Venture capital is flooding into defense technology at a record pace, while crypto venture funding hits a wall. Since the start of 2026, funds have poured $12.3 billion into defense tech startups — nearly double what the sector raised over the same period last year, and already above the $9.95 billion it attracted in all of 2025. Crypto VCs, by contrast, deployed just $4 billion across 355 deals in the first quarter, a 50% drop in capital from the prior quarter.
Why defense tech is on a tear
The wars in Ukraine and the Middle East have created urgent demand for cheaper, faster weapons systems. Investors are treating military hardware as one of the year's hottest bets. Capital is concentrated among a small group of active players — Gaingels, Alumni Ventures, and Andreessen Horowitz are among the names most frequently cutting checks. Daniel Rudnicki Schlumberger, who leads JPMorgan's security and resiliency initiative for Europe, the Middle East, and Asia, called the shift 'the most important change in the way wars are being fought arguably ever.' Surging valuations reflect a belief that defense spending is no longer cyclical but a lasting opportunity.
Crypto venture's cold quarter
It's a different story on the crypto side. The $4 billion in Q1 marks a steep decline from the prior quarter's pace, though deal count fell only 16%, suggesting VCs are writing smaller checks rather than walking away entirely. Annualized, the pace implies roughly $16 billion in 2026 — below last year's near-$20 billion total. New fund formation has stalled: only $1.1 billion was raised across eight vehicles in Q1, the slowest quarter for new crypto fund launches since Q3 2020.
What's driving the divergence
Galaxy Research attributes part of the crypto VC slowdown to competition from spot exchange-traded products and digital asset treasury firms, both of which are siphoning allocator capital that might otherwise go to venture funds. That doesn't mean crypto venture is dead — Galaxy affirmed that activity 'remains relatively healthy overall.' But the numbers make clear that defense tech is where the big money is moving right now. The next quarter's figures will show whether this is a temporary rotation or a lasting realignment.
