Pentagon Floats Equity Stakes In U.S. Drone Startups As Trump Administration Tries To Buy Its Way Out Of A Production Deficit

The Trump administration is negotiating funding deals with a group of American drone companies, and at least some of those deals could hand the U.S. government an ownership slice of the firms it backs. According to a Wall Street Journal exclusive, the Pentagon has identified Performance Drone Works, Unusual Machines, and Neros Technologies as candidates for financing meant to expand domestic manufacturing and drive the per-unit cost of attack drones down toward the roughly $5,000 ceiling the military is targeting.

The structure is the part worth slowing down on. The talks involve the Office of Strategic Capital, a lending office the Biden administration created to fund companies considered critical to national security supply chains, and the Journal reports the deals could combine debt and equity. Equity means Washington taking a direct position in private drone makers, not just writing checks for hardware. The money would fund production build-out, not drone purchases.

Markets read it as a green light. Shares of Unusual Machines, the publicly traded component supplier that counts Donald Trump Jr. as a shareholder and advisory board member, jumped sharply on the report, trading near a 52-week high. I have been covering the Pentagon’s stop-start drone procurement for close to four years, and a federal equity stake in an FPV startup is a different category of commitment than anything I have written about before.

The three named companies sit at different points on the supply chain

The trio the Pentagon flagged, first reported by Heather Somerville and Amrith Ramkumar at the Journal, covers components, finished attack drones, and Army reconnaissance hardware, which tells you the funding is aimed at the whole production stack rather than a single platform. Each company arrives with a different track record and a different set of political and financial complications.

Neros Technologies is the one with the deepest battlefield footprint. The Sequoia Capital-backed startup builds small first-person-view drones and has raised more than $120 million from venture investors. Its Archer platform is Blue UAS-cleared and NDAA-compliant, and Marines with the 24th Marine Expeditionary Unit trained on Neros Archer systems this spring before deployment, as I documented in May. Neros also placed second in the Pentagon’s Gauntlet I competition, finishing behind Skycutter on the operator-scored leaderboard, after first appearing on the 25-vendor shortlist in February.

Performance Drone Works, or PDW, has raised close to $200 million and already holds an Army contract to supply reconnaissance drones. Unusual Machines is the publicly traded outlier, a parts maker whose Pentagon ties run through its Trump Jr. connection and a separate drone project backed by both Donald Trump Jr. and Eric Trump. The company has also done business with suppliers of China-made drones, a detail that complicates the clean “American-made” framing the funding push is built around.

The funding fits the Drone Dominance program’s cost math

The deals line up with the Pentagon’s Drone Dominance program, the roughly $1.1 billion effort to build an arsenal of around 300,000 low-cost attack drones by the end of 2027. The problem the program keeps running into is price. Many U.S.-made drones sell for tens of thousands of dollars more than the $5,000-per-unit target, and no amount of demand signaling fixes a cost structure that high. The premium shows up across the procurement chain, including the $500 million counter-drone contract I covered in May, where U.S. interceptors ran roughly six to seven times the Ukrainian price. Production subsidies are the lever the administration is reaching for now.

The capacity gap behind all of this is stark. A 2025 estimate put U.S. drone-building capacity at up to 100,000 units a year. Ukraine built about four million last year. That single comparison is the entire policy argument compressed into two numbers, and it is why the drone industry has spent years blaming the Defense Department for not buying enough to justify scaling factories. I covered the underlying volume deficit when the Pentagon’s DOGE unit seized control of drone buying last October after the Replicator initiative stalled.

Pentagon drone spending was a rounding error until this administration

Before Trump’s second term, Pentagon purchases made up less than 2% of all commercial and government drone system sales in the U.S. each year, according to the Defense Innovation Unit. That number explains why domestic manufacturers never scaled. There was no buyer large enough to justify the capital expenditure, so prices stayed high, which kept the buyer away. The funding talks are an attempt to break that loop from the supply side instead of waiting for purchase orders to do it.

The budget ambition behind the shift is enormous. The department has requested more than $54 billion for its drone nerve center, the Defense Autonomous Warfare Group, up from around $225 million this year. I broke down that FY27 request in April, where the DAWG line landed as the largest year-over-year increase of any program in the budget. Drone dominance was named a presidential priority in Trump’s $1.5 trillion FY27 defense request, so the funding deals are the procurement arm of a stated top-level objective, not a one-off experiment.

The deals are still pre-decisional and the conflict questions are real

A Defense Department official told the Journal the department would not comment on pre-decisional matters subject to change, and that any final decision would come in a formal announcement later. The talks are in a negotiation phase, and Pentagon dealmakers are still vetting the companies. Nothing here is signed.

The Trump Jr. connection to Unusual Machines is the obvious complication. A sitting administration negotiating an equity stake in a company where the president’s son is a shareholder and board member is the kind of arrangement that invites scrutiny no matter how the final terms shake out. The Journal noted the relationship without drawing a conclusion, and the company’s drone-project ties to both Trump sons widen the surface area for that scrutiny.

DroneXL’s Take

For four years I have watched the Pentagon try to demand-signal its way out of a manufacturing problem. Replicator was supposed to do it. The DOGE seizure of drone buying was supposed to do it. Drone Dominance and the FY27 budget were supposed to do it. Each one treated the gap as a buying problem when the real constraint was that nobody would build factories for a customer that bought less than 2% of the market. This is the first move I have covered that attacks the supply side directly, by capitalizing the manufacturers instead of waiting for purchase orders to justify their expansion.

Equity is the detail that changes the analysis. A conditional loan is a bet on a company’s output. An ownership stake is a bet on the company itself, and it ties the government’s balance sheet to the commercial survival of firms like Neros and PDW. That alignment cuts both ways. It gives Washington a reason to keep these companies alive through the lean years that killed earlier domestic drone efforts, and it gives critics a clean line of attack when one of the equity recipients happens to have the president’s son on its board.

Watch the formal announcement the Defense Department official promised for whether equity actually survives into the final terms or gets swapped for the conditional-loan structure the Office of Strategic Capital has used before. The two are not the same instrument, and the difference determines whether this is a genuine break from the old playbook or the old playbook with a press release attached. The other open question the Journal’s reporting did not resolve is how the administration plans to handle the Unusual Machines conflict if that deal closes, and it was not addressed. The answer matters because a federal equity stake in a Trump-linked drone company is exactly the kind of arrangement that ends up in front of an inspector general, and how it is structured now determines how that review goes later.

Source: The Wall Street Journal, reported by Heather Somerville and Amrith Ramkumar.

DroneXL uses automated tools to support research and source retrieval. All reporting and editorial perspectives are by Haye Kesteloo.