The war in Ukraine served as a call for European awakening, and defense technology went from a sector where most European VCs did not touch on one of the top investment areas of deep technology.
The shift was filmed in Dealroom's latest report on European Defense, Resilience and Security (DSR) and was released along with the NATO Innovation Fund (NIF). This is a hundred million euros initiative that provides direct investment and support funding in the sector.
NIF's portfolio includes startups such as Portugal-based dual-use drone company Tekever, which raised a $74 million Series B in November. The tally shows that DSR startups secured a record $5.2 billion in venture capital last year, up 24% compared to 2023, nearly five times more than 2019.
Despite the surge, $5.2 billion is reportedly $5.2 billion, which US defense technology company Anduril reportedly is trying to raise just for its own sake. However, this is also the highest ever high of 10% of all VC funds in Europe. This has more than doubled over the past two years, according to Dealroom.
“The appetite for investing in defense, security and resilience startups is unrecognised in Europe just a few years ago,” founder and CEO Yoram Wijngaarde said in a statement. “We follow the ongoing trend of placing capital and innovation to address Europe's core strategic needs through deep technology.”
DSR currently accounts for a third of all deep high-tech venture funds in Europe, meaning that the two overlaps are revealed. This is because there is a recognition that supply chain, quantum technology, and energy are equally important to the sovereignty of the region, as DSR is broader than defence technology.
This means that a wider range of startups will fall into the DSR pipeline. In particular, rising defense budgets make it difficult to think of selling dual-use technologies in Europe. NIF itself would like to support that aspect as well. Recently, he appointed British Army veteran John Ridge as Chief Adoption Officer.
Fragmentation and slow adoption aside, VC's appetite has been a disability for a long time, but this is changing. The rise of double-use startups has contributed to this evolution. This often prevents generalist VCs from investing in pure defence technology, let alone weapons.
Pure Defense Tech only accounts for a small subset of overall fundraising, but that's also increasing. Previous dealroom reports had projected a $1 billion tally for 2024. This is a five-fold increase since 2018. Conversely, European VCSs are investing adjacently as more than 850 investors are active in at least one DSR transaction in Europe. According to the report.
This growth is particularly impressive in Germany. Munich and Berlin as their main hubs claimed Europe's top spot in DSR funding in 2024, followed by the UK and France. Germany-based AI defense technology riser Helsing raised about $487 million last year in Series C, led by General Catalyst.
Still, these adaptations take time. The 175 million euro ($182 million) Defense Equity Facility (DEF), launched in January 2024 by the European Commission and the European Investment Fund, announces its first investment as a European Investment Bank The parent organization was just trying to update rules regarding dual use technologies.
However, of all the prior challenges, the founder shortage is not one of them, as confirmed by recent defence hackathons across Europe. “Defence, security and resilience technologies continue to be relatively early sectors despite recent growth, but data shows an aggressive pipeline of early-stage companies looking to change that. “We'll do that,” Wijngaarde said.