The Decisive Decade for European Defence Technology Innovation

We have entered a decisive moment for European defence technology. No longer a niche sector, it's fast becoming the foundation of Europe’s ambition for strategic autonomy and resilience. The war in Ukraine and growing geopolitical volatility have accelerated a shift that was already underway, and that is, Europe must reduce its reliance on external suppliers and invest in homegrown innovation to meet an increasingly complex and unpredictable threat landscape. (Source 1, 2)

For us, as early- and growth-stage investors and operators, the transformation feels both urgent and overdue. Across Europe, we see exceptional founders building dual-use solutions, yet they're often constrained by a lack of specialised and skilled capital with tailored support at the early and growth stages. This is where the ecosystem needs to really evolve.

Key Investment Trends in European Defence Technology

VC Momentum

In the first half of 2025, investors committed €946 million to European defence technology ventures, a 26% increase year-on-year. Defence technology is now firmly established as one of Europe’s top five sectors for venture funding. (Source 1, 2)

Record-Breaking Funding Levels

Defence, security, and resilience startups attracted €5.2 billion in capital in 2024, representing 10% of all VC activity across Europe, which was nearly five times the level seen in 2019. (Source 1)

Growth Areas

AI, cyber defence, robotics, and autonomous systems dominate funding and talent. These fields highlight Europe’s pivot to software-defined, non-kinetic capabilities where innovation cycles are faster and less capital-intensive than traditional hardware programmes. (Source 1, 2)

National Hubs of Innovation

Germany, the UK, and France have emerged as leading clusters of defence technology [Source: European Startup Heatmap 2024]. Cities like Munich and Bristol have become vibrant hubs for early innovation, supported by technical universities, industry primes, and specialist funds. (Source 1)

EU-Backed Innovation

The European Defence Fund (EDF) and EU Defence Equity Facility are deploying billions of euros into next-generation technologies, with a strong emphasis on cyber resilience, quantum, and secure communications. (Source 1, 2, 3)

ReArm Europe

Ambition & Funding:

Over €800B earmarked through 2030, integrating fiscal flexibility for governments with a €150B SAFE joint procurement facility. (Source 1, 2, 3)

Market Impact:

The plan seeks to drive pooled procurement, prioritise European equipment, and reinforce the EU defence industrial base by mobilising large-scale public and private capital.

The European Defence Industrial Strategy (EDIS)

Launched in 2024, EDIS sets a clear mandate for Europe’s industrial future in defence:

Reducing External Dependency

In 2024, 78% of EU defence acquisitions were sourced externally. EDIS aims to shift at least half of member-state procurement to EU-based suppliers by 2030, rising to 60% by 2035. (Source 1, 2)

Collaborative Procurement

At least 40% of new defence equipment procurement is targeted to be collaborative by 2030, enabling economies of scale and reducing fragmentation. (Source 1, 2, 3)

Funding Innovation

The European Defence Industry Programme (EDIP) will allocate €1.5 billion between 2025 and 2027, supplementing the EDF’s €4 billion in collaborative R&D since 2021. (Source 1, 2, 3)

SMEs and Startups

EDF’s 2024 cycle funded 62 projects with €910 million, with 38% of funding going to SMEs. This reflects a deliberate focus on strengthening the pipeline of early and growth-stage ventures. (Source 1)

Early and Growth Stage Gaps: Where Europe Must Improve

While early-stage funding for defence tech has improved over the past three years, it's still fragmented and inconsistent:

Seed and Series A Bottlenecks

Most European defence tech startups face prolonged fundraising cycles at the seed and Series A stages. Many generalist investors remain hesitant, not only due to the sector’s complexity and regulatory hurdles but also because their engagements with LPs often exclude defence-related investments. The past several years have been heavily shaped by ESG-driven mandates that deprioritised or even prohibited defence, despite the growing recognition, particularly since the war in Ukraine, that security and resilience are fundamental to sustainability.

Limited Specialist Support and Skilled Capital

Early and growth-stage founders need more than capital. They need operational expertise, procurement guidance, and access to networks within governments and primes. Very few European funds are led by teams who have actually been there and done it, whether as defence officers and ministers, investors who have sourced, grown, and exited defence technology companies, or operators who have built products for this market and exited to the Primes. This is crucial when supporting portfolio companies in their growth and success.

Understanding the complexities of buyer behaviour and procurement cycles is critical. Defence buyers and end-users operate under strategic objectives that extend beyond typical commercial metrics, requiring investors who can help founders align their product, compliance, and go-to-market strategies with both national and multinational priorities.

Scaling Challenges

Growth-stage rounds (€10–50 million) are often underfunded in Europe. This creates a risk that promising technologies either stall during scale-up or seek non-European capital and partnerships. (Source 1)

Gap in Dual-Use Strategies

Many early-stage teams struggle to balance commercial traction with defence-sector relevance. Bridging this dual-use dynamic, which we focus on every day, will determine which ventures are able to scale sustainably.

Emerging Themes in Defence Technology

From our vantage point, several trends will define the next chapter of early and growth-stage defence innovation:

Deep Tech as Core Infrastructure

AI, quantum, cybersecurity, and autonomous systems aren't side industries; they're the backbone of European resilience and sovereignty.

Networked Innovation

Public-private collaboration, particularly via EDF-backed projects and pan-European initiatives, is driving a new wave of early-stage venture creation . Specialist funds and accelerators are critical to turning this pipeline into successful companies. (Source 1)

Transformational Technologies

Quantum cryptography for secure communications, AI-enabled decision support, and robotics for autonomous operations are advancing rapidly, creating opportunities for small, agile teams to lead.

This is The Decisive Decade

Defence technology is no longer peripheral; it's central to Europe’s strategic and industrial future. For us, working alongside early and growth-stage founders, policymakers, and industry leaders, this moment feels like a once-in-a-generation opportunity to build lasting value and sovereignty.

The combination of policy tailwinds, venture investment momentum, and visionary entrepreneurs has set the stage for Europe to lead in defence innovation. Success will come from supporting startups early, helping them grow intelligently, and ensuring that European capital and expertise remain at the core of this transformation.

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