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Military defense startup Anduril has had early discussions to raise what would be one of the largest venture capital rounds of the year so far, seeking about $1.5 billion of fresh funds that would value the company at $12.5 billion or more, two people who have spoken to the company said.

The potential funding round would be an increase from the $8.5 billion valuation at which investors including Valor Equity Partners and Founders Fund valued the company a year and a half ago. The company, which has raised more than $2 billion overall since its founding seven years ago, told investors it roughly doubled revenue to about $500 million last year.

The Takeaway

• Defense contractor wants to raise $1.5 billion

• Round would make it one of largest of year

• Startup has won big contracts but burns cash quickly

The new investment, if completed, would further show how private tech investors are plowing large slugs of funding into a small number of fast-growing, loss-making companies ahead of potential IPOs. Cybersecurity startup Wiz recently raised $1 billion at a $12 billion valuation, while enterprise software company Databricks raised $500 million at a $43 billion valuation last September.

A spokesperson for Anduril declined to comment.

Anduril—founded by Oculus VR cofounder Palmer Luckey and run by early Palantir employee Brian Schimpf —is the leader of a group of defense tech startups focused on selling drones, planes and submarines to the federal government. Last month, it beat Lockheed, Boeing and Northrop Grumman to build and test an autonomous fighter jet prototype for the U.S. Air Force. The company has said its rocket launchers and drones have been deployed over battlefields in Ukraine.

Fueled by the onset of that war and a growing chorus of U.S. business and government leaders championing investment into high-tech weaponry, investors have bid up Anduril shares. They've bought them at more than a $10 billion valuation, said Javier Avalos, chief executive of Caplight, which tracks the secondary market.

The Costa Mesa, Calif.-based company told investors it generated $670 million in new government contracts last year, up about 50% from the year prior and exceeding an early forecast it gave investors. It books a portion of those contracts as a revenue. The company has won big deals in previous years from the U.S. Department of Defense to counter drone threats and with the Australian Navy to build autonomous submarines.

Still, the company could represent a risky bet for late-stage private investors, who are betting on Anduril continuing its rapid growth. A $12.5 billion valuation would represent a 25 times multiple to last year’s revenue, far above the valuation of mature defense companies, whose enterprise values are about two times last year’s sales. And unlike software companies that typically draw tech investor funding, Anduril and other defense tech firms rely on slow-moving government customers that have sometimes unpredictable purchasing timing.

The startup has also been spending heavily to buy other defense companies and develop its own technology. In 2022, Anduril told investors it expected to burn through $2 billion from 2021 to 2026 overall, The Information previously reported. To pay for more acquisitions, it raised a more than $400 million convertible note late last year, which converts to equity for investors at a $10 billion valuation, Bloomberg reported.

The new funding round would surpass cloud provider CoreWeave, which in early May raised a $1.1 billion Series C round from Coatue Management and others, for the largest venture capital round of the year so far, according to Crunchbase. Elon Musk's xAI, which is raising $6 billion from investors at a $18 billion valuation, could surpass both deals.