Whalesbook
South Korea's defense sector, with substantial order backlogs, is seeing limited startup innovation. Bone AI, a new startup focusing on AI for autonomous defense vehicles like drones, has raised a $12 million seed round. Led by Third Prime with participation from Kolon Group, the funding aims to build a unified AI platform. Bone AI aims to integrate AI, hardware, and manufacturing, initially focusing on aerial drones and having already secured a seven-figure B2G contract and acquired D-Makers.
South Korea's defense industry is booming, amassing approximately $69 billion in order backlogs by late 2024 and significantly expanding its defense ties, particularly with Europe. This growth has positioned the country as the second-largest arms supplier to European NATO members through initiatives like the EU–South Korea Security and Defence Partnership.
Despite this manufacturing strength, the defense-tech startup scene in South Korea remains nascent, highlighting a gap between industrial output and early-stage innovation.
Addressing this gap is Bone AI, a new startup founded by DK Lee (co-founder of MarqVision). Based in Seoul and Palo Alto, California, Bone AI aims to create a fully unified AI platform that integrates software, hardware, and manufacturing for defense and government clients. The company develops next-generation autonomous air (UAVs), ground (UGVs), and marine (USVs) vehicles, starting with aerial drones for logistics, wildfire detection, and anti-drone defense.
Bone AI has successfully raised a $12 million seed round, with Third Prime leading the investment alongside strategic participant Kolon Group, known for its expertise in advanced materials and manufacturing. Founder DK Lee highlighted Kolon Group as an ideal partner for Bone's operations across AI, robotics, and next-generation manufacturing.
The startup has already demonstrated commercial traction, securing a seven-figure Business-to-Government (B2G) contract and generating $3 million in its first year. Bone AI was also selected for a South Korean government-backed logistics program utilizing its autonomous vehicles. This rapid progress was accelerated by Bone AI's acquisition of D-Makers, a South Korean drone company, and its intellectual property (IP) just six months after its launch.
DK Lee envisions Bone AI not just as a defense tech company, but as a "physical AI" firm, integrating AI simulation, autonomy, embedded engineering, hardware design, and large-scale manufacturing. He notes a current siloed approach where AI and hardware development are separate, lacking the "connective tissue" for intelligent machines at scale. Lee believes South Korea's manufacturing prowess, exemplified by companies like Hyundai, Samsung, and LG, makes it ideal for building this industrial backbone.
Bone AI's strategy involves acquiring and integrating niche hardware players, accelerating product development and market penetration, a model contrasted with the typical Silicon Valley VC approach.
Impact
This development could significantly boost innovation within South Korea's defense technology sector, potentially leading to the emergence of more globally competitive AI-driven defense solutions. It also strengthens the country's position as a key global arms supplier and a hub for advanced manufacturing. For investors, it signals a growing opportunity in the intersection of AI, robotics, and defense. The 'buy versus build' strategy for acquiring companies accelerates market entry and product maturity, which could be a trendsetter.
Rating: 7/10
Difficult Terms:
Order Backlogs: A list of orders that a company has received but has not yet fulfilled.
Incumbents: Established companies that are already successful and dominant in their market.
Nascent: Just beginning to exist or develop; newly formed.
Autonomous: Able to operate independently without direct human control.
UAVs (Unmanned Aerial Vehicles): Aircraft that are not crewed and are controlled remotely or fly by themselves (commonly known as drones).
UGVs (Unmanned Ground Vehicles): Ground vehicles that operate without a human driver.
USVs (Unmanned Surface Vehicles): Surface vessels that operate without a human crew.
B2G Contracts (Business-to-Government): Agreements where a private company provides goods or services to a government entity.
Seed Round: The first stage of equity funding for a startup company.
Strategic Investor: An investor who aims to gain more than just a financial return, often seeking strategic benefits like access to new markets or technology.
Intellectual Property (IP): Creations of the mind, such as inventions, literary and artistic works, designs, and symbols, names, and images used in commerce.
Autonomy Stack: The collection of software and hardware components that enable a system to operate autonomously.
Physical AI: Artificial Intelligence that is integrated into physical systems, such as robots or vehicles, enabling them to perceive, reason, and act in the real world.
Reindustrialization: The process of developing new industries in an area that previously had a strong industrial base.
Sovereign AI: Artificial Intelligence capabilities developed and controlled within a nation's borders, often for national security and economic independence.
Multipolarity: A state of the international system in which there are multiple centers of power.
