(Bloomberg) — Mike Gallagher, former congressman turned Palantir Technologies Inc.’s head of defense, said the US Defense Department needs to overhaul its procurement process for a new era of modern warfare — and he’s stepping up efforts to seed startups that can help restore the country’s competitive edge.
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Gallagher was famous as a China hawk during his time on the Hill, and for spearheading the legislation that could ban TikTok on national security grounds. Now, he leads Palantir’s global defense efforts, and says he is focused on helping the US and its allies prepare for a technological arms race with China, while preventing military conflict with the Asian country.
“The status quo isn’t cutting it,” Gallagher said of the Defense Department’s cumbersome procurement process and insufficient weapons stockpile. As the Israel and Ukraine conflicts have shown, the advantage in global defense has shifted from militaries with pricey missiles and fighter jets to those with cheap and abundant drones, artificial intelligence and advanced software, he said.
Palantir, the data analysis giant co-founded by Peter Thiel, has tightened its relationship with the US military in this year, winning a prime contract to develop an on-the-ground intelligence hub for the Army, and expanding its work on artificial intelligence. Palantir’s stock price more than quadrupled in 2024, making it more valuable than even traditional defense contractors Lockheed Martin Corp. and RTX Corp., formerly Raytheon.
But the Defense Department must work with a wider variety of upstart defense and military tech companies and expand those contracts, Gallagher said. To that end, Gallagher is helping expand a program to smooth startups’ work with the US, and says he considers recruiting new participants as part of his job. While more startups are winning deals to develop cybersecurity and rocket technology, most of those contracts are small. “We still tend to dole out participation trophies to non-traditional companies,” Gallagher said.
A robust defense tech ecosystem will be good for companies besides Palantir, he said. “If you have more players on your team, you’re going to have more influence,” and that will “increase the odds that we can get meaningful reform.”
The foundation for the current era of defense tech companies was laid about 10 years ago, when Palantir and SpaceX successfully sued the US for the right to compete for government contracts. More recently, an upswell of tech patriotism paired with looming political conflicts during the Biden administration injected new life into the sector. Under Trump, many investors feel that the industry could be poised for more growth.
Elon Musk, a key Trump ally, has said that tech’s new age of drones and technology will make traditional military systems obsolete. He also called the builders of the F-35 warplane, America’s most expensive weapons system, “idiots.”
Such changes in battlefield technology have helped prompt private investors to plow historic sums into US defense startups, according to PitchBook data. Despite a recent pullback in VC investing, US-based investors have bet more than $150 billion on defense tech startups since 2019, and doled out more than $14 billion in the first eight months of 2024.
Gallagher hopes that a tighter Washington-Silicon Valley relationship will make the US more competitive against rivals like China, which aims to be the global AI powerhouse by 2030. Tensions between the two countries could escalate under Trump, who has vowed to impose a range of steep tariffs on Chinese imports. “We’ll have a more aggressive policy on China in the Trump 2.0 administration,” Gallagher said.
To help accelerate tech’s role in defense, Palantir has been expanding its own efforts to strengthen the startup ecosystem, and bring more companies into the fold. Gallagher said that he spends a chunk of his time recruiting fledgling startups to partner with the company on a little known initiative aimed at expediting their entry into government contracting. The program, called FedStart, launched last year with the goal of easing the logistical and technical burdens for software startups doing business with the government.
To join FedStart, startups pay a nominal fee to host their software on Palantir’s infrastructure, which is already compliant with security and other requirements for federal contractors. The arrangement aims to ensure software updates, repairs and other changes startups make remain accredited across different US agencies. The program also promises startups visibility by listing them in a federal marketplace and inviting them to Palantir-sponsored events in Washington attended by potential government customers. FedStart competes against companies like Second Front Systems Inc. in trying to streamline the process for startups seeking to do business with the government.
“This basically allows us to standardize,” said Anant Bhardwaj, the chief executive of AI data startup Instabase Inc., which is part of the FedStart program. Bhardwaj said his company, last valued at $2 billion, has successfully inked deals with at least three agencies. He said doing government deals would be “painful” without Palantir’s help. “Every agency has its own requirements. That’s not scalable at all.”
The FedStart program is still small, with only about 15 participants that have been announced. But it’s popular with government agencies Gallagher said, as well as a growing number of startups. And it could also help to put Palantir at the center of a growing sector, even when it’s not the one selling the products.
Palantir Chief Executive Officer Alex Karp described the larger defense strategy to analysts earlier this month as a calculated gesture of good will, as well as a political necessity. “Most people involved in tech innovation now view Palantir as their ally,” Karp told investors during a November earnings call. “They’re not hating the player, they’re playing with us.” Gallagher said that it’s good policy to work with a broad swath of companies. “By playing nice, it makes it easier.”
The industry is already tightly knit. Trump earlier this month named Jacob Helberg, previously Palantir special advisor to Karp, as Under Secretary of State for Economic Growth, Energy, and the Environment. And Palantir has partnered with two of the largest defense tech players, Anduril Industries Inc. and Scale AI. Both of those companies, which grew significantly during the Biden years, also have ties to the incoming Trump administration. For example, Anduril scored some of its earliest backing from Vice President-elect JD Vance while he worked as a venture investor at Revolution.
Despite recent progress, most US spending on startups still goes to only one company — SpaceX — while the rest of the industry fights for the leftovers, according to the Silicon Valley Defense Group, which analyzes US spending on startups. Going forward, “there is certainly an appetite to shake things up within the DoD,” said the group’s Director of Operations Dylan Mullins.
“It was headed that way, even if Harris had won,” Mullins said, referring to Democratic candidate Kamala Harris. “It will be way more accelerated now.”
