Growth skyrockets for Virginia govcon startups

During the past three years, Govini CEO Tara Murphy Dougherty estimates she’s handled hundreds of calls from investors looking to grab a stake in the Arlington County-based defense software firm she leads.

It was a good problem to have, she admits, albeit a time-consuming one.

“I think this is typical of many companies that are successfully navigating this market,” Dougherty says. “On a pretty much daily basis, I would hear from various investors who were interested in getting to know the company for the purposes of making an investment.”

The company’s flagship suite of AI-enabled applications — known collectively as Ark — is used across each of the U.S. military branches and within intelligence agencies to speed acquisition.

In October 2025, Govini announced it had secured $150 million from Boston-based private investment firm Bain Capital, elevating it to unicorn status with a $1.25 billion valuation.

Founded on the West Coast in 2011, Govini moved to Northern Virginia in 2016 in a pivot toward the federal government. It was drawn by the Pentagon’s establishment of the Defense Innovation Unit in 2015 to accelerate the adoption of commercial technology and expand the defense industrial base as the military realized it was falling behind its competitors.

“The conversation was really just starting around this idea of bringing in new companies or tapping into … the American technology sector in order to expand beyond just the traditional primes,” Dougherty says.

The bet paid off. As a government contractor, Govini has joined other Northern Virginia-based unicorns, as well as a host of other startups in the region that have recognized the value of being close to their government customers.

Virginia is the “heart and soul of U.S. national security,” Dougherty says, adding that Govini employees visit the Pentagon multiple times each week to meet with customers.

“It’s Defense Tech Alley here,” she says of Rosslyn, the Arlington neighborhood where Govini is headquartered. “You can’t cross the street and get lunch at Cava without bumping into a founder of another fantastic growing defense tech company.”

Venture capital buy-in

Investors, too, have taken note of Northern Virginia’s growing cache of government contracting startups and, in particular, those in the hot defense tech sector, even given federal workforce layoffs and impacts on government contractors.

Venture capitalists invested about $5.3 billion in the greater Washington region across 341 deals in 2025, according to the PitchBook-National Venture Capital Association Q1 2026 Venture Monitor. That’s up from $4.2 billion across 289 deals in 2024, and this year appears to be off to a strong start for the region, which includes Arlington, Alexandria, Maryland, Washington, D.C., and West Virginia.

PitchBook reports about $950 million invested in 61 deals in the region during the first quarter of 2026, up from $671 million and 80 deals year-over-year.

Virginia as a whole recorded $2.75 billion in VC investment in 2025, up from $1.8 billion the previous year, according to the PitchBook-NVCA report. Much of that was driven by later-stage venture investment as well as about $850 million in angel and seed investment, a 10% year-over-year increase, says Joe Benevento, president and CEO of the Virginia Innovation Partnership Corp., a state-run nonprofit overseeing commercialization and funding of startups.

“Northern Virginia is still the lion’s share of overall statewide venture capital investment activity,” Benevento says, adding that much of the capital came from outside investors.

Not that Virginia’s anywhere close to Silicon Valley, which led the 2025 field with $170 billion in 3,500 deals, nearly twice the $94 billion invested in 2024, but regional experts and business leaders see progress for Virginia startups.

While government contracting has long been Northern Virginia’s bread and butter, observers see defense tech and AI companies doing business with both the government and commercial sectors.

Government activity

Federal contracting has long been a steady source of income for Virginia.

In fiscal 2024, the federal government committed about $755 billion on contracting, and the U.S. Department of Defense accounted for more than half of that, or $445 billion, according to the U.S. Government Accountability Office. Virginia is the biggest beneficiary of that spending, accounting for $109 billion in 2023, about 62% of which went to Northern Virginia, according to the University of Virginia’s Weldon Cooper Center for Public Service.

While the federal contracting world can be a challenge to learn and navigate for outsiders, it is often lucrative, says Kevin Robbins, general partner at McLean-based Blue Delta Capital Partners, a venture capital firm focused exclusively on the federal government market.

He notes that the government’s spending on IT and professional services represents about 20% of the annual gross domestic product.

“It’s not the first place that a lot of VCs look to invest, but when you get a little bit of a hiccup elsewhere, if valuations are getting really crazy in startup land, if you’re worried that AI is going to eat all your software investments, if you’re concerned about your exposure to tariffs or trade wars, well, hey, look over here,” Robbins says. “There’s a fifth of the U.S. economy in and around technology and technology-related services that’s kind of insulated from a lot of that. … It’s a really ripe environment to invest in.”

Adding to that ripening is the Trump administration’s efforts to downsize the federal workforce, swapping out workers while encouraging technology modernization, as well as a proposed $1.5 billion 2027 defense budget.

Defense tech companies, particularly those with dual-use products designed for both government and commercial customers, are luring large amounts of capital as the defense industrial base fights to rebuild and catch up with geopolitical needs. At the same time, the propagation of AI companies with promising vertical solutions and the focus on building a domestic semiconductor supply chain — along with the resources to support it — are fueling investor excitement.

While the government tends to lag behind the commercial sector in areas like IT management and cloud migration, it is on par or even slightly ahead in places like cybersecurity, autonomy and certain parts of AI, Robbins adds.

“You’ve just got a confluence of two or three massive kinds of investment theses rolling through our zip codes,” he says.

Sector growth

Excitement is evident in large investments in Northern Virginia-based companies in 2025. Just after Govini reached unicorn status, Sterling-based Heven AeroTech, which is producing a hydrogen- powered drone, closed on a $100 million Series B round led by Maryland-based IonQ, pushing its valuation to $1 billion.

Other big winners include Manassas-based aviation company Electra.aero, which closed a $115 million Series B round in April 2025 led by New Jersey-based Prysm Capital, and Ballston-based Auterion, which provides software for military drone swarms and announced last September a $130 million Series B round led by San Francisco’s Bessemer Venture Partners.

“There is a lot of momentum in this space,” says Ryan Sublett, vice president of finance for Rosslyn-headquartered Shift5, which produces an operational intelligence platform for military and transportation customers. Founded in 2019, Shift5 raised $75 million in a Series C round led by London-based Hedosophia in 2025, with plans to use the money to continue to develop its products.

Venture capital poured about $50 billion into defense tech companies in 2025, according to PitchBook, but just a handful of years ago those same investors were wary of the sector until defense disruptors like Palantir Technologies and Anduril Industries helped rewrite the narrative, Sublett says. The Pentagon’s commitment to reforming acquisition and prioritizing innovation has motivated investors.

“Will the government know how to buy this thing, and will the government deploy it at the speed of venture capital? That’s really been the catalyst to this shift in venture being interested,” Sublett says.

Northern Virginia, home to four of the five largest U.S. defense contractors, has not been shy about trying to put its stamp on ownership of the national security sector.

“We feel like this is the Silicon Valley for defense,” says Derren Burrell, managing partner of Veteran Ventures Capital, which he started in Tennessee and moved to McLean in 2024 to be “closer to the action.”

An Air Force veteran, Burrell invests in dual-use defense tech companies run by fellow veterans, typically close to the Series A mark. Last August, Veteran Ventures Capital closed on its second fund, raising an oversubscribed $60 million. Burrell says he is investing that money in four companies and is completing due diligence with six other Virginia startups.

Building an ecosystem

While Northern Virginia’s wealth of prime contractors can lead to coattail-riding protégés, Burrell notes that regional initiatives also help lure investors and startups. In February, Arlington and Alexandria’s National Innovation Quarter launched a series of year-round initiatives to spur economic activity, including accelerators and investor summits.

Known as National IQ, it is a public-private partnership that includes a laundry list of who’s who in the National Landing neighborhood, including local and state government, academia and industry partners. Maryland real estate developer JBG Smith, the business behind Amazon HQ2 and other significant projects, is also a part of the tech hub.

“If you look at all the companies that are kind of crowding into this region, into this neighborhood, I don’t think there’s a higher density of emerging defense tech anywhere else in the world,” says Andrew Lackner, co-founder of the Virtus Innovation Center, which grew out of a partnership between Amazon Web Services, VC capital firm Energy Innovation Capital, JBG Smith and others, and focuses on defense and energy startups.

Virtus moved into its new 15,000-square-foot home at 1550 Crystal Drive in the spring with plans for up to two dozen startups to move in, Lackner says, noting that Energy Innovation Capital is raising money for the chosen startups.

“What we’ve seen so far is that there’s not a lot of innovation centers right now that are purpose-built to house startup companies in this space and provide them with the sort of platform and also the mission-aligned founder community that we’re trying to build here,” he says.

While Northern Virginia companies may be riding the wave now, one question remains: What’s next?

“We’re on the forefront. … I think that this is just the beginning,” Burrell says, adding that defense tech will continue to have a leading edge, in part because “we are seeing real world threats that are continuing to escalate on the technology curve. We have to continue to do that in order to maintain our edge. I see this trend continuing to double and triple over the next several years.”

Robbins, meanwhile, offers the same advice he gives to Blue Delta’s portfolio companies: “Be ready to go at any time.”