Everyone and their mother really is doubling down on the whole defense tech thing.
On Friday, federal contracting giant Booz Allen Hamilton ($BAH) announced that it’s investing a fat $400M in a16z’s Growth fund as an anchor LP and forming a strategic partnership with the VC giant. (To note: While the check goes to Growth, the partnership extends to funds across the entire firm, including American Dynamism.)
Brian MacCarthy, managing partner at Booz Allen Ventures, told Tectonic that the mash-up will help scale tech from a16z’s growth-stage giants into the government.
“What our clients really desperately need access to is companies who are very mature, who in some cases have not been selling directly into the US government, but have commercial capabilities [and] are just a little bit further up the stack,” he said.
Plus, by sticking a massive check into the growth fund, Booz gets to benefit from a16z’s later-stage VC expertise while continuing to write earlier-stage checks out of its own $300M venture fund.
“If you can secure the world’s most successful VC fund and pair them with probably one of the largest US government integrators who has been supporting [the government] for 80 plus years—those two titans coming together is a meaningful moment,” he added.
Behemoth: If you’ve spent literally any time in DC, you will know about Booz Allen Hamilton, so we’ll keep our recap short.
- The company traces its founding to 1914—yes, over a century ago—and has carved a mega-niche in consulting and technology services aimed at the US government.
- The company boasts a $12.4B market cap (as of this morning), and (as of last year) made about 98 percent of its roughly $11B in revenue from government-related work.
- MacCarthy said that in the 15 years he’s been at Booz, the firm has taken a major turn towards the technology side of things. 23,000 of the 33,000 people the company employs are engineers, MacCarthy said.
The firm launched Booz Allen Ventures (BAV) with a $100M fund back in 2022, then upped that to $300M last summer.
- BAV has backed defense tech startups like Reveal, Firestorm, Second Front, Shift5, and Hidden Level.
- The fund primarily writes earlier-stage checks (seed through Series B for the most part), which means there isn’t really a conflict of interest in becoming an LP in a16z’s Growth fund, MacCarthy said.
A key part of BAV’s investment thesis is the symbiotic relationship between the company and its portcos—the tech these companies provide can help Booz serve the government, and Booz’s pretty unparalleled access to the government (the Pentagon in particular) can help companies scale and get tech into the hands of warfighters.
Holding hands: Now, a similar thesis will apply to a16z’s growth portfolio.
“The Trojan horse, if you will, is the partnership. The mechanics of the financials are interesting and a story in and of themselves. But to make this work, it’s really around the strategic partnership,” MacCarthy said. “We have core technical focus areas that we believe we can help a16z portcos scale inside of US government missions extremely, extremely quickly.”
And these are no small potato startups. a16z Growth manages $22B across five funds, and boasts a pretty all-star lineup.
- Defense tech companies in the growth stage include Anduril, Applied Intuition, and Skydio.
- On the more commercial side of things, they’ve also got teeny tiny firms like OpenAI, xAI, and Mistral AI.
MacCarthy said the partnership will be particularly helpful for these big ol’ commercial companies that have tech that could be quite helpful to the Pentagon, but that don’t necessarily have a well-trodden path to deployment.
“You can bring the best commercial tech into the US government. That doesn’t mean it’s going to work,” he said. “What you really need is a partner who has a hundred-plus years of experience doing technical integration at every single classification level to make those systems and products get past a low rate of initial production and into programs of record.”
Plus, now Booz gets to invest in the best-of-the-best of defense tech without having to build up a later-stage practice itself. “We needed access to late-stage companies that wanted to enter into this market,” MacCarthy said. “That’s [what] the partnership really kind of formed around.”
“Instead of upsizing our fund and just investing directly off the balance sheet and adding an additional $400M and getting into late-stage companies…the idea was we could anchor and create a partnership with a top-tier venture fund in the US who thought like us and wanted to get a little bit more into national missions,” he added.
The talking stage: We asked MacCarthy whether this kind of partnership and investment was a one-off thing, or whether they’d do more of this in the future. He said that they “are having conversations with other funds,” but that the primary goal is to make sure this one works first.
“That marriage between DC and Silicon Valley is really what was needed in the industry,” he said. “And we think this is a partnership to do that.”