Defence Tech Is No Longer Niche - It’s Institutional

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Welcome to Unlocking Liquidity, the podcast from PrimaryMarkets that brings the dynamic world of private capital to life. Each week, we dive into the trends, opportunities and challenges shaping today’s investment landscape, from emerging asset classes and market innovation through to strategies for navigating liquidity in unlisted markets. Whether you’re an experienced investor, a dealmaker, or simply curious about private markets, Unlocking Liquidity offers analysis and real-world insights to help you make sense of complexity and stay ahead of what’s next.

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Defence technology was once considered a specialised corner of the market, largely confined to government budgets and a handful of prime contractors. Today, that positioning has changed. What we’re seeing now is a structural shift, where defence tech is moving firmly into the mainstream of institutional capital.

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In this episode, we explore how geopolitical dynamics, rapid advances in artificial intelligence and autonomous systems, and a renewed focus on sovereign capability are reshaping the investment landscape. From venture-backed startups to government co-investment models, defence is no longer just a sector — it’s becoming an asset class.

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We’ll also look at how Australia is positioning itself within this global transition, and what it means for sophisticated investors seeking exposure to private market opportunities that sit at the intersection of technology, infrastructure and national resilience.

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For decades, defence technology sat on the margins of institutional capital. It was a specialised sector dominated by large prime contractors, government procurement cycles and a relatively closed ecosystem. Venture capital participation was limited, often cautious, and frequently constrained by ethical overlays or ESG mandates. That positioning has shifted decisively.

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Defence technology is no longer a niche allocation. It is becoming an institutional asset class.

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The change has been driven by a convergence of forces: geopolitical realignment, rapid technological advancement, and a structural rethinking of how governments procure and deploy capability. What was once the domain of a handful of legacy players is now being reshaped by venture-backed companies, sovereign capital, and private investors seeking exposure to technologies that sit at the intersection of security, infrastructure and economic sovereignty.

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Recent data underscores the scale of this transition. Venture capital investment into defence and aerospace startups surged into the tens of billions of dollars annually, with some estimates placing 2025 funding above $19 billion, nearly doubling prior years. At the same time, broader defence-tech related investment has reached even higher levels, reflecting sustained institutional inflows and strategic government alignment. This is not cyclical interest. It is structural repositioning.

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The most obvious driver has been geopolitics. The post-Cold War assumption of relative global stability has been replaced by a more fragmented and competitive environment. Strategic competition between major powers, regional conflicts, and the increasing importance of cyber and space domains have elevated defence capability to a central policy priority.

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Governments are no longer treating defence purely as expenditure. It is now viewed as an investment in national resilience and technological sovereignty. This shift has changed how capital is allocated.

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Large-scale public funding initiatives illustrate this clearly. The United States’ commitment to AI-enabled defence systems, including multi-billion-dollar allocations to autonomous warfare programs, reflects a willingness to deploy capital at unprecedented scale. Similar dynamics are playing out across NATO, Europe and parts of Asia, where defence budgets are expanding alongside targeted investments in emerging technologies such as drones, artificial intelligence, hypersonics and cybersecurity.

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Importantly, this funding is not confined to traditional procurement channels. Governments are increasingly acting as venture-style investors, directly engaging with startups and co-investing alongside private capital. The Pentagon’s evolving model described as adopting venture capital-like strategies to accelerate innovation signals a fundamental shift in how defence ecosystems are being built.

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This institutionalisation of defence has coincided with the emergence of a new generation of companies. Unlike traditional defence contractors, these businesses are often founded by technologists rather than defence insiders, and they operate with venture-backed growth models.

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The defining characteristic of this cohort is dual-use capability. Technologies developed for commercial markets autonomous systems, AI software, advanced manufacturing are being adapted for defence applications. This crossover has lowered barriers to entry and expanded the opportunity set for investors.

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Companies such as Applied Intuition exemplify this trend, leveraging commercial autonomous vehicle technology to build military-grade systems capable of operating across land, air and sea environments. Similarly, the rapid rise of unmanned systems providers highlights how battlefield requirements are accelerating innovation cycles, with companies iterating products in real-world conditions and scaling rapidly.

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The emergence of defence unicorns further illustrates the shift. Firms like UFORCE have achieved billion-dollar valuations within a compressed timeframe, driven by demand for autonomous platforms and integrated combat systems. This is a marked departure from the historically slow capital formation cycles associated with defence.

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At the same time, advanced manufacturing startups such as Hadrian Automation are rethinking how defence hardware is produced, focusing on speed, scalability and cost efficiency. These companies are aligned with a broader push toward reindustrialisation and supply chain resilience, themes that resonate strongly with both governments and institutional investors.

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Perhaps the most important shift is not technological, but financial. Defence technology is being reclassified within capital markets.

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Historically, institutional investors approached defence exposure through listed primes or diversified aerospace companies. Today, exposure is increasingly being sought at earlier stages, through venture capital, private equity and direct investment.

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Dedicated defence-focused funds are emerging globally. The launch of vehicles such as MASNA Ventures reflects a growing recognition that defence technology requires specialised capital structures aligned with national industrial strategies. These funds are not only investing for financial return, but also for strategic alignment with sovereign priorities.

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Family offices and high-net-worth investors are also becoming more active participants. For sophisticated investors, defence tech offers a unique combination of characteristics: long-term demand visibility, government-backed revenue streams, and exposure to frontier technologies.

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This is particularly relevant in an environment where traditional venture sectors consumer technology, fintech, even parts of enterprise software have matured and, in some cases, become crowded. Defence tech provides access to differentiated deal flow with distinct return drivers.

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Australia is not a passive participant in this transition. It is increasingly positioning itself as a regional hub for defence innovation and advanced manufacturing.

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South Australia, in particular, has emerged as a focal point. With a concentration of defence primes, research institutions and specialised workforce capabilities, the state has developed a defence ecosystem that is attracting both domestic and international investment. Seven of the world’s top ten defence companies have a presence there, underscoring its strategic importance.

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At the federal level, policy settings are aligning to support this growth. Initiatives aimed at strengthening sovereign capability, combined with targeted funding programs, are creating a more favourable environment for defence technology companies. The publication of Australia’s Defence Export Catalogue further highlights the government’s commitment to promoting local capabilities on a global stage.

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Private capital is also playing a role. Recent funding rounds for Australian technology companies with defence applications demonstrate growing investor appetite. For example, advanced instrumentation firm Liquid Instruments has attracted significant capital from both government-backed funds and private investors, with applications spanning aerospace and defence sectors. This type of investment signals increasing confidence in Australia’s ability to produce globally relevant defence technologies.

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For platforms such as PrimaryMarkets, this presents a compelling opportunity. The ability to connect sophisticated investors with private defence technology companies within a compliant, structured environment aligns directly with the evolving capital needs of the sector.

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Defence technology is increasingly being assessed through the same lens as other institutional asset classes. Several factors underpin this shift.

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First, demand is structurally supported. Defence spending is not discretionary in the traditional sense. It is driven by national security imperatives, which tend to persist across economic cycles. This creates a level of revenue visibility that is uncommon in other venture-backed sectors.

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Second, technological differentiation is significant. Many defence technologies operate at the frontier of innovation, incorporating advances in artificial intelligence, materials science and autonomous systems. This creates potential for outsized returns, particularly for early-stage investors.

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Third, barriers to entry are high. Regulatory requirements, security clearances and technical complexity limit competition and create defensible market positions for successful companies.

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Finally, alignment with sovereign priorities provides an additional layer of support. Governments are not only customers, but also partners and, increasingly, co-investors. This alignment can accelerate commercialisation and de-risk early-stage development.

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Despite its growing institutional acceptance, defence technology is not without complexity.

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Ethical considerations remain central. The use of autonomous systems, AI-enabled weapons and surveillance technologies raises legitimate questions about governance and accountability. These issues are increasingly being debated at both policy and investor levels.

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However, the ESG narrative itself is evolving. Where defence was once broadly excluded from ESG frameworks, there is now a more nuanced perspective emerging. Concepts such as “responsible defence” and “security as a public good” are reshaping how investors evaluate the sector.

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From a practical standpoint, participation in defence technology requires careful structuring. Regulatory compliance, particularly in jurisdictions such as Australia, must be rigorously managed. For wholesale and sophisticated investors, this reinforces the importance of accessing opportunities through compliant platforms that provide appropriate oversight and governance.

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One of the defining characteristics of defence technology is that much of the value creation occurs in private markets.

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Many of the most innovative companies in the sector remain unlisted, often for extended periods. This reflects both the capital-intensive nature of the business and the strategic sensitivities involved.

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As a result, access becomes a critical issue. Traditional public market exposure provides limited visibility into the emerging generation of defence technology companies. Private markets, by contrast, offer direct access but require structure.

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This is where platforms such as PrimaryMarkets play a role. By enabling structured access to private companies through mechanisms such as Trading Hubs, investors can participate in secondary transactions and liquidity events without requiring a public listing.

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In a sector where liquidity pathways are evolving, this type of infrastructure is increasingly important. Defence technology may be institutional, but it is still largely private. Bridging that gap requires both capital and structure.

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The transformation of defence technology from niche to institutional is not a temporary phenomenon. It reflects a deeper realignment of global capital, technology and policy.

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For investors, the implications are significant. Defence tech is no longer an opportunistic allocation. It is becoming a core component of portfolios that seek exposure to long-term structural themes.

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For issuers, the opportunity is equally compelling. Access to capital is expanding, but so too are expectations around governance, scalability and execution.

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And for platforms operating at the intersection of capital and private markets, the shift reinforces a central idea: liquidity does not require a public listing. It requires structure.

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Defence technology is now part of that structure.

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For companies and managed funds that are not listed on a stock exchange, the PrimaryMarkets trading Platform is an ideal way to facilitate the off-market sale of shares in your company and units in managed funds.

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PrimaryMarkets is a flexible and evolving Platform that responds in real time to an ever-changing investment environment. In doing so, it provides sophisticated investors with access to companies that are shaping the future in a wide variety of industries and sectors. We provide access to opportunities previously only accessible to institutional investors. In addition to trading, PrimaryMarkets helps companies raise capital from our global investor database.

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PrimaryMarkets exemplifies how innovation can transform the way we invest, trade and raise capital by breaking down traditional barriers, providing liquidity solutions and promoting transparency.

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As the Platform continues to grow and evolve, it promises to unlock even more opportunities for investors and companies shaping the future of economies.

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And that brings us to the end of this episode of Unlocking Liquidity. Thanks for spending your time with us, we hope today’s conversation gave you a fresh perspective on private markets and how liquidity is evolving. If you enjoyed the episode, please follow or subscribe wherever you listen, and feel free to share it with someone who’d get value from it. For more insights, opportunities and episodes, visit PrimaryMarkets.com. Until next time, thanks for listening, and we’ll see you in the next conversation.