Principles Of National Security Investing

National security investing is attracting capital, yetit remains poorly defined as an investment category. Global venture investment in defense technology rose 75 percent from 2024 to 2025, while private funds increasingly extend the national security label to artificial intelligence, critical minerals, energy, advanced manufacturing and supply-chain resilience. Some investments in these fields definitively strengthen national security. Others primarily pursue attractive markets, domestic jobs, technological leadership or economic growth and produce, at most, an incidental security benefit. As more funds and companies characterize broad portions of their activity as national security investing, the term risks becoming a marketing device rather than a meaningful investment category. 

If the distinction is not clarified, fund managers risk allocating capital under the pretense of helping protect a nation and generating a return, while the investment only does the latter. This misallocation could deceive investors and reduce the fund’s credibility. Further, governments need to know whether the private sector is financing a security capability or if they need to provide liquidity to entities and projects that are unable to secure it in the private markets. Misleading headline “national security investment” numbers due to security-washed transactions will create financing-blind spots. A rigorous qualification process is therefore necessary to identify national security investments: one broad enough to recognize essential infrastructure and enabling capabilities outside traditional defense technology, but narrow enough to exclude investments whose security connection is remote, speculative, immaterial or manufactured. 

For private investors, the analysis begins with four questions: 

• Was national security part of the investment thesis from the outset? 
• What threat and security issue does the investment address? 
• Will this particular transaction materially create, preserve, expand, harden or assure access to the capability?
• Are trusted substitutes inadequate under the relevant contingency? 

If utilized, the following set of principles operates as a sequence of assessments to answer said questions, allowing investors to determine if an investment fits a national security mandate. 

The Seven Principles

1. The national security purpose is explicit and ex ante, not an incidental benefit

A national security investment is made with the objective of supporting a defined national security capability. It need not be the investor’s sole motive, as seeking a competitive financial return is a rational use of capital. But the anticipated security contribution should be a material consideration in the decision when the investment is made, rather than a benefit identified afterward to recharacterize an otherwise commercial transaction. A useful test is whether evidence disproving the claimed security contribution would materially change the investor’s evaluation of the investment. If the security contribution had no bearing on the investor’s analysis or decision, the national security rationale is likely incidental. A national security narrative added after an essentially commercial decision has already been made does not transform the transaction. 

2. The investment supports a defined national security function

A credible investment thesis identifies more than a broad concern, such as geopolitical uncertainty or fragile supply chains. It instead specifies the foreign actor or cross-border threat, how harm could occur, the national interest exposed to that harm and the capability needed to prevent, withstand or recover from it. The relevant security function might involve deterring an attack, supplying military forces, resisting foreign coercion, protecting critical infrastructure from sabotage, securing sensitive information or restoring essential services after a hostile disruption. Ordinary commercial volatility, domestic hardship, routine outages and temporary shortages are not national security threats simply because they affect a large number of citizens.

3. National security extends beyond defense technology, but it is narrower than the national interest

Investments in critical civilian systems can qualify when those systems are necessary to withstand a defined external threat. A grid investment designed to preserve power after a foreign cyberattack may have a genuine security purpose even though it is not defense technology. At the same time, many investments that are good for a state are not national security investments. Job creation, affordability, economic growth, public health, environmental improvement, regional development and international competitiveness are valuable objectives, but they are not national security issues. 

To that end, strategic economic capacity would be more useful as a narrower category. An industry is strategically important only when losing access to it would materially impair the country’s ability to protect its citizens. An industry’s size, employment, export revenue, technological sophistication or symbolic importance is not enough. Otherwise, nearly every major industry could be characterized as essential to national strength and therefore to national security. The relevant consideration is whether losing dependable access to the capability would prevent the state from performing a specific security function under a plausible contingency. 

4. Evaluate consequence, vulnerability and credible exploitation together

The strongest cases combine three elements: any loss, compromise or omission of the capability would have serious national security consequences; the present system is genuinely vulnerable; and a foreign actor or external threat has a credible means of exploiting that vulnerability. A chokepoint establishes concentration but does not by itself establish a national security threat. A foreign nation’s dominance of toy manufacturing, for example, could create commercial disruption if goods were cut off, but it would not materially impair a security function. Concentration becomes strategically significant when combined with mission-criticality, low substitutability and meaningful adversary leverage. 

5. Enabling investments face a higher bar

An enabling investment supports a primarily commercial capability on which a security mission depends. Enabling investments qualify only when the connection is proximate, necessary, scarce and threat-linked. The security user needs to genuinely depend on the capability, trusted substitutes must be inadequate and the transaction must help ensure access to it. Latent conversion capacity is not enough: a commercial plant does not become a national security asset because it could be repurposed in wartime. A particular process or facility may qualify when it is indispensable to a critical defense component, cannot be replaced within the relevant contingency and is expressly secured for that mission. 

6. The transaction itself creates an attributable and material security capability

Investing in a company relevant to national security is not necessarily a national security investment. The particular transaction needs to create, preserve, expand, harden or assure access to a defined capability. Purchasing publicly traded shares from another investor ordinarily changes neither the company’s resources nor national capacity, making the transaction security-washed, rather than security-enabling. It may qualify only in unusual circumstances, such as when the ownership change prevents adversarial control or provides governance necessary to protect sensitive technology. By contrast, financing a production line, retaining a sole supplier, protecting intellectual property, expanding secure infrastructure or bringing a critical technology into operational use can produce a direct security effect. The use of proceeds and the rights created by the transaction therefore matter as much as the identity of the recipient. 

The security effect also needs to be material.The investment should seek to change the country’s ability to perform the defined security function, not merely reduce inconvenience, moderately higher prices or a temporary commercial disruption. For early-stage technologies, materiality can be assessed probabilistically, but the company should still rest on a credible path to a security-related end-user, mission application, and deployment.

7. Dependable access may come from trusted allies, not only domestic production

National security requires dependable access, not complete national self-sufficiency. If an adequate product can be obtained from multiple trusted allies under the relevant contingency, building a duplicative domestic source may provide little additional security. Conversely, an investment in allied production may strengthen a nation’s security by creating diversified, interoperable and geographically separated capacity. A substitute counts only if it is available at the required scale, speedand quality and if the supplying country is likely to remain dependable during the contemplated crisis. Replacing one foreign single sourcewith one domestic single sourcemay change geography without creating genuine resilience.

National Security Returns and Investment Returns are Separate Judgments

By using these principles, stakeholders can clarify whether a transaction can credibly sit inside a national security mandate. They do not, however, establish that it is financially attractive. National security benefits often accrue broadly to a state rather than solely to the investor, so the investment that maximizes private financial return may therefore differ from the investment that creates the greatest national security value. A national security investor may rationally accept a lower risk-adjusted return, longer investment horizon, reduced liquidity, redundant capacity or restrictions on customers, operations and exit when those concessions materially increase the security benefit. Such a tradeoff is neither necessary nor sufficient. A highly profitable investment can produce substantial national security value, and an investor’s willingness to accept a poor return does not transform an ineffective project into a national security investment. The company must still be capable of delivering the claimed security outcome.

The two judgements—the national security case and the return on investment case—are therefore distinct. This lets capital allocators compare the two outcomes to determine whether it meets their individual hurdle rates and shows policymakers where private incentives do not match public need. Without it, scarce capital could be diverted from genuine security needs while diluting the meaning and legitimacy of the national security label.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.