Defense startup Hermes has raised $350 million to continue developing what it calls the “fastest drone,” in a funding round that has pushed its valuation to $1 billion.
The Los Angeles-based startup said Tuesday it has raised $200 million in equity funding, led by Khosla Ventures. Existing investors Canaan Partners, Founders Fund, In-Q-Tel and RTX Ventures also participated. New outside money comes from media group venture fund Cox Enterprises, publicly traded closed-end investment management firm Destiny Tech100 and others.
The remaining $150 million comes in the form of debt, which Hermeus co-founder and CEO AJ Piplica told TechCrunch will help the startup and its growing cap board maintain some control.
“We’re building a lot of hardware, we’re expanding our manufacturing capabilities, and if we can fund a large portion of our spending without breaking even, then that’s absolutely the way to do it,” he said in an interview.
Hermeus’ raise comes at a time when business and corporate investors are pouring money into defense startups. VC investments in defense technology topped $9 billion in 265 rounds globally last year, according to PitchBookwith corporate investors contributing $2 billion over 28 rounds.
But for Hermes, it’s not all about good timing.
Piplica attributes at least part of its fundraising success to a change Hermeus made on the technical side a few years ago. The startup had spent time and money developing its own engine, partly out of necessity, he said. After Hermeus courted RTX Ventures — the business arm of RTX Corporation, the defense equipment contractor formerly known as Raytheon — a new opportunity arose.
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Piplica and his team decided instead to work with RTX subsidiary Pratt & Whitney to modify the aerospace company’s F100 engine to power Hermeus’ supersonic aircraft.
This put Hermeus on the fast track with a proven and operational engine, making it easier to test and iterate, while securing new US government contracts along the way. Instead of aiming for one big goal of building a Mach 5 aircraft, Hermeus was now able to diversify, according to president Zach Shore.
“This accelerates us to Mach 5 and also strengthens the financials of the business while meeting short-term demand from the Ministry of Defence,” he said. “I think in that way, you have a number of concentric circles that overlap at the same time that enhance the business, that enhance the customer, and that, you know, enhance the maturation of the technology.”
Last month, Hermeus flew a demonstration version of its technology that was the size of an F-16 fighter jet. The startup has said it aims to make the next iteration of this aircraft go supersonic. A third aircraft is also in the works, Piplica said.
This rapid prototyping approach is difficult to achieve in aviation, Piplica said. He points to SpaceX as the industry standard for being willing to build, test, fail, learn and iterate until it gets a vehicle right. That’s why the toughest challenge Hermeus faces is cultivating or developing talent, Piplica said.
“There is nowhere in the world where companies build new full-scale aircraft on an annual basis, pure or otherwise,” he said. “People did that, but they’re all dead, which means you have to make these people one way or another.”
The new round of funding will also help Hermeus continue to grow its workforce, which is already approaching 300 employees.
Hermeus has now had two successful test flights (it flew last year with a demonstrator that was three times smaller). But Piplica emphasized the need for Hermeus to be ready for some sort of failure—which, again, he sees as part of the rapid prototyping process.
“The challenge is how you pick the right pieces of risk to take and deploy your capital over time,” he said. “Like, yes, we could crash an airplane, and I expect that will happen at some point in our development program. We’re ready to do that safely. But that’s also why, for example, building more aircraft is extremely important. If you don’t build a lot, it’s going to take you a lot longer, why would you go for childish things. You know, we’re wondering, 5.2 years to develop new aircraft?”
Correction: An earlier version of this article used the word “standalone” in the title. The Hermeus aircraft is unmanned, meaning it is remotely controlled.
