For investors looking for a return in the space industry, picking winners among startups, always a challenge, has become more complicated as the White House and Congress re-evaluate the federal government’s role in space.
On one hand, the Trump administration’s proposed 2026 budget coupled with reconciliation legislation signed into law July 4 would boost U.S. Space Force funding $11 billion in 2026. The legislation, which the president called One Big Beautiful Bill, also provides $24.7 billion for Golden Dome, an integrated air and missile defense system. And congressional appropriators seem poised to restore much of the NASA funding the White House left out of its 2026 budget blueprint.
At the same time, the administration’s proposed 2026 discretionary defense budget is slightly below the 2025 level with no increase for inflation. The budget plan calls for reduced funding for military research, development, testing and evaluation (RDT&E). In addition, staff reductions across federal agencies are slowing milestone payments, and money for commercial satellite data is on the chopping block at the National Reconnaissance Office, the National Oceanic and Atmospheric Administration and NASA.
It’s made for a particularly challenging time for those who make bets on space companies that rely on government funding.
“It’s been a mixed bag across the portfolio because space touches defense very heavily and it also touches sustainability,” said Lucas Bishop, investment associate at Seraphim Space, a London-based venture capital firm focused on space technology. “On the sustainability side, we’ve seen some of our businesses be negatively impacted. But for anything more DOD-focused, which is a very large part of the overall customer base within our portfolio, there are some enormous potential opportunities.”
It’s also created confusion.
“We’re probably going to pull our investment,” said one venture capital partner, who asked not to be identified and who invests in space companies. “Reductions of budget, reductions of people, lack of clarity on what the warfighters are saying that they need versus what’s in the budget has us second-guessing an investment that we were about to make.”
It has venture capitalists asking a question that once seemed unthinkable: are startups that rely on government space contracts still a good bet or does the environment right now have too much risk?
Military budgets
In the United States, defense spending is rising. The Trump administration is seeking $1 trillion for the U.S. military in 2026: $848 billion in discretionary spending, $113.3 billion added-on through reconciliation and the remaining sum from other defense-related programs. In addition to funding Golden Dome, reconciliation provides funding for nuclear, conventional and hypersonic weapons and munitions.
That reconciliation bill was enacted because the 2023 Fiscal Responsibility Act capped discretionary spending and Republicans, who control both the Senate and the House of Representatives, could add money for administration priorities such as Golden Dome.
However, if Democrats take control of the House, Senate or both in the 2026 midterm elections, “reconciliation is no longer an option,” Todd Harrison, senior fellow at Washington-based think tank American Enterprise Institute, posted online July 14. “The reconciliation bill funds production increases and new program starts without any assurance they’ll be sustained. The bet is that Congress will be forced to continue funding once the ball is rolling.”
NATO allies also are boosting military funding. Members of the transatlantic alliance agreed in June to raise their collective defense spending target to 5% of their gross domestic product from the previous 2%.
At the June NATO Summit in the Netherlands, allies also unveiled their first Commercial Space Strategy, a document that lays out policies to strengthen reliance on space company products and services in peacetime, crisis and conflict.
Investors welcome military budget hikes because defense contracts help startups develop and test space technology without giving away equity.
And while government programs can be canceled, “they tend not to be,” said Ken Gonzalez, managing director of NightDragon, a San Francisco-based venture capital and private equity firm. “For national security space in particular, the U.S. government is a great anchor investor. Solve their problem and you now have permission, hopefully capital and revenues to grow your business to supply other governments around the world as well as commercial customers.”
Heightened deal activity
In addition, the success of space and defense startups has heightened investor interest. Anduril, which was established in 2017 in Costa Mesa, California, raised $2.5 billion in June at a $30.5 billion valuation. And Firefly Aerospace of Cedar Park, Texas, is preparing an initial public offering after raising $175 million in Series D funding in November.
In the second quarter of 2025, investors put $3.1 billion into space technology, the second highest level on record, according to the most recent quarterly report from Seraphim, known in the U.S. as Generation Space.
“There’s more activity than ever,” Bishop said. “There are more growth deals, which is a positive signal that companies are landing genuinely strong contracts both from DOD and commercial customers.”
In the space sector, the deal environment for the first half of 2025 “was the best since the SPAC bubble burst,” said Chris Quilty, co-CEO and president of Quilty Space, a market intelligence and consulting firm based in St. Petersburg, Florida. “Transaction values and numbers are up. We’ve got an IPO window opening.” (SPACs or Special Purpose Acquisition Companies were popular from 2019 to 2021 when startups went public quickly through mergers with shell companies.)
Global defense pivot
With the uptick in deals, new defense-focused funds are surfacing.
“We’ve seen funds expanding their focus to include defense and we are seeing a lot more investor interest,” Crawford said. To profit, some space startups are pivoting toward defense, generally, and missile defense, specifically.
Atmos Space Cargo, a German startup originally focused on microgravity manufacturing and life sciences, is touting the defense-logistics capability of its Earth-return vehicle. Atmos formed a strategic alliance in May with ARX Robotics, an autonomous ground systems specialist, to offer disaster relief and military support.
Small launch vehicle developer ABL Space of El Segundo, California, rebranded in February to become Long Wall, a Long Beach, California, firm focused on missile defense and hypersonic weapons testing.
Similarly, pitch decks from European businesses that were climate-focused now emphasize defense technology as European defense budgets climb. Poland, Italy, Austria and Germany are among the countries that have pledged to double or more than double defense spending.
Golden opportunity
Analysts and investors bullish on the space sector often point to a wealth of opportunities related to Golden Dome.
Cost estimates for the program vary widely. The president has said Golden Dome will cost $175 billion and be operational in three years. The Congressional Budget Office pegged the 20-year price tag for a constellation of space-based interceptors at $161 billion to $542 billion.
It remains to be seen whether Congress and the administration will follow through with providing the long-term funding needed to define, develop and deploy Golden Dome or if the reconciliation bill was “a one-time shot in the arm,” Quilty said. “Either way you look at it, it’s $25 billion for the industry.”
And while the missile defense initiative remains “nebulous,” Crawford said, developing the requisite capabilities for Golden Dome necessitates “new and innovative technologies that have never existed before.”
“We do believe this is going to be a boon for our portfolio and the new companies that we’re looking at. We’re keeping that in mind as we’re evaluating new companies,” Crawford added.
Specifically, Golden Dome will require space-based and terrestrial sensing, communications and constellations of satellites to detect intercontinental ballistic missiles. The program will benefit “satellite manufacturers and anyone who builds subcomponents for those satellites,” Bishop said.
Still, it’s hard to predict exactly which companies will win Golden Dome contracts. There has not yet been an industry day offering detailed information on the missile defense initiative and military requirements are under review.
“Until it’s more definitive, any investment that you make in Golden Dome is either going to be way down in the supply chain or you’re throwing darts in the dark,” said the VC partner who is reconsidering investment in a space startup.
Painful cuts
Aside from Golden Dome, funding may be dwindling for some key programs that help startups make the leap from promising technology or prototypes to ongoing programs, a transition often called crossing the “valley of death.” Budget cuts are on the horizon for the Warfighting Lab Incentive Fund, a DOD program that conducts field experiments and demonstrations, and DOD’s Operational Test and Evaluation Program Office.
Operational Test and Evaluation, in particular, “had a lot of experimental dollars for startup technologies,” the VC partner said. “That program has been cut both in dollars, programs and people.”
Space Force RDT&E “took the biggest hit” in the 2026 budget proposal with “the vast majority of the cut in the classified RDT&E program line,” Harrison said July 17 during a SpaceNews webinar. Because it’s in the classified portion of the budget, “we don’t know the details, but it says that there was something in there that is now a much lower priority for the administration than previously had been the case,” he added.
Personnel cuts are also slowing the pace of military programs. Reducing the federal workforce is a key goal of the Trump administration, and some 21,000 civilians have agreed to leave their defense posts voluntarily. Additional jobs remain unfilled due to a hiring freeze and the firing of probationary workers.
As a result, startups with Small Business Innovation Research, Tactical Financing and Strategic Financing agreements are waiting longer than usual for milestone payments.
“To get paid, you have to submit your milestone to your technical point of contact,” said the VC partner. “If your technical point of contact is brand new, they’ve got to get brought up to speed on what it is that you’re doing. And invariably, there’s going to be a question or suggestion. These are not bad people. They’re just overworked.”
Delays of a few weeks or months can strain startup finances.
“All of a sudden, my revenue stream is not at all what I projected, and I’ve got these air pockets in it,” he added.
Rethinking civil space
NASA’s budget is still making its way through the appropriations process. The Trump administration called for canceling dozens of NASA science missions in its 2026 budget plan and cutting thousands of jobs.
Through reconciliation, Congress gave NASA $10 billion for human spaceflight programs including the Space Launch System, lunar Gateway and Orion spacecraft. Spending bills pending in the House and Senate, including a Senate Appropriations Committee bill released July 18, would restore much of the science-mission funding.
“There’s a lot of confusion within NASA and some of these government organizations. People don’t know if they will have budgets to deliver on the programs,” Bishop said.
That’s true for NOAA as well. The White House’s proposed 2026 budget would slash geostationary weather satellite funding and cancel the Traffic Coordination System for Space, or TraCSS.
Ultimately, Congress will determine whether to restore funding for defense and civil space programs that remain the lifeblood of many fledgling space companies. In the meantime, startups and the investors who support them may contend with delays, difficulties and, potentially, golden opportunities.
This article first appeared in the August 2025 issue of SpaceNews Magazine with the title “Golden opportunities or risky terrain?”