Investing in the Age of National Security: How Geopolitics Shape Today’s Startups

by Alexander Webb Advisor, GoPoint Ventures

In the early 2000s, Silicon Valley saw massive growth as a largely unregulated internet allowed for a “move fast and break things” era of innovation. Billions were made by taking legacy businesses and digitizing them, while startups faced minimal compliance and overhead costs in a period of laissez-faire legislation. Globalization encouraged founders to frame their company as eventually serving every nation on earth. National security concerns were largely an afterthought.

All that has changed.

Today, startups operate in a drastically different environment where geopolitical concerns take center stage. Conflicts in Ukraine and the Middle East, along with tensions in Asia, have demonstrated that many civilian assets—from drones to personal data—have dual-use capabilities and national security value. Meanwhile, supply chain disruptions generated by the COVID-19 pandemic proved that even relatively unknown companies can have a crucial knock-on effect on strategic production lines. More recently, the power of generative AI—along with its dependence on specialized NVIDIA chips—has underscored just how vital advanced technology can be for national defense. Finally, serious concerns around data privacy, which impact everything from dating apps to hospitals, underline how the array of targets for bad actors has never been broader.

What does this mean for founders and investors?

Smaller Markets with Larger Barriers to Entry

Startups with even tangential national security relationships will likely encounter smaller global markets as governments encourage local production and discourage foreign ownership of sensitive data or industries. This is a double-edged sword for investors, as winning startups benefit from barriers to entry at home, but face more challenges expanding abroad.

Rise of Local Production and Government Support

Businesses operating in strategic industries can expect more government backing in the form of direct investment and indirect measures—such as the $52.7 Billion CHIPS Act, tariffs, and import/export bans on competing foreign rivals. This combination of government incentives and protective barriers is creating an environment where certain technology areas—semiconductors, satellite tech, data, and AI—will likely create large national winners. This provides an opportunity for a host of aligned companies to provide services to them.

Diverging Data Protection and Privacy Regimes 

The US and Europe may split further on data regulations, leading to fewer innovations arriving in Europe first. Apple and Meta’s decisions to delay or simply not bring certain AI features to the EU illustrate how regulatory compliance can limit or delay market rollout. Startups eyeing global expansion must factor in these regional differences from the beginning. Questions remain whether the lure of American tech and investment will lead Europe towards aligned standards or a further divergence.

New Rules Create New Opportunities

A plethora of rules, some unwritten, provide opportunity for founders and partners who can navigate these changing currents. ITAR, EAR, and CFIUS compliance and review will become increasingly widespread. Thus, startups that ensure compliance, monitor supply chains, conduct due diligence, and provide cybersecurity-related services are likely to attract investors in an era of strict adherence to standards.

In the data storage space, Box famously prioritized a high-security B2B strategy, while DropBox initially aimed at consumers. Given data standards will likely rise for all companies, new startups may want to consider building solutions that meet standards required by corporate and government clients, enabling them to target both markets.

Startups and National Security Opportunities

AI is a key DOD priority area, with $1.8 billion of the $143.2 billion in research, development, test, and evaluation spending going towards AI specifically. Meanwhile, a new class of government grants allow founders to raise what is essentially non-dilutive capital. Startups that align with national security goals can forge partnerships with large defense contractors or government agencies. This not only brings a direct—often recurring—revenue stream but also boosts a company’s credibility and valuation in subsequent funding rounds. Companies like Anduril, Palantir, and SpaceX have paved the way for an array of new startups to both compete, collaborate, or exit with a host of defense firms.

Geographic Headquarters Matter 

For companies seeking traction in the US market, a presence or strategic headquarters in the United States—or at a minimum, a close ally—can streamline the path to government partnerships and R&D funding. Hundreds of European startups, collectively worth tens of billions of dollars, have moved to the US in recent years to gain access to capital and government contracts. Just as Rupert Murdoch became a US citizen in the 1980s to streamline his path to US TV network ownership, startups today may want to consider setting up a US HQ to gain access to sensitive deals.

Changing Eras, Changing Opportunities

The era of “move fast and break things” is over. But today’s national security concerns aren’t red tape–they’re opportunities. The COVID-19 pandemic exposed widespread supply chain vulnerabilities, while continued cybersecurity breaches have shown the true cost of inadequate data protection. Smart founders are transforming these challenges into opportunities. Government contracts provide stable, recurring revenue streams, while regulatory savvy can widen a company’s moat. For investors, the key is identifying founders who combine startup agility with deep regulatory and compliance understanding, particularly around international expansion. Today’s most promising founders don’t just tolerate security requirements–they leverage them as a fundamental driver of value creation.

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