Anduril Industries Inc. is in talks to raise $400 million to $500 million in funding from investors in a deal that could take the form of a convertible note, according to people familiar with the discussions.

The defense technology startup is seeking a valuation of about $10 billion, said two of the people, who asked not to be identified discussing private information. Instead of raising a traditional funding round, Anduril could raise the money as debt slated to convert to equity at a $10 billion valuation in the future, in the event of a new financing round or other deal. The talks haven’t been finalized and the details of the convertible note could still change, the people said.

Anduril is likely to use the cash infusion to fund more strategic acquisitions — like the purchase of autonomous aircraft developer Blue Force Technologies, announced last month — as well as for research and development efforts, the people said.

A representative for the startup didn’t immediately respond to requests for comment.

Launched in 2017, Anduril has focused on building computer vision, artificial intelligence, sensor networks and other technologies for national security purposes, winning major deals including one with the US Special Operations Command for about $1 billion over 10 years. The company, co-founded by Oculus VR creator Palmer Luckey, has also attracted controversy within Silicon Valley for its work on weapons.

Luckey sold Oculus VR to Facebook for $2 billion in 2014 and departed in 2017 under a cloud of controversy. He later told CNBC that he was fired and that it might have been related to a financial contribution he made to a group that supported Donald Trump. Facebook, which later changed its name to Meta Platforms Inc., has said that Luckey’s departure was unrelated to his political views.

Anduril investors, including Andreessen Horowitz, have increasingly looked to back defense and national security startups in recent years. At the same time, the US Defense Department has created more avenues for startups to bring new technologies to the battlefield, and sell software and hardware to the government.

Anduril, which has previously raised a total of $2.3 billion, according to data provider PitchBook, was valued at $8.5 billion by investors at the end of last year.

Author: Lizette Chapman, Ed Ludlow, Katie Roof and Gillian Tan