In 2015, Florian Seibel was fed up. He had spent the past 16 years in the German armed forces, and was frustrated with the military’s painfully-long procurement cycles. That’s why, when he founded Quantum Systems, a startup that builds AI-powered unmanned aerial surveillance drones, the plan back then was to focus on agricultural applications as “that was the use case” at the time. But in 2019 the company shifted to work on dual-use drones with military applications.
“Everything’s expensive, everything’s outdated, [there’s] no willingness to change,” Seibel tells Sifted of the German military. That procurement process still hasn’t improved enough in recent years, he says, although Russia’s invasion of Ukraine in 2022 was a wakeup call.
Quantum Systems’ unmanned aerial vehicles, or UAVs, have been used for reconnaissance and intelligence gathering by the Ukrainian armed forces; the drones can spot enemy whereabouts and deliver information, but don’t strike themselves.
The company has seen its popularity among investors rise too. It raised €63.6m in October last year from VCs including PayPal cofounder and German-American investor Peter Thiel, Project A, HV Capital and Airbus Ventures. In total, Quantum Systems has raised $128m, according to PitchBook data.
Seibel has also convinced VCs to back his new venture, Stark, which is building autonomous strike drones and was launched in February this year.
Defence tech ‘FOMO’
Despite being a founder who’s raised more than €100m in funding, Seibel concedes VC interest in defence tech has gotten a bit frenzied lately. “There’s definitely a hype… they all have this FOMO now,” he says.
He argues that some of the big US VCs — like Andreessen Horowitz and General Catalyst, which have invested in companies like US-based defence tech Anduril — have had a bit of a head start. “Now I have the feeling that all these other companies, all these other VCs, are kind of like, ‘Hey, me, too.’ And they don’t have the experience,” he tells Sifted. “Talking to some of these VCs, I could tell them anything, and they would believe me. That is shocking to me.”
Seibel likens defence tech to similar recent hype cycles: “They’re like, ‘Oh shit, we need to do AI; oh shit, we need to invest in WeWork or whatever.’
“I have a little bit of the feeling now that a lot of dual use VCs say, ‘We have to defend Europe, blah, blah, blah,’ and they just jump on the train, which means they also make bad decisions on who they invest in,” he says.
Although he expects there will still be a lot of investment in the drone space in the next few years, there will likely be a lot of consolidation: he predicts there will be three or four European winners 10 years from now.
Seibel tells Sifted that Quantum Systems made its first acquisition in May, and is expected to close another one this month. While he declined to specify which companies as the deals haven’t been announced yet, he said the recent May acquisition was a sensors company and the upcoming acquisition is in manufacturing.
“There’s no rush here from our investors’ side”
Quantum Systems recently signed a three-year contract worth €18.4m with the Romanian Ministry of Defence to supply it with its aerial data capture Vector drones. It is also under contract with the German armed forces to deliver 14 drones by the end of this year; Seibel says the company also has “some ongoing tenders” in Germany.
The company now employs 320 people and is currently profitable, says Seibel. He adds that it reinvests “every single euro to grow.”
On future exit plans Seibel is unsure whether the company would eventually target an IPO or a merger. “Either it’s an IPO to really stay German, stay European, or it’s a merger, maybe with one of the bigger companies,” he says.
That said, he adds that the defence companies are “slow and big and probably would just absorb us. We’re just getting started. […] There’s no rush here from our investors’ side; they all know this is a long term play.”
He says his goal for Quantum is to double production this year and next year.
New details on Stark
There’s been a growing tension among some VCs and founders of defence tech startups when it comes to what their technology is used for. In some cases, VCs would like to allow their startups to build weapons but their own investors, LPs, forbid it in LP agreements. This conundrum is what led to Siebel founding his new startup Stark, which is based in Berlin.
He says the German government approached him asking if they could attach weapons to Quantum Systems’s surveillance drones — something the company’s investors considered. “We really discussed it in board meetings and took our time, and we had legal papers being made: ‘Is there like a backdoor? Can we justify this to the LPs of our VCs?’” Seibel says. Some of the VCs, though, had hard limits on not being allowed to invest in weapons and deemed it too big of a risk, he tells Sifted. Stark is using open source technology as it can’t use Quantum’s IP and technology.
According to Siebel (who declined to provide specifics) Stark now has between 50 and 100 employees and has already closed between $20m-100m in VC funding from a mix of existing and new investors. On whether Thiel is one of its backers, Seibel coyly says “He’s a big fan of us,” but declined to confirm.
Seibel agreed with his Quantum investors that he also couldn’t have an active role in Stark, and so is hiring a CEO for Stark in 2025 (Seibel currently holds that role).
Both Stark and Quantum Systems might raise again at the end of this year, he says.
The morality of autonomous weapons
Autonomous attack drones could have the ability to be incredibly dangerous should something go wrong, which has made them controversial. When asked about the morality of working on drones and weapons capable of self-identifying targets, Seibel invokes a common refrain: “Every technology in the wrong hands is dangerous.”
In regards to these AI tools that can self-identify and track targets and make a decision about whether to strike, he says he isn’t really talking about autonomy “yet”. “It’s more like algorithms that identify a tank, and then an algorithm that can say, ‘Yes, I’m 99.9% sure that is the Russian tank.’” It then puts it into context — is that tank driving from east to west and was it firing moments ago? “You connect these pieces of information and derive a decision that’s basically 100%. If you connect all these, [and] a human would also say yes, that is a valid target to strike.”
The big question is whether governments will allow the tech to actually be used. “It’s not that we as Quantum or Stark decide what is right or wrong, or what are the international rules here — it’s the politicians that have to say, ‘We have the technology; Russia has it, China has it. Let’s agree on rules.’” As he’s previously stated, this could also mean there would still be a person involved in decision-making.
When asked what checks and balances Stark is putting in place when training the AI for its strike drones, Seibel says, “You definitely need training data. Ukraine now, unfortunately, is in the possession of a lot of these training clips or real world data or video streams or imagery. And obviously, they make that available to their allies.”
He adds, “We’re not there yet”, and that they’re still building. “There are no clear guidelines and rules yet.”
Read the orginal article: https://sifted.eu/articles/vc-defence-tech-hype-drones-quantum-systems/
