The struggle in Ukraine served as a wakeup name for Europe, and protection tech went from a sector that the majority European VCs didn’t contact to one of many prime funding areas inside deep tech.
This shift is captured in Dealroom’s newest report on Defence, Resilience, and Security (DSR) in Europe, launched along with the NATO Innovation Fund (NIF), a multi-country €1 billion initiative making direct investments and backing funds on this house.
NIF’s portfolio consists of startups reminiscent of Portugal-based dual-use drone firm Tekever, which raised a $74 million Sequence B in November. In combination, DSR startups secured a report $5.2 billion in enterprise capital final yr, up 24% in comparison with 2023, and almost 5 instances greater than in 2019.
Regardless of the surge, $5.2 billion is simply twice as a lot capital as U.S. protection tech firm Anduril is reportedly searching for to boost only for itself. Nonetheless, that’s additionally an all-time excessive of 10% of all VC funding in Europe — a 2.5-fold enhance over the previous two years, in keeping with Dealroom.
“Urge for food for protection, safety, and resilience startup funding is unrecognizable in Europe from only a few years in the past,” its founder and CEO, Yoram Wijngaarde, mentioned in a statement. “It follows an ongoing development of placing capital and innovation to work on Europe’s core strategic wants, through deep applied sciences.”
With DSR now accounting for one-third of all deep tech enterprise funding in Europe, it’s manifest that the 2 overlap. That’s as a result of DSR is broader than protection tech, with the acknowledgment that provide chain, quantum applied sciences, and vitality could be equally crucial for the area’s sovereignty.
Which means a broader vary of startups now fall into the DSR pipeline, particularly now that rising protection budgets make the thought of promoting dual-use expertise in Europe much less daunting. NIF itself additionally hopes to assist on that entrance; it lately appointed British Military veteran John Ridge as its chief adoption officer.
Fragmentation and sluggish adoption apart, VC urge for food has lengthy been an impediment, however that is altering. The rise of dual-use startups contributed to this evolution: It made it simpler for generalist VCs to accommodate the sector inside their mandate, which frequently prevents them from investing in pure protection tech, not to mention weapons.
Pure protection tech solely accounts for a smaller subset of total funding, however that’s additionally on the rise; a earlier Dealroom report anticipated a $1 billion tally for 2024, a five-fold enhance since 2018. Conversely, a broader vary of European VCs at the moment are making investments adjoining to protection tech, with greater than 850 buyers lively in at the very least one DSR deal in Europe, in keeping with the report.
This progress is especially placing in Germany; with Munich and Berlin as its principal hubs, it claimed Europe’s prime spot in DSR funding in 2024, adopted by the U.Ok. and France. AI protection tech rising star Helsing, which relies in Germany, raised some $487 million in a Sequence C led by Common Catalyst final yr.
Nonetheless, these variations take time. The Defence Fairness Facility (DEF), a €175 million fund ($182 million) launched in January 2024 by the European Fee and the European Funding Fund (EIF), is simply about to announce its first investments, because the European Funding Financial institution (EIF’s mum or dad group) needed to update its rules on dual-use expertise.
Of all challenges forward, nevertheless, a scarcity of founders isn’t certainly one of them, as confirmed by latest protection hackathons throughout Europe. “Regardless of latest progress, protection, safety, and resilience tech stays a comparatively nascent sector, however the knowledge exhibits an lively pipeline of early-stage firms trying to change that,” Wijngaarde mentioned.