The recent conflict in Ukraine has spurred a significant shift in Europe’s investment landscape, particularly in the defense technology sector. What was once a largely overlooked area by European venture capitalists has now become one of the top investment priorities within the realm of deep tech.
This transformation is highlighted in the latest report on Defence, Resilience, and Security (DSR) in Europe by Dealroom, in collaboration with the NATO Innovation Fund (NIF). The NIF, a multi-country initiative with a €1 billion budget, is actively making direct investments and supporting funds in the defense and security space.
Among the NIF’s portfolio companies is Tekever, a dual-use drone company based in Portugal, which recently raised an impressive $74 million in a Series B funding round. In 2024, DSR startups collectively secured a record-breaking $5.2 billion in venture capital funding, marking a 24% increase from the previous year and nearly five times more than in 2019.
While this surge in investment is significant, it pales in comparison to the funding sought by U.S. defense tech giant Anduril. However, the $5.2 billion raised by DSR startups represents a new high, accounting for 10% of all VC funding in Europe. This marks a 2.5-fold increase over the past two years, underscoring the growing appetite for innovation in defense, security, and resilience technologies.
According to Dealroom’s founder and CEO, Yoram Wijngaarde, the shift towards investing in DSR startups reflects a broader trend of channeling capital and innovation towards addressing Europe’s strategic needs through deep technologies. DSR now represents one-third of all deep tech venture funding in Europe, signaling a convergence between technology innovation and defense capabilities.
The expansion of the DSR pipeline to include a wider range of startups reflects the evolving landscape of defense tech investment in Europe. The rise of dual-use startups has made it easier for generalist VCs to participate in this sector, which was traditionally challenging due to regulatory constraints on investing in pure defense technologies.
While pure defense tech funding remains a smaller subset of overall investment, it is on the rise, with an anticipated $1 billion in funding for 2024. Additionally, a growing number of European VCs are now making investments in adjacent sectors to defense tech, with over 850 investors participating in DSR deals across Europe.
Germany has emerged as a leading hub for DSR funding, with cities like Munich and Berlin at the forefront of innovation in AI defense technologies. Helsing, a German-based AI defense tech company, raised $487 million in a Series C round led by General Catalyst in 2024, further solidifying Germany’s position in the DSR landscape.
Despite these advancements, challenges remain, such as the slow adoption of new technologies and regulatory hurdles. The European Commission and the European Investment Fund recently launched the Defence Equity Facility (DEF), a €175 million fund aimed at supporting defense technology companies. However, the fund is still in the process of announcing its first investments as the European Investment Bank updates its rules on dual-use technology.
Despite these challenges, the DSR sector in Europe continues to show promise, with a growing pipeline of early-stage companies poised to drive innovation in defense, security, and resilience technologies. The future of European defense tech investment looks bright, with a strong foundation of startups and investors paving the way for continued growth and innovation in the sector.
