Private Capital's Impact on EU Defense Modernization

Is it too late to get into defense investing? 🫠 Perhaps in public markets. But in private, after speaking with VCs, its clear many are still going all-in - convinced European defense tech is only getting started. Top 5 key points: 1. The universe of defense stocks is narrow and trading at record-high multiples Rheinmetall’s free cash flow must grow >30% annually for 10 years to justify today’s price - something only Nvidia ever pulled off. This fuels correction fears and shifts attention towards the unlisted market. 2. Plenty of hidden gems outside public markets A VC describes it as: “A boom in demand signals. A boom in new companies. And a boom in funding and government budgets”. Denmark alone counts ~500 once overlooked defense firms incl. ~50 key players. Unlike publics, VCs aren’t betting on today’s primes - but on those who might become them (Prime = government’s first contractor). “It’s no longer ships but drones that decide the outcome. This is where the US is betting big - and why startups are interesting,” another VC says. 3. Here’s the catch: small companies can win big “The greatest catalyst for private investments in this environment is that customers are buying directly from the small companies vs going through for example Lockheed Martin,” one experienced defense investor noted. Examples of startups that won direct government contracts: Helsing 🇩🇪, ARX Robotics 🇩🇪, Quantum Systems 🇩🇪, Safran.AI (ex Preligens)🇫🇷, MyDefence 🇩🇰, Arkion 🇸🇪, Open Cosmos 🇬🇧🇪🇸, ICEYE 🇫🇮, plus US players like Anduril Industries, Shield AI, Epirus, HawkEye 360, Vannevar Labs, Rebellion Defense. Large corporates aren’t necessarily faster or cheaper. 4. 🇪🇺 Europe catching up - Europe already counts 40+ specialist defense VCs, most of them launched recently - In Denmark, we’ve committed €40bn+ to defense and launched one of Europe’s first defense tech accelerators: Defense Tech Denmark. Some VCs say defense still has more money than startups. They’ve watched startups go from seed to Series A term sheets in a matter of weeks. But they insist it's not overhyped, and not too late - in fact, the real spike may come in 2-3 years. “Remember - all defense was forbidden,” one reminds, highlighting the massive shift still underway.   5. Long-term gap = opportunity   “It’s not about whether we can compete with SpaceX - it’s about building capacities in Europe that we don’t yet have,” one investor noted, pointing to the long-term potential - and plenty of room for improvement: - China and US defense funding for startups remain far larger than in Europe - US defense budgets roughly $1T vs. ~$370bn in EU - Europe faces a €1.4T catch-up bill just to restore 1990s capabilities - Urgent need for local suppliers (e.g. our “quantum supremacy” dreams still depend on magnets from China and gases from Russia) The macros don’t look like a one-nighter - but a multi-decade transformation. What else would you add?

Innovation theater is quietly undermining European military readiness. Across Europe’s armed forces, innovation has become a visible performance. Hackathons, accelerators, demo days, pilot programs, and venture-backed start-ups dominate the narrative of modernization. Slides are polished. Concepts are ambitious. Press releases are frequent. Yet when units ask the simple question, "what can we field, train on, and fight with tonight?", the answer is often far less impressive. A growing share of defense budgets is absorbed by experimental programs that promise future breakthroughs but deliver limited operational value in the near term. Venture capital logic has crept into military procurement. Growth narratives, platform visions, and perpetual pilots are rewarded over proven capability, reliability, and deployability. As a result, forces are encouraged to wait for the next iteration rather than equip themselves with systems that already work. The way I see it, this creates three structural problems. ⏳ First, time-to-fielding expands, precisely when strategic warning times are shrinking. Modern conflict does not wait for roadmap milestones or Series B funding rounds. ⚗️ Second, operators become test users, not warfighters. Units are asked to adapt to immature systems, absorb instability, and tolerate gaps that would be unacceptable in live operations. ✨ Third, MOTS solutions are crowded out, not because they lack capability, but because they lack 'glamour'. Mature, deployable systems are perceived as less innovative, even when they are fit for combat today. Don't get me wrong, though. Innovation matters. And Europe desperately needs technological edge. But innovation without urgency becomes theater. In a deteriorating security environment, armed forces cannot afford procurement cultures that optimize for visibility over readiness. The uncomfortable truth is this: readiness is not experimental. A system either works under operational pressure or it does not. The decisive advantage belongs to forces that prioritize what can be trained, deployed, and sustained now, while innovation continues in parallel, not in place of capability. Modernization should accelerate readiness, not postpone it.

Thrilled to share a new piece Julianne Smith, former U.S. Ambassador to NATO, and I co-authored in War on the Rocks: "The Transatlantic Defense Business Politics Can't Break." To founders, investors, procurement officials, defense ministers, and legislators: what is being built here is both European self-reliance and alliance maintenance through business, capital, and institutional reform. But it requires pragmatism on both sides - collaborative procurement, scalable pathways from demo to production, and resisting the temptation of sovereign industrial silos that leave everyone weaker. Economic interdependence stabilizes alliances in ways politics alone never can - a fact that has never been more urgent than today. We all know the transatlantic alliance is under real political strain. The terms of the relationship are being rewritten in real time. One of us saw this fragmentation from inside NATO headquarters, where a dozen allies would show up with incompatible kit and duplicative systems, each optimized for a national market too small to sustain it. The other has seen it with founders up close, where the demo lands, the need is urgent, and then cross-border rules, accreditation, and contracting timelines turn momentum into grind. Yet beneath the turbulence, the transatlantic defense tech ecosystem is expanding rapidly - spanning venture capital, dual-use innovation, and cross-border partnerships. It has the potential to reshape the alliance from the ground up, even as political rhetoric stays hot. European defense spending has surged to unprecedented levels. Defense tech venture funding in Europe has grown more than tenfold since 2021. U.S. investors now supply nearly half the capital flowing into European defense startups. NATO is quietly becoming Europe's most effective platform for aligning capital, procurement, and operational need across 32 nations. cc: Center for European Policy Analysis & Chicago Council on Global Affairs Read the full piece here: https://lnkd.in/gPHRXwfh #DefenseTech #NATO #TransatlanticRelations #EuropeanDefense #DefenseInnovation #VentureCapital #WarOnTheRocks

❓ When billions flood into defence, pacifism does not vanish, but the gap between tension and violence accelerates —STAT FACT—do ethics stand a chance? 🚀 Defence Tech: VCs are pouring in 💰 Over $11 billion channelled into defence tech in just first half of 2025. What’s behind it? Fear and raw greed, fired up by AI plain and simple, all under the guise of global tension. 🤖 Startups are building AI-driven command systems, autonomous swarming drones, cyber‑warfare tools, adaptive camouflage and battle sims are closing mega‑rounds—alongside battlefield analytics and advanced cybersecurity. 🌍 Helsing in Europe secured €600 million. Quantum Systems achieved unicorn status. Anthropic, Google, OpenAI and xAI have each been awarded $200 million Pentagon contracts. NATO’s war chest backs the frontrunners, and the EU’s SAFE programme has unlocked €150 billion to modernise Europe’s defence base. 🔥 From proxy tech races to full‑scale hot wars in Ukraine and the Middle East—economic, technological, capital, geopolitical and people killing each other—every war fuels this frenzy. Europe’s loosened procurement rules have rolled out the red carpet for private capital. And it’s not just defence specialists—Founders Fund, 8VC and a16z are queuing up for a piece of dual‑use innovation. 💣 But more kit ultimately means more testing and more killing. New toys are useless if you can’t FLEX and as AI embeds deeper, the dread of unseen, unaccountable control only intensifies. 🛡️ AI is rewriting the rules of every type of war at every level—and VC returns along with it. Marketed as deterrence and freedom. But let’s be real, who are we trying to kid but ourselves. #AI #DefenceTech #VentureCapital #Investment

Freedom is not free. It has a cost — and if we do not pay the monetary cost required to deter Vladimir Putin today, we will pay the human cost down the line. But last year, Russia spent more on defence than all of Europe combined. This is more than an embarrassment; it is an emergency.   Ahead of this year’s Copenhagen Democracy Summit, I am releasing a five-point plan to strengthen European deterrence and ensure that we can defend ourselves, by ourselves.   It includes: 1. Surging Europe’s defence investment to 4% of GDP by 2028. 2. Mobilising private capital into the defence sector by changing ESG rules and setting defence investment targets for financial institutions. 3. Strategically focusing public funding on capabilities and military mass, while focusing private spending on developing Europe’s technological edge. 4. Creating new public funding vehicles to attract private capital and help to raise 350 billion euros in private defence investment over the next five years. 5. Fostering defence innovation in partnership with Ukraine, which has built the most innovative armed forces in history.   Our intelligence agencies have said that Russia will be capable of attacking a NATO ally by the end of this decade. History tells us that hesitation and half-measures do not lead to peace — they lead to war and conflict. Europe must spend massively on defence, and we must make clear to Putin that we will do what is necessary to defend democracy.   To read the report: https://lnkd.in/eK-jmDv4

Helsing is set to raise $1.2 billion at an $18 billion valuation, oversubscribed multiple times. Anduril Industries is targeting $60 billion. European defense startups pulled in $8.7 billion in 2025, four times the level five years ago. In three years, defense has become the hottest sector in venture capital. Two groups face an uncomfortable adaptation. European VCs spent a decade screening out defense on ESG grounds while US firms built positions in Anduril and Shield AI. EU defense budgets are heading toward $800 billion a year, but the VC model needs retooling for 7-year procurement cycles, single-buyer markets, and fund durations that stretch past the standard 10 years. Today, 40 to 50% of the capital flowing into European defense tech comes from American investors. European VCs who sit this out will watch US funds take the cap tables of their own continent's champions. Public buyers face a steeper challenge. European defense procurement runs through more than 25 national systems, each with its own specs and timelines. Ukraine proved that a $500 drone can neutralize a $5 million tank, but most European ministries still channel the bulk of their budgets into legacy platforms through programs that run decades late and billions over budget. The R&D numbers tell the same story: between 2020 and 2024, the EU spent $40 billion on defense R&D while the US spent $520 billion. Europe puts 4% of its public R&D into defense. The US puts 48%. Europe has the engineering talent, the threat at its border, and the budgets. Its institutions still move in procurement cycles while threats evolve in weeks. Urgency has never been Europe's strong suit, and the cost of that gap compounds every quarter. cc Javier Ospital Cédric O André Loesekrug-Pietri⚡️NATO Innovation Fund (NIF) Ricardo Mendes Dr. Gundbert Scherf #defensetech #venturecapital #europe #newfund

DTCP is on track to raise a €500m fund, positioning it as Europe’s largest dedicated venture capital vehicle for defence startups. Spun out of Deutsche Telekom, the German investor has secured anchor commitments and plans around 30 investments with an average cheque size of €20m. The Luxembourg-registered fund is awaiting regulatory approval for significant holdings by Porsche Automobil Holding and Deutsche Telekom, following discussions reported last year. DTCP’s focus spans European digital defence infrastructure, including supply chains, connectivity, data centres, robotics, cybersecurity and unmanned systems, with around 20% allocated to purely military technologies and the remainder to dual-use companies. The fund reflects a clear shift in European capital markets as defence spending accelerates in response to the war in Ukraine and uncertainty over long-term US security guarantees. If closed at target, DTCP’s raise would eclipse other new European defence-focused funds and signals growing institutional acceptance of defence and weapons-adjacent technologies as a core investment category rather than an exception. #defencetech #venturecapital #europeandefence #dualuse #startups

How to accelerate the investment journey of defence start-ups ? Which are key initiatives in support of defence innovative SMEs ? What more should be done ? At the #EDF Info days, many entrepreneurs had questions. Our answer is EUDIS - the EU Defence Innovation Scheme, that proposes several services in support of defence start-ups and scale-ups: - forming teams and a mindset of entrepreneurs across Europe, with hackathons: more than 500 participants so far. - facilitating access to risk-capital, with the emergence of an ecosystem of private equities and venture capitalists eager to invest in defence: 7 funds so far: Keen Venture Partners, Sienna Ventures, Project A, Day One Ventures, Join Capital GmbH, NAZCA, Omnes - providing business accelerator - mentoring, coaching, bootcamps. Already 20 companies accelerated. And 20 companies as part of the new cohort. - facilitating access to large consortia of the "European Defence Fund" through dedicated funding mechanism. - access to testing-facilities, notably in Ukraine. With BraveTech EU. And more to come ! We are preparing two additional initiatives for 2026 to accompany the growth of our rising stars in Europe: 1) the unlocking of late-stage investors, able to participate in large fund-raising. Critical to ensure that scale-ups remain under EU control when moving towards real business and commercialisation. Together with the European Investment Fund (EIF) and European Investment Bank (EIB), the Commission is putting in place a € 1 billion fund of fund. 2) the rapid development of disruptive and low-cost products that can be exploited by the defence ministries within 1-3 years. This will be the purpose of the AGILE programme that will bring selected companies close to defence contracts in a lean and fast manner. stay tuned : https://lnkd.in/ghP4rkxg EU Defence and Security Thomas REGNIER

Helsing: The AI Defense Startup Powering Europe’s Strategic Comeback ⸻ From Drone Walls to Autonomous Fighter Pilots, This German Firm Aims to Reinvent European Security In a high-security lab near Munich’s rail yards, engineers at Helsing, a fast-rising AI defense startup, are quietly reshaping Europe’s military future. Just four years old, Helsing has become one of the continent’s most valuable private companies, fueled by investor enthusiasm and a political climate demanding faster, smarter, homegrown defense solutions. With advanced AI-driven drone systems, jet fighter autonomy, and anti-submarine gliders, Helsing represents the vanguard of Europe’s response to a new era of geopolitical uncertainty. ⸻ Key Highlights of Helsing’s Rapid Rise • AI Meets Steel: A New Military Doctrine • Helsing’s core philosophy: Europe can only defend its sovereignty by fusing software and hardware at scale. • The company develops systems that pair AI pilots and targeting algorithms with traditional platforms like fighter jets, drones, and sub-detecting gliders. • Proven Battlefield Utility • Helsing’s AI-enabled drones are already in use in Ukraine, offering real-time decision support and automated targeting features. • It’s also building “drone walls”—autonomous air-defense perimeters capable of reacting faster than human operators. • Defense Tech as Venture Capital Magnet • With Europe’s military budgets soaring, Helsing sits at the intersection of three powerful forces: 1. Spiking defense spending across the EU and NATO 2. Explosive growth of AI in warfare 3. A political push for strategic tech independence from both the U.S. and China • The result: major funding rounds and a valuation that now rivals some of Silicon Valley’s top defense-tech firms. • Strategic Autonomy for a Fragmented Continent • As alliances strain and threats grow more complex, Helsing argues that Europe must not rely solely on U.S. military or tech leadership. • Its systems are designed to integrate with NATO infrastructure but can also operate independently—a hedge against future geopolitical volatility. ⸻ Why It Matters: The Digital Arsenal Behind Europe’s New Spine Helsing embodies the continent’s deeper transformation—from a peacetime posture to one of technological deterrence. With war on its doorstep and alliances under strain, Europe’s strategic future may depend not just on tanks or treaties—but on startups like Helsing that can rapidly adapt digital weapons to fast-evolving threats. The firm’s success points to a new defense ecosystem that blends AI innovation, sovereign capability, and venture-backed scale. If Europe is regrowing its spine, Helsing may be the vertebrae. https://lnkd.in/gEmHdXZy

For decades, defense wasn’t a priority for much of Europe. Low military spending. Fragmented procurement. An overreliance on the U.S. and NATO. But that’s changing fast. €1.7B has been invested in defence tech startups in Europe since early 2024. The majority of it went into autonomous drones, electronic warfare software, underwater robotics, and AI decision systems. Because in today’s world, war isn’t just fought with firepower. It’s fought with compute. Algorithms. And edge intelligence. The U.S. has shown how defense primes like L3Harris are partnering with AI-native startups like Shield AI to modernize faster. Europe is now figuring out how to do the same, but on its own terms. That raises questions: → Can Europe foster dual-use innovation without compromising on sovereignty? → Will its regulatory and procurement structures allow AI-native defense to thrive? → And can startups fill the capability gaps faster than governments can reform? Europe has an advantage in deep tech talent, new political urgency, and the opportunity to build from scratch, without the baggage of legacy contractors. If we get it right, the most important defense startups of this decade won’t come out of Silicon Valley. They’ll come from Vilnius, Paris, Tallinn, and Warsaw.   #Venturecapital #AI #Deeptech #Startups   Follow us for strategies and resources for Deep Tech founders and VCs!   And get access to exclusive content on deep tech startups like ATMOS Space Cargo, planqc, smedo GmbH, and SENISCA in our newsletter:   https://t2m.io/EV2qHQuo