Neros Technologies assembles small military drones in Torrance, California, mostly from parts other companies make. By late next year, Ross Pederson, its head of growth, told Military Times, about 80 percent of each drone by dollar value should be made in that same building. The Pentagon’s Office of Strategic Capital has made a conditional loan commitment of up to $450 million to pay for the switch. I’d normally talk a company at Neros’s stage out of making its own parts. Neros’s case is different, because its military customer can’t buy drones with electronics from certain countries, China among them.
What the loan is so far
The Defense Department’s release lists what Neros must still satisfy before financial close: financial, legal, technical, investment and due diligence requirements. Neros is adding $165 million of its own equity, which brings the project to $615 million. Pederson wouldn’t share the interest rate or repayment schedule. He did say the loan can’t be forgiven and that the department attached manufacturing goals to it.
Whatever the terms turn out to be, a loan gets repaid from what the plant ships, so the plan depends on orders. Neros won a $100 million order through the Pentagon’s Drone Dominance Gauntlet II in September. Its CEO, Soren Monroe-Anderson, says the capital would put the company on track to build one million drones a year by 2028.
Why the usual advice bends here
My usual advice comes from how contract manufacturers work. They spread tooling and engineers across many customers. A startup that installs its own surface-mount line, the equipment that places components on circuit boards, is running a second business alongside the first.
Neros’s customer narrows that choice. According to Pederson, the Defense Department has long been barred from buying drones whose electronics come from certain countries, China among them, and for military buyers that prohibition matters more than tariffs. He also said about 99 percent of small drones are made in China. A drone maker selling to the Pentagon has to find suppliers outside the country that builds most small drones, or make the parts itself. Neros has already expanded its in-house motor production, Pederson said, and will soon start making surface-mount components, the parts that populate circuit boards.
I’d put the same test to any hardware founder whose customer restricts sourcing, in robotics or energy storage as much as defense. For each line on the bill of materials, is there a supplier your customer allows that could ship ten times your current order? If there is, buy the part. If there isn’t, you’re choosing between building it and living with a supply gap that can stop shipments.
Selling parts to competitors
The release says the Torrance plant will also sell NDAA-compliant components to other U.S. and allied drone makers, and Pederson said the department’s goals center on making parts available to the broader market. The release lists propulsion motors, flight stacks, radios and thermal sensors among the critical subcomponents the plant will help onshore, alongside complete drones. Other small-drone makers are the natural buyers, and they’re the companies Neros competes with in the Pentagon’s drone program. I’d expect a rival buying motors from Neros to ask for written assurance that it gets its share when supply is tight, since it’s buying from a company bidding for the same orders.
The commitment I’d watch is the one to sell parts to other drone makers. If Neros keeps competitors supplied when parts run short, the Torrance plant serves the wider drone industry, which is what the department says it’s paying for. If competitors don’t trust it, they’ll keep shopping for compliant parts elsewhere or build their own, and the plant’s volume will rest on Neros’s own drone orders.
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Dave Saunders is the founder of Base Reality Group and a Fractional CPO for product companies. He was a founder and operator at Galen Robotics, where the surgical-robotics platform earned FDA De Novo authorization in 2023, and he managed a 35-patent portfolio licensed from Johns Hopkins. He wrote Founders Who Finish and publishes The Build. More about Dave →