The Trump administration is pursuing funding deals with a group of drone companies as part of its effort to increase domestic production and lower the costs of the increasingly vital weapons, people familiar with the matter said.The Pentagon is seen from the air in Washington, U.S., March 3, 2022 (REUTERS FILE PHOTO)The potential deals follow months of discussions between a diverse set of private-sector drone companies and the Pentagon, the people said. The discussions have included the Office of Strategic Capital, a lending office set up by the Biden administration to fund companies deemed important to national security supply chains.The deal talks are still in a negotiation phase, the people cautioned, and Pentagon dealmakers are continuing to vet the companies before finalizing any terms. However, at least some deals may comprise both debt and equity stakes through different funding mechanisms, giving the U.S. government a slice of ownership in the companies, some of the people said.Among the companies the Pentagon has identified for possible funding are Performance Drone Works, which won a contract to supply the Army with reconnaissance drones; Unusual Machines, a drone components supplier that counts Donald Trump Jr. as a shareholder and advisory board member; and Neros Technologies, a Sequoia Capital-backed startup building small first-person view drones, some of the people familiar with the matter said.Prior Pentagon investments have involved conditional loans that require the companies to meet certain benchmarks before receiving the money. The Office of Strategic Capital, which the Pentagon says has about $210 billion in lending authority, has also made a number of critical-minerals bets.A Defense Department official said the department wouldn’t comment on “pre-decisional matters that remain subject to change. Any final decision from the Department will be shared in a formal announcement at a later date.”The aim of the funding deals is to support drone makers’ production build-out to create supply, while also bringing down prices, the people familiar with the deals said. The funding won’t be for buying drones, the people said.The effort dovetails with the aims of the Pentagon’s Drone Dominance program, a $1.1 billion initiative to amass an arsenal of around 300,000 low-cost attack drones by the end of 2027. Many defense officials say the U.S. needs to significantly beef up manufacturing capacity and push costs down to achieve those goals. Many U.S.-made drones sell for tens of thousands of dollars more than the roughly $5,000 apiece price cap the Pentagon is targeting in Drone Dominance. Neros placed second in a recent Drone Dominance competition.According to one estimate from 2025, the U.S. has the capacity to build up to 100,000 drones a year. Ukraine, as one counterpoint, built about 4 million last year. The drone industry has persistently blamed the Defense Department for not buying enough drones to fund future production.Neros, whose tiny drone made a cameo in Defense Secretary Pete Hegseth’s July video announcement about new policies to turbocharge domestic production, has raised more than $120 million from venture capitalists. PDW has raised close to $200 million from investors. Publicly traded Unusual Machines has invested in another drone project backed by Donald Trump Jr. and Eric Trump and in a deal with suppliers of China-made drones.The Pentagon-led deals would be the strongest signal yet from the U.S. military that it is committed to supporting drone startups.Before Trump’s second term, Pentagon sales accounted for less than 2% of all the commercial and government drone system sales each year in the U.S., according to the Defense Innovation Unit, a branch of the Defense Department that works with startups. That is likely to substantially change if the Pentagon gets the new budget it wants.The department has requested more than $54 billion for its drone nerve center, called the Defense Autonomous Warfare Group, or DAWG, up from around $225 million this year.Write to Heather Somerville at heather.somerville@wsj.com and Amrith Ramkumar at amrith.ramkumar@wsj.com