the series A and beyond, they tend to bring that in house.”

Talent sourcing requires specialized networks. Jeff works with Steve Finder, former head of talent at SpaceX, to identify candidates with proven congressional committee relationships. “It is actually really specialized,” Jeff explains. “And it also kind of hinges on the quality and type of relationships that particular person has.” The talent profile matters: you need documented relationships with specific appropriations staffers, not general government experience.

Solving Hardware’s Capital-Iteration Paradox

Hardware companies face a structural problem software never encounters: investors require working prototypes before capital deployment, but prototypes require capital. “People want to see a prototype, they want to see a demo to have some level of confidence before they invest in a company,” Jeff explains. “So it usually takes a bit more capital and time to get there with a physically built thing versus software.”

The non-dilutive capital path breaks this cycle. SBIR Phase 1 (tens of thousands) funds initial prototypes. Phase 2 (single-digit millions) validates production readiness. Direct-to-Phase-2 pathways exist for companies with strong government relationships or prior program success.

But there’s a deeper GTM insight about iteration cadence. Traditional hardware development assumes lengthy optimization before deployment. Defense tech inverts this. “The folks that seem to get in field and get as quick feedback as they can from the operators that seems to be working,” Jeff notes.

Why? Modern conflict operates as continuous technological adaptation. “The nature of war is so much different these days and it’s so much more of a cat and mouse game technologically that whatever worked one week might not work the next week,” Jeff explains.

The tactical approach: deploy minimum viable hardware to operational environments, capture failure modes and performance data under real conditions, incorporate feedback into rapid iterations. “I find it almost impossible to see that done well without just having a persistent presence in field.”

This represents a fundamental rethinking of hardware development ROI. Laboratory perfection has negative value if it delays operational learning. Deployed imperfect systems generate data that perfect laboratory prototypes cannot.

The Investor Communication Problem

Technical founders consistently over-index on engineering specifications during fundraising conversations. “In defense, there’s a lot of really great technology and really smart people building it, but they kind of get into the weeds when they’re talking about it and they kind of miss the larger point,” Jeff observes.

The correction: “Literally explain it like you’re explaining it to a middle schooler. And that will be a level that everybody can understand.” This isn’t condescension—it’s recognizing that VCs allocate capital based on market timing, defensibility, and path to scale, not technical peer review.

Founders often resist this simplification. “It almost feels like founders might be like downgrading themselves when they’re talking about their business,” Jeff notes. But clarity on problem-solution fit and total addressable market matters infinitely more than technical specifications during early fundraising.

Decoding Investor Evaluation Criteria

Defense tech investors assess three elements. First, technical feasibility through working prototypes. Second, founder-market fit—whether the team has credibility to navigate defense procurement. “It’s hard for somebody that doesn’t come from that world to just insert themselves,” Jeff explains. “People can be guarded, right? This is serious stuff.”

Third, demand validation. But not traditional LOIs—investors want operator commitment. “Oftentimes it’s a strong statement from an operator that says, yes, we will pay money for this if you guys can build it for us,” Jeff notes.

This reveals the fundamental difference in defense buying processes: you’re not convincing budget holders to allocate spend. You’re demonstrating that operational commanders will advocate for your solution within their procurement channels. The validation signal comes from end users who will push your technology through the system, not procurement officers responding to RFPs.

SBIR progression functions as structured demand validation. Phase 1 validates concept interest. Phase 2 (especially direct-to-Phase-2 or enhanced Phase 2 awards) signals validated customer pull. Phase 3 demonstrates production readiness for program of record status potentially worth hundreds of millions annually.

Emerging Threat Vectors Drive Investment Thesis

Jeff’s current investment focus reveals how threat assessment shapes capital allocation. “One thing I think about constantly is the Northwest Passage,” he explains. Arctic sensor solutions, communications assets, and subsurface vehicles will become critical as this region opens for trade and becomes contested.

The second focus: orbital defense. “It is my view that Western allied nations are woefully behind China and Russia right now,” Jeff notes. “We’re basically flying naked right now. We have, like, no ability to counter anything right now, and we have a lot of really important things flying in orbit that we can’t afford to let people mess with.”

The Ukraine conflict validated this concern. “If we’re really open about it, space was sort of where the Ukraine war started,” Jeff explains. “Jamming and spoofing GPS signals was the opening gambit, essentially. Incoms was the opening gamut, essentially.”

This investment thesis illustrates how geopolitical threat analysis directly informs capital allocation in defense tech—a fundamentally different GTM driver than product-market fit signals in commercial B2B.

Cross-Market GTM Lessons

Defense tech’s evolution offers implementation frameworks for any B2B founder entering regulated, relationship-driven, or technically complex markets. The core lesson: conventional demand generation playbooks fail when buying processes depend on multi-stakeholder validation, regulatory pathways, and domain-specific credibility.

The tactical approaches emerging from defense—non-dilutive capital for hardware prototypes, concurrent policy and sales development, field deployment before perfection, operator-driven demand signals—provide blueprints for hardware companies, regulated industries, and government-adjacent markets.

As more capital flows toward deep tech and hardware-intensive businesses, understanding how defense companies navigate prototype funding gaps, complex procurement cycles, and relationship-driven sales will become table stakes for founders building outside traditional SaaS categories.