Beyond the Arches #9: $1 trillion defense budget by 2030
Growing defense spending fuels emerging tech
Defense has always been a substantial component of the U.S. federal budget. In 2023, defense spending hit $746 billion, and this outlay is expected to increase to $1.1 trillion in the next ten years as geopolitical tensions in Asia and Europe increase.
Japan and South Korea, two nations with a historically fraught relationship, committed in August 2023 to a new pact with the U.S. to strengthen military and intelligence cooperation. While the agreement is not in response to any specific action by a particular nation, it does function as a layer of deterrence for North Korea and China. The U.S. has also doubled down on its military assistance to Taiwan with a new $500 million arms sale that includes infrared search tracking systems for fighter aircraft.
In Europe, the war in Ukraine has entered its second year. Since the initial Russian invasion in February 2022, the U.S. has sent $75+ billion in humanitarian, financial, and military aid to Ukraine. The majority of this assistance has gone toward pivotal weapons systems, training, and intelligence that have allowed Ukrainian forces to defend against the Russian offensive.
As technology continues to change the dynamics of modern geopolitical conflicts, the U.S. government is increasingly looking to the private sector to help develop new tools for itself and its allies. Venture investment has followed suit, with new capital flowing into the defense space to back emerging technologies like artificial intelligence and machine learning.
So, as demand for defense continues to rise and investment in the industry continues to pick up, how can retail investors use private markets to gain exposure and seek returns?
Direct investment opportunities
Here, we feature a few current direct investment opportunities in the startups that are working in the defense sector.
Avawatz is developing a platform that enables robots to perform cooperative tasks. Their technology allows air-, ground-, and water-borne robots, with different sensors and actuators, to work together on tasks that might otherwise be too dangerous or tedious for their human counterparts, such as clearing debris from high-traffic aircraft runways. The company has prototypes in use by the U.S. Army and Air Force, as well as $2M+ in R&D funding from the U.S. Departments of Defense and Homeland Security. Avawatz is currently raising capital via WeFunder.
Austin-based Lift is revolutionizing human flight. The company’s electric, vertical takeoff and landing (eVTOL) aircraft, HEXA, has completed beginner flight envelope testing with the U.S. Air Force, has been qualified as compliant with FAA Part 103 (operating requirements for ultralight vehicles), and is approved to fly without a pilot’s license. Lift has already produced a fleet of 16 HEXAs and plans to launch the world’s first eVTOL services in 28 markets by 2026. The company is currently raising via StartEngine.
Dr. Alexander Shkolnik and his father, Dr. Nikolay Shkolnik, founded LiquidPiston on the back of a radical idea: completely reinvent the combustion engine. Their patented thermodynamic cycle unlocks up to 10X the power of a traditional engine in a smaller footprint, while being able to run on hydrogen and a variety of other fuels. LiquidPiston’s latest XTS-210 engine was built in conjunction with a $9 million contract from the U.S. Army for use in generators, hybrid-electric power for vertical take-off and landing aircraft (VTOL), and small unmanned aircraft systems. The company is currently raising a Reg A+ round via its website.
STR Investment Opportunities
Short-term rentals (STRs) are a flexible and often lucrative way to add real estate to your investment portfolio. Check out these opportunities, courtesy of our friends at The Offer Sheet.
Unique cottage & guest house in Maine
20 Bay Drive, Woolwich, ME 04579 | $950,000
This exceptional property offers the best of bayside living. The 2-bedroom, 1.5-bathroom main cottage stands out with its cathedral ceiling and expansive glass walls that overlook the beauty of the surrounding environment. Complementing the main cottage is a charming guest house, which also features 2 bedrooms and 1.5 baths, and is designed in an open-concept fashion with numerous skylights that flood it with natural light.
- Average daily rate: $526
- Expected occupancy rate: 64%
- Monthly expected income: $10,239
- Monthly expected expenses: $7,757
- Monthly expected cash flow: $2,483
- Expected cash on cash return: 11.9%
Lakeside living with boathouse in North Carolina
111 Pine Ridge Drive S, Littleton, NC 27850 | $749,900
Enjoy your morning coffee on the sun porch and relax at night by the fire pit at this beautiful 3-bedroom, 2-bathroom lake house. The property also features a 2-story boathouse with deep water. This home has been an active rental with excellent reviews, and all items shown (except the pontoon) are included.
- Average daily rate: $416
- Expected occupancy rate: 65%
- Monthly expected income: $8,225
- Monthly expected expenses: $5,892
- Monthly expected cash flow: $2,333
- Expected cash on cash return: 14.0%
Perfect summer getaway in northern Michigan
This 4-bedroom, 3-bathroom home is located on Big Twin Lake, in Michigan’s northern Lower Peninsula. It features breathtaking views of the lake through the expansive wall of windows, from the upper porch, or from the patios on the walkout lower level. The new dock is included in the price, while the deck boat and home furnishings are also for sale.
- Average daily rate: $442
- Expected occupancy rate: 56%
- Monthly expected income: $7,529
- Monthly expected expenses: $5,719
- Monthly expected cash flow: $1,810
- Expected cash on cash return: 11.7%
Another tranquil lakeside retreat in North Carolina
262 W Christy Trail, Sapphire, NC 28774 | $695,000
This charming 3-bedroom, 3-bathroom home on pristine Hogback Lake features its own private dock, encapsulated basement, and a porch that is perfectly suited to taking in the stunning mountain views.
- Average daily rate: $409
- Expected occupancy rate: 57%
- Monthly expected income: $7,091
- Monthly expected expenses: $5,212
- Monthly expected cash flow: $1,879
- Expected cash on cash return: 12.1%
SMB Investment Opportunities
Courtesy of our friends at SMB Deal Hunter
AI-powered plant identifier mobile app that can be managed from anywhere
Gardening is one of the most beloved hobbies. This mobile app caters to plant enthusiasts, gardeners, and botanists with features like AI-powered plant identification, health checks, watering schedules, and a rich content library. The app operates on a SaaS model, offering a tiered subscription system. There could be an interesting opportunity to grow the business by launching an affiliate program, upselling physical products and/or additional content, or boosting paid advertising. | View listing
- Asking price: $3,200,000
- Cash flow: $712,000
- Revenue: $1,500,000
- Established: 2021
A growing medical spa/aesthetics clinic in Chelan County, Washington
Medspas are a unique opportunity because they usually come with recurring revenue from repeat customers. This is a reasonably priced clinic that’s asking for approximately 2x seller’s discretionary earnings (SDE). The business has been growing substantially, with revenue of $149,000 in 2020, $703,000 in 2021, and $1,039,000 in 2022. | View listing
- Asking price: $995,000
- Cash flow: $527,000
- Revenue: $1,039,000
- Established: 2019
Well-established towing & transportation company in California
This 30-year-old business runs on impressive 40% profit margins, as roadside assistance is a recession-proof business with regular demand. The business operates out of two locations and provides full-service towing with several contracts in place that produce recurring revenue. The company also provides law enforcement towing on a rotation basis. Reputation, longevity, and high-quality equipment differentiate this company from the competition. | View listing
- Asking price: $3,870,000
- Cash flow: $1,000,000
- Revenue: $2,500,000
- Established: 1995
A medical software company with next to no customer attrition in Texas
While the asking price is a little high for this 30-year-old family-owned medical software business, the fundamentals seem very solid. The business offers a unified, end-to-end solution that automates the management of healthcare professionals, patients, insurance-related workflows, and more. Customers are on annual subscriptions and the customer retention is incredible, with zero customer attrition in two years. This might be a deal worth negotiating for. | View listing
- Asking price: $9,950,000
- Cash flow: $984,000
- Revenue: $1,620,000
- Established: 1993
Franchise Investment Opportunities
A selection of franchises you can invest in right now
You are the landlord with this classic American franchise in Tom Bean, Texas
This store is a proven success, generating over $1.2 million in net sales last year, resulting in profits of nearly $150,000 for an owner/operator. When you purchase this 2880-square-foot freestanding building with an attached 404-square-foot patio, you are your own landlord. Plenty of parking and a highly visible location make this the ideal franchise opportunity. | View listing
- Asking price: $1,200,000
- Cash flow: $143,863
- Revenue: $1,235,753
- Inventory: n/a
- Established: n/a
Four-unit restaurant franchise in Charlotte, North Carolina
This high-volume multi-unit restaurant features sales across all locations of $5.3 million with even more room to grow under the right leadership. The earnings of $408,000+ demonstrate the potential for a strong, consistent return over the long term. The parent brand will want to see strong operational experience (not necessarily restaurant experience) in order to qualify for multiple units. | View listing
- Asking price: $1,250,000
- Cash flow: $408,158
- Revenue: $5,309,706
- Inventory: n/a
- Rent: $28,378.15
- Established: 2015
Well-known sandwich franchise locations in Maine & New Hampshire
This sandwich franchise consists of three well-established and reputable locations in New Hampshire and Maine. With a strong and loyal customer base, consistent revenue growth, and strategic locations, this business is poised for further expansion. Backed by a renowned parent company, there’s access to valuable resources and growth potential. | View listing
- Asking price: $1,050,000
- Cash flow: $385,900
- Revenue: $2,554,000
- Inventory: $26,000
- Established: 2014