Defense and Resilience Technology Soars: Capturing 10% of Europe’s VC Funding

The ongoing conflict in Ukraine has prompted a significant transformation in Europe’s defense technology landscape. What was once a sector largely overlooked by European venture capitalists has now emerged as a leading investment area within deep tech. This shift in focus is highlighted in Dealroom’s recent report on Defence, Resilience, and Security (DSR) in Europe, published in collaboration with the NATO Innovation Fund (NIF), a multi-country initiative with a €1 billion budget aimed at direct investments and support for funds in this critical domain.

Investment Surge in Defense Technology

The NIF’s portfolio features promising startups, including Tekever, a dual-use drone company based in Portugal that successfully raised $74 million in its Series B funding round in November. Overall, startups within the DSR sector attracted a record $5.2 billion in venture capital last year, marking a 24% increase compared to 2023 and nearly a fivefold rise since 2019.

Comparative Analysis with U.S. Defense Funding

• Despite the impressive figures, the $5.2 billion raised by European DSR startups is only half of what U.S. defense tech company Anduril seeks to raise for itself.
• This amount represents an all-time high, accounting for 10% of all VC funding in Europe—an increase of more than two and a half times over the past two years.

Yoram Wijngaarde, founder and CEO of Dealroom, remarked, “The appetite for investments in defense, security, and resilience startups in Europe has dramatically changed over the past few years. This trend reflects a growing commitment to addressing Europe’s strategic needs through innovative deep technologies.”

Broader Implications of DSR in Deep Tech

With DSR now comprising one-third of all deep tech venture funding in Europe, its influence is unmistakable. DSR encompasses more than just defense technologies, recognizing that areas like supply chain, quantum technologies, and energy are equally vital for the region’s sovereignty.

This broader scope means a diverse array of startups are now entering the DSR pipeline. The increase in defense budgets has made the sale of dual-use technologies in Europe more feasible. To assist in this process, the NIF recently appointed John Ridge, a British Army veteran, as its chief adoption officer.

Shifts in Venture Capital Attitudes

While fragmentation and slow adoption have historically posed challenges, the landscape is evolving. Dual-use startups have played a pivotal role in this change, allowing generalist VCs to align their investment mandates with the sector, which has often excluded pure defense technologies.

• Pure defense tech has made up a smaller portion of overall funding, yet it is on the rise, with a previous Dealroom report projecting a $1 billion total for 2024—a fivefold increase since 2018.
• More than 850 investors are now engaging in at least one DSR deal across Europe.

Regional Highlights in DSR Funding

Germany is leading the charge in DSR funding, with Munich and Berlin serving as key hubs. The country secured the top position in DSR investments in 2024, followed closely by the U.K. and France. Notably, AI defense tech startup Helsing, based in Germany, raised approximately $487 million in a Series C funding round led by General Catalyst last year.

Future Challenges and Opportunities

While changes are underway, adaptations will take time. The Defence Equity Facility (DEF), a €175 million fund launched in January 2024 by the European Commission and the European Investment Fund (EIF), is preparing to announce its first investments after updating its rules on dual-use technology.

Despite the challenges ahead, the lack of founders is not a concern. Recent defense hackathons across Europe indicate a vibrant pipeline of early-stage companies eager to innovate in this sector. “Although defense, security, and resilience tech is still a relatively nascent area, the data shows a robust interest from emerging companies ready to transform the landscape,” Wijngaarde concluded.

For more insights on venture capital trends, check out our latest articles or visit NATO’s official website for updates on defense initiatives.