European Defense Tech Investment Surges as Startups Take Center Stage
Investment in European defense technology 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 sum is expected to reach $2.3 billion by year’s end, reflecting a significant shift in the continent’s security landscape. This European defense tech investment surge comes as governments increase procurement spending and the nature of modern warfare evolves dramatically.
The transformation is particularly evident when examining how startups are disrupting traditional defense sectors with innovative approaches to military technology. Unlike conventional defense contractors, these agile companies bring fresh perspectives and rapid development cycles to address emerging threats. The changing investment patterns mirror broader economic shifts, similar to how market analysts are adapting to new data challenges in other sectors.
Catalysts for Change: Geopolitical Shifts and Technological Evolution
Several factors are driving this investment boom. European governments have made substantial commitments to increase defense spending, creating significant funding opportunities. The war in Ukraine has fundamentally altered military thinking, demonstrating the critical importance of low-cost systems like drones alongside traditional heavy equipment. This technological democratization echoes trends seen in other industries, where automation and new technologies are reshaping employment patterns across various sectors.
The Trump administration’s declared intention to redirect resources from Europe to Asia has further highlighted capability gaps that European nations must address. Against this backdrop, startups specializing in dual-use technologies—including artificial intelligence, robotics, and autonomous systems—are increasingly viewed as essential partners in addressing continental security challenges.
Startup Innovation Versus Traditional Defense Procurement
The rise of defense tech startups represents a significant departure from traditional procurement practices. Defense agencies historically relied on established “prime” contractors for strategically important equipment. Today, these same organizations are evaluating proposals from software companies and manufacturers of cost-effective drone systems, creating both opportunities and challenges.
This shift requires procurement agencies to assume greater risk with unfamiliar suppliers, many of which lack traditional defense industry backgrounds. The Dealroom/Resilience report, “The State of Defence Tech 2025,” reveals that only about 12% of C-level defense tech executives have military experience, though this percentage is higher in the United Kingdom.
The Startup Advantage: Speed and Innovation
Defense-tech entrepreneurs bring crucial capabilities to the table, particularly rapid innovation cycles. Tobias Stone, founder of Resilience Media, emphasizes this advantage: “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.”
Alex Ferrara, partner at Bessemer Venture Partners, echoes this sentiment. His firm, with a decade of experience in U.S. defense tech investment, recently published a roadmap highlighting key European opportunities. These include autonomous vehicle and robot technologies (across land, sea, and air domains), air defense systems, command and control infrastructure, space sovereignty capabilities, and advanced manufacturing processes.
Software Expertise: The Gateway to Defense Markets
Software capabilities are proving to be a critical entry point for European startups seeking defense industry opportunities. 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, develops technology enabling coordinated drone swarm operations. Their systems, backed by U.S. funding, have already seen deployment in Ukraine.
Ferrara emphasizes the importance of dual-use technologies in investment decisions: “One of our criteria for investing in defense-tech is whether or not the technology is dual use. If it is dual-use, we put it in the best bucket.” This approach recognizes the expanded market potential for technologies serving both military and civilian applications, similar to how platforms are developing new revenue streams through innovative service models.
Natural Evolution: From Civilian to Military Applications
The transition from civilian to military applications often occurs organically. Ivan Jalusic, CSO and co-founder of FPV drone company ORQA, describes how his company evolved from manufacturing racing drones to developing systems with military utility. “FPV Racing Drones suddenly got dual use,” he explains. “The civilian systems brought an asymmetric advantage to the Ukrainian front line, and suddenly these dual-use systems began to be used for payload delivery missions. For the past two and a half years, these systems have been evolving into dual-use.”
This natural progression between sectors reflects broader technological trends, much like how financial technology platforms must maintain service continuity while expanding their capabilities.
Ukraine: Innovation Laboratory and Future Tech Hub
The ongoing conflict in Ukraine continues to drive innovation in European defense technology. Numerous small companies and military units within the country are actively developing and modifying weapons systems in response to battlefield requirements. The rapid pace of innovation suggests that Ukraine could emerge as a major defense technology hub once peace is established.
Efforts are already underway to connect Ukrainian innovators with European defense markets. Estonian tech entrepreneur Ragnar Saas, known for co-founding Pipedrive, has established Darkstar, a defense technology fund focused on investing in combat-proven technologies. Based in Tallinn, Saas regularly travels to Ukraine to identify teams with potential for integration into Europe’s defense industry.
Bridging the Gap: From Battlefield to Business
Darkstar seeks teams capable of transitioning from producing wartime solutions to establishing viable businesses within the European context. “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.”
This initiative represents more than mere financial investment. The Estonian government’s €100 million Defence Fund serves as a cornerstone investor in Darkstar, reflecting Estonia’s security concerns and its commitment to collaborating with Ukraine on system development. The approach mirrors how established organizations are evolving their strategies to address changing market conditions.
Integration Challenges: Standards and Compliance
Significant challenges remain regarding integration. Saas notes: “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.” Darkstar acts as an intermediary between Ukrainian development teams and European military purchasers, helping weapons builders understand the requirements for selling systems in European markets.
Jalusic emphasizes the compliance aspect: “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 regulatory hurdle represents a common challenge for smaller companies with viable solutions, similar to how emerging platforms must navigate regulatory frameworks while scaling their operations.
Building Trust and Delivering Capability
Establishing successful relationships with military buyers requires developing trust and credibility. This involves not only manufacturing products to required standards but also demonstrating the capacity for timely delivery and specification compliance. While public funding remains available—including through NATO’s defense innovation fund—Ferrara anticipates that private capital will constitute the majority of future investment. “Much of the funding will come from funds like ours,” he states. “We see this is a growing area of the economy.”
The convergence of geopolitical necessity, technological innovation, and investment capital positions European defense tech startups for continued growth and increasing importance in continental security architecture. As these companies mature and navigate regulatory requirements, their role in shaping Europe’s defense capabilities appears set to expand significantly in the coming years.
Based on reporting by {‘uri’: ‘forbes.com’, ‘dataType’: ‘news’, ‘title’: ‘Forbes’, ‘description’: ‘Forbes is a global media company, focusing on business, investing, technology, entrepreneurship, leadership, and lifestyle.’, ‘location’: {‘type’: ‘place’, ‘geoNamesId’: ‘5099836’, ‘label’: {‘eng’: ‘Jersey City, New Jersey’}, ‘population’: 247597, ‘lat’: 40.72816, ‘long’: -74.07764, ‘country’: {‘type’: ‘country’, ‘geoNamesId’: ‘6252001’, ‘label’: {‘eng’: ‘United States’}, ‘population’: 310232863, ‘lat’: 39.76, ‘long’: -98.5, ‘area’: 9629091, ‘continent’: ‘Noth America’}}, ‘locationValidated’: False, ‘ranking’: {‘importanceRank’: 13995, ‘alexaGlobalRank’: 242, ‘alexaCountryRank’: 114}}. This article aggregates information from publicly available sources. All trademarks and copyrights belong to their respective owners.