Investing in Defense Tech’s Messy Middle with Nomi Capital’s Brent Gerundo

Brent Gerundo is a general partner at Nomi Capital, which backs growth and early-growth defense and dual-use companies rebuilding America’s industrial and technological edge.

What led you from the Army to Wall Street and, ultimately, to Nomi Capital?

My career has been in defense and national security from the start. I went through Ohio State’s ROTC program, commissioned into the Army as a logistics officer, and spent four years in Army Special Operations. About half of that time I was forward deployed to the Middle East supporting the campaign against the Islamic State, first helping stand up the Syria Train and Equip mission and later supporting our partners in northern Iraq and Syria. The logistics problems I was solving then, getting equipment into contested places with limited infrastructure, are the same ones I now underwrite as an investor.

I knew I wasn’t a career Army officer, so I got out at the end of my commitment, got an MBA at Wharton, and transitioned into finance from there. Following Wharton, I went to Goldman Sachs, where I was an investment banker primarily covering aerospace and defense out of the Global Industrials Group.

I only spent a year there, but I got a good mix of work across public M&A and private capital markets, which meant working with high-growth startups looking for strategic growth investors. Through that work I got introduced to the world of startups and thought it would be cool to go work at one myself. So I hopped ship from Goldman and joined a pre-Series A startup called Messari as COO. I was with that company for over four years, scaling through Series A and Series B, and we ultimately went through a sell-side process. As I was stepping back from Messari and thinking about what I wanted to do next, that’s where my path intersected with Nomi Capital and Jason.

Jason Zins and I have known each other for the better part of a decade at this point. Our wives are great friends from undergrad, so it all starts with our wives. He had spent the majority of his career at SkyBridge Capital and stood up their late-stage venture practice in 2020. He left to start Nomi in 2024 and was looking to raise his first defense fund. I’d been following what he was doing closely, and we decided to partner up and launch the first defense fund late last year, so about a year ago at this point.

There’s no shortage of investors piling into defense right now. What’s Nomi’s core thesis, and what makes the firm unique?

Our thesis centers on what we call the messy middle of defense and dual-use technology. When we were planning the first fund, we looked at where capital was flowing into the space and saw two things.

At the early stage there is a strong cohort of defense specialists, maybe a dozen marquee firms. They are very good at what they do, running standard 10- to 12-year venture funds and investing from pre-seed through Series A. But their mandate is largely ends at Series A, by design.

At the late stage you have a handful of companies, some of which we backed in previous rounds, that are attracting the large generalist growth platforms. Given how much capital those investors need to deploy, and how few companies can absorb it, valuations at that end of the market have become less attractive for an investor like us.

That leaves the messy middle. Our sweet spot is Series A through Series D, roughly $300 million to $3 billion in enterprise value, where there is a relative vacuum of institutional capital compared to either end of the spectrum.

The reason that vacuum exists, and where we differ from others in the segment, is that we are underwriting the inflection from R&D to production revenue within the next 12 to 18 months. That inflection is not obvious. To look at a company’s pipeline of production contracts and ascribe value to it, you need to understand the budget trajectory, spend real time with the Department of Defense and the individual services, and read warfighter feedback closely enough to judge how likely those contracts are to materialize.

Being a defense specialist and a growth investor at the same time is what sets us apart. We are one of the few pure-play defense specialists investing at the growth stage today.

There’s no shortage of investors wanting to cut checks at seed. Why don’t more capital allocators move toward the growth stage in defense?

It comes down to underwriting. We look for five inflection points.

First, we like to say we don’t invest in science projects. That’s no knock on science projects. I’m a huge science fiction fan, and early-stage investors live and breathe technology risk, relying on power-law outcomes to return the fund. We want proven technology that is ready for the warfighter today. Firehawk is a good example: they make munitions the military already buys, and they make them faster and cheaper.

Second is budget trajectory, meaning what is actually being funded. That matters a great deal right now. Given the political and budget situation, it is increasingly likely we operate under a continuing resolution for at least part of next year, which means no new program starts. If there is no budgeted line item for what you are building, you are looking at tough sledding for months, if not a full year.

Third is warfighter demand. We spend a lot of time with organizations across the Department of Defense, including the Office of Strategic Capital and the Development Finance Corporation, and with the individual services. Organizations like Army FUZE are very helpful for getting warfighter feedback and understanding the competitive landscape within a given technology area.

Fourth is the management team’s ability to execute manufacturing scale against proven technology. This is where my investment banking background and Jason’s career in growth and late-stage investing come into play.

Fifth is valuation discipline. I would call us very disciplined relative to the froth in the industry right now. We look for some dislocation in valuation, which exists precisely because the factors above are not obvious enough for a generalist growth investor to underwrite a big price tag.

Put those together and what you need is a disciplined growth-stage investor that is defense specialized and willing to take the time and build the relationships required to underwrite each of them. That is a narrow profile, and it is why more capital has not moved into this part of the market.

You served during the campaign against ISIS. How does your experience as a warfighter shape the way you think about a potential conflict with China?

Something I believe quite strongly, and that goes into our thesis, is that the way a lot of startups view the defense industrial base is flawed when it comes to a great power conflict with China. That’s driven by my experience doing contested logistics before it was called contested logistics.

We have this romanticization of the World War II arsenal of democracy. You have the Ford plants churning out B-24 Liberators and Sherman tanks around the clock, and Liberty ships transporting them across the Atlantic to the European theater.

When you think about how that translates to a war with China in the Indo-Pacific, it doesn’t pencil out. These concentrated, high-value factories have all been mapped out by China, and we can’t rely on our oceans to keep us safe anymore. So in my opinion, building large, concentrated factories and relying on them is a fundamental vulnerability that we’re doubling down on in some cases. When you look at a lot of these defense tech startups and their first factory, of course you have to reach some scale to be commercially viable. But you have to build with the intention of distributing that technology down the road.

What that unlocks is important in my mind. One, you’re creating resiliency by mobilizing more of the American industrial base and spreading manufacturing across the nation. We have a very large country geographically, and that adds a lot of security. But it also has key unlocks when you think about an actual conflict.

Building the equipment is one thing. Delivering it to the front line is a completely different situation.

When you have island chains in the Pacific, for example, getting equipment to warfighters and outposts out there will be incredibly difficult geographically. And China can very easily contest those waters, given how close they are to its shores.

So having distributed manufacturing capability enables you to move manufacturing as far forward as possible. In my ideal world, you have outposts in the Pacific where you’re able to produce equipment on-site. I think additive manufacturing is a core unlock of frontline manufacturing and it’s a theme we’ve spent a lot of time on.

The second point is somewhat unrelated to the U.S. directly. When you look at the landscape of foreign military sales today, you have Ukraine begging for Patriot missiles. You have Taiwan with a $14 billion arms package that has been caught up in summits between Trump and Xi.

At some point our allies are going to be frustrated and no longer able to afford to wait on the United States for this critical equipment. They’re going to want to build their own sovereign capabilities. We like to back companies that are building factory and manufacturing technology that can ultimately be provided to our allies, so they’re able to stand up their own manufacturing processes and own a sovereign capability. I think that will become increasingly important in the very near future.

What challenges do defense founders face in bridging the gap from early stage to growth stage, and where do companies tend to die?

The go-to-market motion is incredibly important in defense and dual-use because it requires a top-down and a bottom-up approach simultaneously. You need to be getting technology into the hands of the warfighters. You need to be out there with some of the larger military formations, validating your technology, getting feedback from the warfighter, and continually improving the product. The goal of this industry is to provide better technologies and capabilities to the warfighter, so that’s first and foremost.

But you have to pair that with your top-down approach: your ground game in D.C. You need to be working with the Pentagon, and you need to be working with both chambers of Congress to go through budget requests, authorizations, and appropriations to ultimately move to those production contracts, so that you are the type of growth-stage company we’re looking to invest in.

We have a good track record of backing companies that do both. But I talk to a lot of product companies that have a great ground game with the warfighters and a ton of great feedback. They’re just not able to put it together in D.C. And then there are a lot of companies that have an incredible ground game in D.C. and focus a little less on delivering actual capability to the warfighter. You can have success doing that. But you’re not creating impact if you’re not building with the warfighter in mind.

Where does venture capital make sense in defense, and where should other forms of financing take over?

It’s incredibly important to match the capital with the underlying risk and with what the capital is actually used for. If you’re talking about developing IP, developing technology, hiring a team, that’s equity all day. And there are various forms of equity. You have venture, which is a little longer dated. You have private equity, which is shorter dated and more focused on near-term cash flow, and you are seeing private equity start to come in at the later stages.

But ultimately you are looking to produce these capabilities at scale, and that requires a lot of capital expenditure. In nearly all of the deals we do, we have seen nondilutive financing come into the picture, which is incredibly valuable in building out and funding that capex. That can come in a lot of different forms. The Office of Strategic Capital has been working to become more active. You also have great partners on the private side.

And private lenders are increasingly willing to step up and provide that nondilutive financing, that project financing, to help build out manufacturing capacity for the companies we’re backing.

How many drone companies can the defense market support, and why has Nomi stayed away from small drones?

I’ll start by saying that at Nomi, we have traditionally avoided investments on the small drone side. In our view, it’s a knife fight to the bottom in terms of cost. I get it. From a national security perspective, that’s what’s best for the United States: drone dominance. If you look at how the government has allocated capital, they’ll trickle money here, trickle money there, to bring on a larger cohort of companies. So they have their choice of technologies, and they’re able to test different technologies and drone suppliers in real time through the forge of these competitions. That’s great for national security.

We want to bring a lot of companies along and build out industrial capacity at large. But their other explicit goal was to drive unit cost down toward roughly $2,000 to $3,000 apiece. That’s going to create challenges for many of these suppliers’ business models, and it will likely lead to consolidation. As a growth investor, that’s an area where I’m not willing to make a bet on who comes out on top.

Beyond drones, is the defense tech industry headed for a shakeout?

I think so. We have had at least 12 months of fervent investing activity and a great deal of capital flowing into the space. That cannot continue forever. Capital is constrained by its nature, and after a period of rapid deployment like this, things cool off. I do think we are headed for a shakeout.

The demand itself is not going anywhere. I always say that the need to deter and win conflicts is one of the most durable sources of demand there is, and the news demonstrates that daily. More Pentagon dollars will keep flowing into this space. But if private capital dries up, business models get shaken out.

Founders raising money right now are being smart. Build the fortress balance sheet, provided you are doing it at a valuation that makes sense and that you will not spend the next several years growing into. If you can raise enough to weather the storm at a valuation that keeps your options open, whether that is an acquisition or an IPO down the road, you are in a great position.

The other piece is the budget, where we are likely in for a rough few months at a minimum. Valuation discipline is one thing. You also need discipline as an operator. You have your growth plan for when everything is rainbows and sunshine and you can keep pouring gas on the fire. You also need to know what the emergency plan looks like if things turn: where you cut costs and how you strengthen the business so you come out the other side on top.

Not everyone will do both of those things. Some businesses will fail, and consolidation will follow naturally. That is where I see the next few years heading.

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