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European Defense Investment Reaches New Heights
European defense technology investment is experiencing unprecedented growth, with the sector accounting for 6.2% of all European funding so far in 2025 according to data from market intelligence provider Dealroom and Resilience Media. The total investment is projected to reach $2.3 billion by year’s end, reflecting a significant shift in the continent’s security priorities. This surge in European defense tech investment comes as governments increase procurement spending and recognize the evolving nature of modern warfare.
The transformation in defense spending patterns mirrors broader technological shifts across industries. Just as industries race to harness real-world data for competitive advantage, defense sectors are rapidly adapting to new battlefield realities. The widespread use of drones in Ukraine has demonstrated that low-cost systems can be as crucial as traditional expensive military hardware, creating opportunities for agile startups to disrupt established defense paradigms.
Startups Reshape Defense Procurement
Defense technology represents a departure from traditional procurement practices, where agencies typically engaged with established “prime” contractors for strategically important equipment. Today, these same agencies find themselves evaluating proposals from software companies and manufacturers of low-cost drones. This shift requires procurement bodies to take calculated risks on unfamiliar suppliers, many of which are technology startups without traditional defense industry backgrounds.
The Dealroom/Resilience report titled “The State of Defence Tech 2025” reveals that only about 12% of C-level defense tech executives have military experience, though this figure is higher in the UK. This statistic underscores how the sector is attracting talent from outside traditional defense circles, bringing fresh perspectives and innovative approaches to military challenges.
The Innovation Advantage of Startups
Startups bring crucial advantages to the defense sector, particularly their ability to innovate rapidly. Tobias Stone, founder of Resilience Media, emphasizes this point: “Ukraine has shown how important startups are in a fast-moving conflict because they can innovate far more quickly than the public sector or the primes. For that to work, we need private capital to flow into the sector. Investing in defence is unique because it is both a commercial opportunity and a moral imperative.”
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This rapid innovation capability extends beyond defense applications. Similar to how companies are leveraging crowd-sourced AI training to accelerate development, defense startups are utilizing agile methodologies to quickly adapt technologies to battlefield needs. The parallel demonstrates how defense innovation increasingly intersects with broader technological trends.
Dual-Use Technologies Drive Investment
Alex Ferrara, partner at Bessemer Venture Partners, confirms the growing interest in European defense tech. His firm, which has invested in U.S. defense technology for approximately ten years, recently published a roadmap highlighting crucial sectors and investment opportunities in the European market. These include technologies enabling autonomous vehicles and robots across all domains, air defenses, command and control systems, space sovereignty, and advanced manufacturing.
“One of our criteria for investing in defense-tech is whether or not the technology is dual use,” Ferrara explains. “If it is dual-use, we put it in the best bucket.” This approach recognizes that technologies with both military and civilian applications potentially access much larger markets, making them more attractive investment opportunities.
Software Expertise Opens Doors
Software capabilities are proving to be a key enabler for startups entering the defense sector. Bessemer’s recent $130 million Series B investment in Auterion exemplifies this trend. The company, founded in Europe and now headquartered in Arlington with engineering operations in Zurich and Munich, has developed technology that enables drones to operate as coordinated swarms. Significantly, Auterion’s systems, backed by U.S. funding, have already seen deployment in Ukraine.
The commercial potential of defense technologies continues to expand, much like AI-driven commerce strategies are transforming retail. This convergence between commercial and defense applications creates fertile ground for startups that can navigate both domains effectively.
Ukraine: Innovation Laboratory and Future Tech Hub
The ongoing conflict in Ukraine has become a catalyst for defense technology innovation, with small companies and military units continuously developing and modifying weapons systems in response to evolving battlefield conditions. The pace of innovation suggests that Ukraine could emerge as a major defense technology hub in Europe once peace is established.
Estonian tech entrepreneur Ragnar Saas, co-founder of Pipedrive and founder of defense technology fund Darkstar, regularly travels to Ukraine to identify teams with potential for Europe’s defense industry. “We are asking them whether they can be part of the journey,” Saas says. “What we are looking at is whether this team can grow into a business that can generate 100 million revenue in the next decade.”
Integration Challenges and Opportunities
Despite the innovation emerging from Ukraine, significant integration challenges remain. “Ukraine has 2000 teams that are building different solutions. They are amazingly fast builders, but they are not using the same standards that Europe is using,” Saas notes. Darkstar acts as a bridge between Ukrainian development teams and European military buyers, helping weapons builders understand the requirements for selling systems to European markets.
Ivan Jalusic, CSO and co-founder of FPV drone company ORQA, emphasizes the importance of compliance: “At the moment, there is a big will, a big talent. But what Ukraine needs to look at as the compliance standards required by Europe and U.S.” This challenge extends beyond Ukrainian companies to all smaller defense tech firms seeking to establish relationships with military buyers.
The path forward for defense startups mirrors trends in other sectors where companies are turning to private markets for growth and stability. Building trust and credibility with military buyers requires not only developing products to expected standards but also demonstrating the capacity to deliver on time and meet specifications consistently.
Funding Landscape and Future Outlook
While public funding remains available through mechanisms like NATO’s defense innovation fund, Ferrara anticipates that most capital will come from private sources moving forward. “Much of the funding will come from funds like ours,” he says. “We see this is a growing area of the economy.”
The convergence of increased government spending, evolving security threats, and technological innovation creates a perfect storm for defense tech startups. As European nations reassess their defense capabilities in light of geopolitical shifts and battlefield lessons from Ukraine, startups with dual-use technologies and agile development approaches are positioned to play an increasingly vital role in continental security.
The transformation of European defense procurement represents both a challenge and opportunity. Traditional procurement agencies must adapt to working with non-traditional suppliers, while startups must navigate complex regulatory environments and establish the reliability expected by military customers. Those that succeed will not only contribute to European security but also tap into growing global markets for defense technologies.
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