Will the startup revolution in defense lead to Turkey’s Lockheed?
After years of bargaining at all political and technical levels, Biden Administration approved Turkey’s purchase of F-16 jets in exchange for Turkey approving Sweden’s NATO membership. The bill to Turkish taxpayers for the purchase of F-16s is 26 billion USD. Will Turkey ever cultivate its own Lockheed? The upcoming startup revolution in defense technologies might lead to a paradigm shift.
Palmey Luckey founded Oculus Rift, a company that makes augmented reality goggles, at the age of 21, and sold it to Facebook for 2 billion dollars (Zuck changed the name of the company to “Meta” afterwards). But Luckey wasn’t done making waves. In 2017, he was at it again, founding Anduril, a company on the cutting edge of tech, crafting solutions that seamlessly integrate warfare platforms across air, sea, and land to operate autonomously. Anduril reached a valuation of 8.48 billion dollars in its latest funding round and makes a profit of 200 million dollars a year.
Ryan Tseng, who worked in the telecommunications industry for years, founded Shield AI in 2015, which makes unmanned aerial vehicles powered by artificial intelligence. His startup specializes in crafting unmanned aerial vehicles that are not just smart but are powered by the cutting-edge intelligence of AI. Shield AI has reached a valuation of 2.8 billion dollars. The valuations of defense technology companies founded around a decade ago, like Palantir and SpaceX, have reached much higher levels. Soon, these rapidly growing companies, with their investments, might replace traditional defense firms like Lockheed Martin and Boeing in the USA. While technology investments are drying up worldwide, defense technologies are one of the three areas where investment is increasing (others are artificial intelligence and climate technologies). In 2022, defense industry companies, including those working on unmanned aerial vehicles, cybersecurity, satellites, and artificial intelligence used in these fields, received 34 billion dollars in venture capital investments.
The ability of newly founded defense industry companies to attract such investments is largely due to their scalable business models. There are some conditions for scalability: First and foremost, these companies do not start with the goal of undertaking projects for the armed forces or a supplier to the armed forces. Instead, they begin with the intention of developing a product.
Secondly, this new product can be sold to everyone. The new generation of defense startups considers from the first day when the product could be used outside the military field. This concept is known as “dual use” in the literature. The costs of developing the product are generally covered by the first sale to a military customer and the revenue from subsequent sales results in profit for the company.
Thirdly, to be profitable in sectors like the defense industry, where initial investment amounts are high, it is necessary to be able to sell globally. Local markets alone are not sufficient. To sell to Western countries, it is necessary to be involved in the development process of those countries’ defense platforms, as was designed in the F-35 project cooperation model. Undoubtedly, there are many other customers in the Middle East, Africa, and elsewhere where the Turkish defense industry can sell (and indeed is successfully selling). However, it’s crucial not to forget the general political vision that will develop our defense industry’s skill sets according to rich markets.
Finally, to orchestrate the transformation in the defense industry, institutions managing procurement processes, including the Presidency of Defense Industries and public supply companies, need to play an active role. There’s a delicate balance to strike between safeguarding our strategic product secrets and fostering the growth of new companies with dual-use products. The inclination of traditional bureaucracy to prioritize the protection of secrets is understandable, yet such an approach can inadvertently pave the way to a demoralized workforce and diminished productivity over time. Intelligent workers seek not only to innovate but also to see their innovations rewarded materially. This ambition can be realized primarily through the cultivation of new startups dedicated to independent product development. To this end, rather than binding employees to a single company through non-compete clauses, it’s imperative to support the emergence of new ventures by providing funding and opening pathways for innovation.
Factors like the Russia-Ukraine War, events in Gaza, and tensions between the US and China have suddenly increased the value of the defense industry. As seen with the example of Baykar, Turkey might be on the right side of history this time. There is a stark contrast between the US and Europe on one hand and Turkey on the other: The US and Europe are proactively encouraging the highly skilled technical workforce in civilian sectors to pivot towards establishing companies in the realm of defense technology, backed by state policies and funds. Turkey’s finest engineers are already immersed in the defense industry. The question now is whether we can harness the correct vision, coupled with the necessary financial and political framework, to cultivate the emergence of future Lockheeds and Boeings from within our borders.
This article is a translated version of “Türkiye’den Lockheed çıkar mı?” which was initially published in Economic Daily (Nasıl Bir Ekonomi Gazetesi) on February 9, 2024.
