New defense firms backed by venture financing and state economic development subsidies have given states a political stake in the most innovative portion of federal defense procurement. Sign Up for Our NewsletterVenture Capital, Defense Allocations and New Business ModelsMany new defense firms rely on a different business model from the prime contractors. Venture funding proceeds in rounds, where firms raise capital investments from interested firms to continue building and scaling. New defense firms can draw on state subsidies to either build new capacity or expand existing operations. The rise of new defense firms has thus reshaped the politics of defense contracting.