Europe’s Defense Technology Capital Market Enters a New Era
Investment momentum grows as war and sovereignty reshape Europe’s innovation landscape
Europe’s defense technology sector is undergoing a historic transformation. Once considered a niche or politically sensitive area for investors, defense and dual-use technologies have now become one of the fastest-growing segments of the European venture capital market.
A market once avoided, now accelerating
In 2024, venture investment in European defense, security, and resilience technologies surged to an all-time high of $5.2 billion, a 30 % increase year-on-year. The sector now accounts for nearly 10 % of all VC funding in Europe, according to data from the NATO Innovation Fund and Dealroom. In H1 2025 alone, European VCs invested ~€946 million in defense startups — a ~26 % increase year-over-year (ref. Sifted).
This surge marks a profound shift in investor sentiment. For years, European venture capitalists avoided “pure defense” due to regulatory complexity, ethical hesitation, and long return cycles. The war in Ukraine, however, has changed perceptions — revealing how technological superiority and resilience are now matters of national survival and strategic autonomy.
Especially Russian and Belarusian border countries – Finland, Baltics, and Poland – are forerunners in the need of new technology solutions. Motivation creates solutions and it is expected that VC focus on these countries will be high, as is the case with 17Tech startup accelerator and VC firm.
Policy tailwinds and institutional backing
Governments and supranational bodies are reinforcing this momentum. The European Investment Fund (EIF) recently committed €40 million to the Keen European Defence & Security Tech Fund, while the NATO Innovation Fund (NIF) — a €1 billion vehicle — continues to co-invest in deep-tech and defense startups across the continent.
At the policy level, initiatives like the EU’s Readiness 2030 and national rearmament programs aim to bridge the capability gap left by decades of underinvestment. For investors, this growing policy alignment signals that defense innovation is not only acceptable but strategically essential.
However, on the other side it is known that European policy makers have been eager to signal their wishes but instrumentation has been lagging behind the statements.
Early-stage strength, late-stage weakness
While early-stage activity is robust, Europe still struggles to fund companies beyond Series B. More than 60 % of late-stage defense capital originates from non-European investors, primarily in the United States (ref. McKinsey&Co). This “valley of death” — the gap between prototype and scale — remains a critical obstacle for Europe’s defense startups. Without sufficient domestic capital, promising ventures risk relocating abroad or selling early to foreign buyers. This is especially experienced by Ukrainian startups.
Emerging winners
Despite these challenges, success stories are emerging. Companies like Helsing (AI defense systems), Quantum Systems (autonomous drones), Tekever (aerial surveillance), and Iceye (satellite radar imaging) are redefining Europe’s image as a defense innovator. These firms combine dual-use applicability with proven battlefield performance — a combination that appeals to both governments and private investors.
Why this matters
Defense technology is no longer a sectoral niche; it is becoming a strategic pillar of European competitiveness. Beyond immediate military needs, defense innovation drives progress in artificial intelligence, robotics, quantum computing, communications, and cybersecurity — with enormous civilian spillover benefits. In fact, defense technology may well become the spark that reignites Europe’s technological renaissance.
As Admiral Rob Bauer of NATO has said: “Armies win battles, but economies win wars.” For Europe, winning the economic war for technological sovereignty may depend on its ability to finance, scale, and export the next generation of defense innovation.
