Investment in European defense and related technologies surged in 2024, defying the broader downturn in venture capital (VC) funding across the continent. According to a new report released by the Nato Innovation Fund and research group Dealroom, funding for defense startups jumped 24% year-over-year, reaching $5.2 billion. This growth outpaced even the surge in venture capital for artificial intelligence (AI) in Europe over the past two years.
The findings, published on Wednesday, highlight the growing investor appetite for companies like defense software developer Helsing and drone maker Tekever. Despite the overall 45% decline in European VC funding over the last two years, sectors related to defense, security, and resilience saw remarkable growth. Kelly Chen, a partner at the Nato Innovation Fund, noted that while the VC market is cyclical, defense technologies were among the few sectors that experienced substantial investment growth.
The report comes ahead of the Munich Security Conference, where global leaders, including U.S. Vice President JD Vance and Ukraine’s President Volodymyr Zelenskyy, are expected to meet. The ongoing Russia-Ukraine war has undeniably played a role in driving heightened interest in defense innovation, with investment in European defense startups growing by 41% to $1.5 billion in 2024.
Although European defense tech funding is catching up with the U.S., it remains far behind. U.S. defense tech companies, such as California-based Anduril, secured $4.3 billion in funding last year, outpacing Europe’s efforts. However, the Nato Innovation Fund is committed to closing the gap. Launched in 2022 with €1 billion to back defense and “deep tech” startups, the fund aims to support the development of key technologies including robotics, biotech, quantum computing, and dual-use AI systems, which could be applied in both military and commercial contexts.
The growth of Germany as a European hub for defense innovation is notable, with Munich leading the charge. The city attracted nearly $1 billion in funding last year, surpassing the UK. Key players like Helsing, a Munich-based startup focused on developing AI for battlefield applications, raised €450 million in July 2024 in a round led by U.S. fund General Catalyst, bringing its valuation to around €5 billion.
This rapid growth in defense and security investment contrasts with the stagnation of capital flowing into Europe’s AI sector. Despite the hype around AI applications following the rise of OpenAI’s ChatGPT, capital investment in AI remained largely flat between 2022 and 2024. In contrast, venture capital in defense and resilience grew by 30% during the same period.
The Nato Innovation Fund’s primary objective is to fill the funding gap that European startups have faced when competing with their U.S. counterparts. While European venture investors have historically been hesitant to back defense technology companies due to ethical concerns, the war in Ukraine has led to a shift in perspective. However, lengthy government procurement cycles remain a challenge for smaller companies. Chen highlighted that improving procurement channels is critical to unlocking private capital, stating, “For this industry to grow, we need more private capital. It won’t just be government grants and public money.”
