Investment In European Defence Companies Is On The Up, What Is Driving It?

Europe’s defence tech sector seems to be having a moment. In fact, new data shows that startups helping to build tech and software in the defence industry are attracting record levels of funding.

According to data by Sifted, European defence startups have already raised €3.5bn in 2025, a big jump from the €1.8bn raised during all of 2024.

Meanwhile, Heligan Group reported that investment across defence, security and resilience startups hit an all time high of $5.2 billion last year, nearly a fivefold increase in six years.

So, what has changed? And why are these startups drawing in so much attention?

Geopolitics Meets Investment

For many years, Europe tailed behind the US and China when it came to defence, and the industry wasn’t particularly in need of innovation either.

But everything changed when Russia invaded Ukraine, causing Europe’s security to be called into question. For many countries, national security was no longer a given, so investing in resilience became a priority.

As Yoram Wijngaarde, Founder and CEO at Dealroom puts it: “Appetite for defence, security and resilience startup investment is unrecognisable in Europe from just a few years ago.”

Now, startups that are building technologies to help defend countries are seen as more important than ever. And when demand soars, investment follows.

The Tech Driving The Sector

But ‘defence tech’ doesn’t just mean missiles and tanks. Now, investors are looking for smart and cost-effective ways for countries to build systems that protect them both on and off the battlefield.

Some of these include:

• AI intelligence systems to understand and search for important information.
• Cybersecurity protection so systems can’t be tampered with or breached.
• Autonomous vehicles to prevent soldiers being injured.
• Quantum technologies that help with sensing threats, navigation and communication that can’t be interfered with.
• Battlefield software, allowing commanders to coordinate operations across air, sea and land more effectively.

But the interest in European defence tech isn’t just a trend, it is actually propelling a number of startups towards unicorn status.

In fact, according to PitchBook, German drone company Quantum Systems and Portuguese surveillance drone maker Tekever both achieved unicorn status earlier this year. This followed German AI defence software company Helsing, which reached unicorn status back in 2023.

Governments Get In On The Action Too

One of the biggest reasons that defence tech is growing so quickly in Europe is that governments, not just private investors, are putting real money behind it.

Across Europe, a few major government-backed funds are investing in the sector. Some of these include:

The NATO innovation fund: Pledging €1bn to support defence startups across 23 countries.

European defence fund: Pledging €8bn for research and development through to 2027.

UK Defence R&D: plans to spend £4bn a year on defence innovation by 2030.

The UK has also said that they will increase defence spending to 2.5% of GDP by 2027, likely strengthening investor confidence in the sector.

As Matt Croker from Heligan Group puts it to ADS: “Public-private collaborations fundamentally reduce investment risk for private investors and provide long-term growth prospects”

With strong government support and growing demand, it’s no surprise that investors are seeing defence tech as a strong long-term bet.

Is This Another Bubble?

Whenever capital flows into one sector, the question investors usually ask is: is this just another bubble? Many have worried that so many newcomers into the sector are just jumping on the bandwagon, and may not actually be able to weather the storm.

Speaking to The FT, Nicholas Nelson, General Partner at VC Archangel commented “We are . . . approaching the top of the hype cycle” Nelson believes the sector has attracted a “lot of ‘defence-curious’ investors who were doing crypto, impact or climate two years ago”.

With more than 230 defence tech startups founded in Europe since February 2022, the worry is that the sector is becoming oversaturated, and might soon see some companies being pushed out or failing to exit.

What’s Next For Europe’s Defence Tech Sector?

Whatever is next, one thing is for certain: A sector that investors once overlooked is now a booming part of Europe’s startup economy.

Whilst the future is unclear, the level of government investment, combined with the creation of new unicorns is certainly a good sign.

Will investors continue to pile in? Or are we at the top of the ‘hype cycle’? Only time will tell…