Defence technology start-up Anduril has raised nearly $1.5bn in the second-biggest venture capital round of the year in the US, marking a milestone for young tech companies trying to break into the notoriously difficult field of defence procurement.

Anduril said the investment valued it at $7bn, excluding the new cash it is raising, up from $4.2bn 18 months ago. It comes at a time when giant investment rounds, which were a feature of the recent venture capital boom, have all but dried up, while many start-ups struggle to avoid “down rounds” that force them to accept lower valuations.

Anduril was founded five years ago by Palmer Luckey, who sold his previous start-up, virtual reality company Oculus, to Facebook for $2bn at the age of 21. In an interview with the FT, Luckey said he had set out to build a large defence company based around new technologies such as AI and drones because many Silicon Valley companies, under pressure from their workers, had turned their back on the Pentagon.

“The big tech companies in the US were largely refusing to work with the [Department of Defense],” he said. “You have all this incredible technology talent that’s just inaccessible to the DoD. There’s never been a point in US history where that’s how things were.”

Tech start-ups have struggled to sell to the military because of the defence industry’s long purchasing cycles and the challenge of earning enough trust to win sizeable contracts.

“They were laughed out of Silicon Valley, a lot of people didn’t believe it could be done,” said Katherine Boyle, a partner at Andreessen Horowitz, an Anduril investor. “The nature of warfare has changed fundamentally and the [large defence contractors] are not going to be able to meet the procurement needs.”

In the strongest sign yet that the Pentagon is turning to the software and AI capabilities of newer defence companies, Anduril earlier this year won a contract from the US Special Operations Command worth nearly $1bn to act as a systems integrator on a counter-drone project. Along with a series of contracts with different branches of the US military, Luckey said the company works with “half a dozen Nato allies” and has “hundreds of millions” of dollars in annual revenue.

Anduril is known mostly for autonomous systems such as drones, as well as surveillance towers used for border security. Most of its engineers work on its software platform Lattice, which pulls together data from many different surveillance and weapons systems, most of which are not built by the company.

Russia’s invasion of Ukraine has changed attitudes in Silicon Valley and made many more tech start-ups willing to consider working with the Pentagon, Boyle said. However, there is still a heated debate in tech circles about how far companies that were not set up purely to work on defence should go, particular when it comes to offensive weapons.

Luckey said Anduril did not draw the line at building weapons but would not use facial recognition software, because the technology could never be reliable enough to trust in life-or-death situations. He rejected calls for a ban on autonomous weapons, arguing that always requiring a “human in the loop” to make the ultimate decision to fire would leave the US and its allies at a disadvantage to countries that used fully robotic weapons.

Instead, he called for clear lines of responsibility over the decision to employ autonomous weapons in particular situations, rather than actually fire them, but added that only democratically elected leaders should set the rules.

“You shouldn’t want me to make that decision because you shouldn’t want corporate executives setting US foreign policy or military policy,” he added. “We should just be the dumb computer boys who make these things.”

The latest investment, which takes Anduril’s total fundraising to $2.2bn, was led by Valor Equity Partners. The company was reported earlier this year to have started the process of raising the round. In the biggest VC round of the year, Elon Musk’s space company, SpaceX, raised nearly $1.7bn in June.

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