European Defense Tech Comes Into Its Own

Europe’s venture capital (VC) investment in defense technology startups has surged in recent years as Russia’s invasion of Ukraine has spurred a broad rethink of European security needs.

Analysts’ estimates of the exact amount of investment vary given that there is not a universal definition for what constitutes a defense technology startup. For instance, a new report by McKinsey & Co. using data from PitchBook finds that investment in European defense tech startups jumped by 500% in 2021-2024 compared to the preceding three years and overall has reached about $2 billion.

That figure looks conservative compared to the $5.2 billion that the NATO Innovation Fund and database management company Dealroom.co estimate the sector–described as Defense, Security and Resilience (DSR)–attracted in 2024 alone.

“It follows an ongoing trend of putting capital and innovation to work on Europe’s core strategic needs,” Yoram Wijngaarde, founder and CEO of Dealroom, said in a new report co-produced with the NATO Innovation Fund. While European defense is relatively nascent, “the data shows an active pipeline of early stage companies looking to change that,” he added.

The uptick in European defense tech investment contrasts with a broader venture capital (VC) funding slowdown across the region, the report found.

While the UK has attracted the most overall defense tech funding since 2019, Germany claimed the top spot in 2024 thanks to the €450 million ($470 million) Series C round of Helsing, which produces artificial intelligence (AI) solutions for military applications. Helsing announced on Feb. 13 that it is manufacturing 6,000 HX-2 strike drones for delivery to Ukraine. That follows a previous order of 4,000 HF-1 strike drones currently being delivered to Kyiv.

Launched in late 2024, HX-2 is an electrically propelled precision munition with a range of up to 100 km (62 mi.). Its onboard AI system is designed to resist electronic warfare.

“It is clear that NATO has important lessons to learn, and fast,” Helsing co-founder Gundbert Scherf said in a statement. He added that Helsing is pursuing a distributed approach toward mass manufacturing production of the systems across Europe, “allowing individual nation-states to produce locally and ensure sovereignty of production and supply chain.”

One challenge for Europe’s defense tech startups has been widespread ambivalence in European countries about greater investment in military capabilities.

“Many potential deep-tech founders and startup employees view dual-use or military cases as ‘off limits,’ hindering company formation and shrinking the available talent pool,” McKinsey said in its report. To address this challenge, the consultancy recommended that public institutions “consider how to address the explicit and implicit constraints which are inhibiting research with military relevance and funding for such research.

“Shifting public perception to view defense as central to Europe’s security and resilience could help attract more founders,” it added.

A mercurial geopolitical situation could provide impetus for such a transformation. The Trump administration has entered into peace talks with Russia to end its war with Ukraine without the participation of either Ukraine or America’s NATO allies. Ukraine has refused to accept any decision reached without its consent, while European leaders fear that Washington and Moscow may reach an agreement that undermines their security. At the same time, the contentious visits of U.S. Vice President JD Vance and Secretary of Defense Pete Hegseth to Europe last week have raised questions about the transatlantic alliance’s durability.

The European Commission (EC) will propose exempting defense from EU limits on government spending, EC President Ursula von der Leyen said at the Munich Security Conference on Feb. 14. Noting that the commission removed borrowing limits during the COVID-19 pandemic, she said, “I believe we are now in another period of crisis which warrants a similar approach.”