Joe Lonsdale, a co-founder of Palantir whose venture capital firm has funded companies like Anduril, Saronic and Epirus, said today he believes the political landscape in Washington led by President Trump and Elon Musk will force changes to Pentagon procurement that create a more friendly environment for smaller companies looking to win contracts from large defense primes like Lockheed Martin and RTX.
Lonsdale, the managing partner of 8VC, said today at the Reagan National Security Innovation Base Summit in Washington that companies like Palantir and SpaceX have already proved that non-traditional defense contractors can compete and win against bigger companies.
Now, he said, there is a sense of “optimism” among Silicon Valley disruptors that the Pentagon -- pushed by Trump, Musk and Defense Secretary Pete Hegseth -- has a “mandate” to reform its much-maligned acquisition process to allow for new investments in emerging technologies that will focus more on awarding contracts to promising technologies even at the expense of bureaucratic processes.
“The bet is that if this is the best, it is going to win, it is going to be allowed to win,” he said.
Lonsdale highlighted Musk’s work with the “Department of Government Efficiency,” saying he hoped it would cut “hundreds of thousands” of DOD civilians, especially those who test and evaluate the technologies his companies are trying to field.
“There are unquestionably hundreds of thousands of civilians we don't need in the DOD,” he said. “When we're trying do tests for our new technologies [that] everyone agrees are the best, you'll literally have like 20 dot civilian dot mil addresses, like with the crazy objections that are like, unnecessary. It's like this like extra layer of nonsense and bureaucracy.”
It was unclear which layer of testing Lonsdale was referring to, but the mission of the Pentagon’s director of operational test and evaluation is to provide a direct line to lawmakers who have statutory oversight of the DOD’s major weapons programs.
Lonsdale said his experience funding defense startup Epirus was eye-opening, asserting that the company’s counter-drone technology was tested and outperformed that of larger contractors.
“You are like the little kid, and they are laughing at you,” he said. “For the same size, same power we shot down the hardened drones nine and half times farther away and just completely cleaned the floor.”
But the larger primes who competed, Lonsdale said, all received much bigger contracts.
A conversation he had later with an Air Force four-star didn’t reverse the result, with the general acknowledging Epirus performed the best but telling him the contract was “written two years ago and the technology is such that if I were to change the result right now it would break a lot of glass, it would cause a lot of political trouble for me, so you guys probably can win three years from now but you can't win now.”
The Pentagon, Lonsdale said, “cared a lot more about the process than about the results.”
Lonsdale, among other technology executives and investors, argue that large prime contractors have become an “arm” of the federal government.
“What happened with those other big primes is they became bureaucratic, they became like the government,” he said.
Defense industry advocates defended “traditional” Pentagon contractors last week, with the National Defense Industrial Association releasing a report acknowledging the political environment seems to be working against primes.
“The danger with the emerging policy debates is the potential for framing a zero-sum approach that pits established defense contractors against nontraditional contractors,” the report said. “Such an approach would be a fallacy. A better approach is to tackle the current paradigm, which is deeply flawed. It is counterintuitive to criticize [traditional defense contractors] mirroring the sclerotic acquisition process and government regulations with which they must comply.”
David Norquist, head of the National Defense Industrial Association who previously served as deputy defense secretary and Pentagon comptroller in the first Trump administration, said last week it is important for Congress to seek reforms that lift all contractors.
“[A]s the Congress moves forward to reduce regulatory burdens and incentivize novel contracting approaches to attract and retain new companies, it is important to give traditional contractors access to the same streamlined system,” he said. “Otherwise, we are signaling to nontraditional contractors that as they succeed, they will eventually graduate into the current slow, burdensome and costly system.”
Lonsdale today said he believes that the message non-traditional defense contractors have been sending the government has begun to sink in.
“I think that energy is finally changing,” he said.