The battle in Ukraine served as a wakeup name for Europe, and protection tech went from a sector that almost all European VCs didn’t contact to one of many high 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 equivalent to Portugal-based dual-use drone firm Tekever, which raised a $74 million Series B in November. In mixture, DSR startups secured a file $5.2 billion in enterprise capital final 12 months, up 24% in comparison with 2023, and almost 5 occasions greater than in 2019.
Despite the surge, $5.2 billion is simply twice as a lot capital as U.S. protection tech firm Anduril is reportedly in search of to boost only for itself. However, that’s additionally an all-time excessive of 10% of all VC funding in Europe — a 2.5-fold improve over the previous two years, in accordance with Dealroom.
“Appetite 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 an announcement. “It follows an ongoing pattern of placing capital and innovation to work on Europe’s core strategic wants, by way of 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 power could be equally crucial for the area’s sovereignty.
This signifies that a broader vary of startups now fall into the DSR pipeline, particularly now that rising protection budgets make the thought of promoting dual-use know-how in Europe much less daunting. NIF itself additionally hopes to assist on that entrance; it just lately appointed British Army veteran John Ridge as its chief adoption officer.
Fragmentation and gradual 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 regularly 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 improve since 2018. Conversely, a broader vary of European VCs at the moment are making investments adjoining to protection tech, with greater than 850 traders energetic in a minimum of one DSR deal in Europe, in accordance with the report.
This development is especially putting in Germany; with Munich and Berlin as its primary hubs, it claimed Europe’s high spot in DSR funding in 2024, adopted by the U.Ok. and France. AI protection tech rising star Helsing, which is predicated in Germany, raised some $487 million in a Series C led by General Catalyst final 12 months.
Still, these diversifications take time. The Defence Equity Facility (DEF), a €175 million fund ($182 million) launched in January 2024 by the European Commission and the European Investment Fund (EIF), is simply about to announce its first investments, because the European Investment Bank (EIF’s mum or dad group) needed to replace its guidelines on dual-use know-how.
Of all challenges forward, nevertheless, a scarcity of founders isn’t certainly one of them, as confirmed by latest protection hackathons throughout Europe. “Despite latest development, protection, safety, and resilience tech stays a comparatively nascent sector, however the knowledge exhibits an energetic pipeline of early-stage firms trying to change that,” Wijngaarde mentioned.
