European Defense Investment Reaches New Heights
Investment in European defense technology is reportedly surging, with the sector accounting for 6.2% of all European funding so far in 2025, according to data published by market intelligence provider Dealroom and Resilience Media. The total sum is expected to reach $2.3 billion by year’s end, representing a significant shift in the continent’s security landscape. This growth comes as European governments have pledged to ramp up procurement spending, creating substantial opportunities for innovative companies entering the defense sector.
Startups Transform Traditional Defense Procurement
The rise of defense tech represents a departure from traditional procurement practices, sources indicate. Procurement agencies historically accustomed to dealing with established industry giants now find themselves evaluating pitches from software companies and manufacturers of low-cost drones. According to the Dealroom/Resilience report titled “The State of Defence Tech 2025,” this transition requires agencies to take calculated risks on unfamiliar suppliers, with only around 12% of C-level defense tech executives having military backgrounds.
Analysts suggest that the nature of modern conflict has fundamentally changed conventional thinking. The widespread use of unmanned aerial vehicles in Ukraine has demonstrated that low-cost systems can be equally important as traditional expensive military hardware. This shift has created openings for agile startup companies with expertise in rapidly evolving technologies.
Dual-Use Technologies Drive Innovation
Startups specializing in dual-use technology are increasingly seen as solutions to European defense challenges, according to industry experts. Tobias Stone, Resilience Media founder, emphasized in a statement that “Ukraine has shown how important startups are in a fast-moving conflict because they can innovate far more quickly than the public sector or the primes.”
Alex Ferrara, partner at Bessemer Venture Partners, reportedly confirmed this assessment, noting that his firm specifically looks for dual-use technologies when evaluating defense-tech investments. “If it is dual-use, we put it in the best bucket,” Ferrara stated, explaining that technologies with both military and civilian applications potentially access larger markets.
Ukraine Emerges as Innovation Hub
The ongoing conflict in Ukraine is reportedly fueling much of the innovation in European defense tech, with the country potentially emerging as a major defense technology hub when peace is established. Ivan Jalusic, CSO and co-founder of FPV drone company ORQA, described how civilian racing drones naturally evolved into dual-use systems. “The civilian systems brought an asymmetric advantage to the Ukrainian front line, and suddenly these dual-use systems began to be used for payload delivery missions,” he explained.
Estonian tech entrepreneur Ragnar Saas, known for co-founding Pipedrive, has established Darkstar, a defense technology fund focused on investing in combat-proven technologies. Saas regularly travels to Ukraine seeking teams that can transition from making wartime products to becoming viable businesses within the broader European arms industry context.
Integration Challenges and Future Prospects
Despite the innovation surge, significant challenges around integration and standardization remain. Saas noted that while Ukraine has approximately 2,000 teams building different solutions, “they are not using the same standards that Europe is using.” Darkstar is reportedly acting as a bridge between Ukrainian development teams and European military buyers, helping weapons builders understand the realities of selling systems to European markets.
According to reports, Ukraine’s defense tech companies will need to address Europe’s regulatory systems and compliance standards to successfully integrate into the mainstream procurement market. Jalusic emphasized that “what Ukraine needs to look at [are] the compliance standards required by Europe and U.S.”
The funding landscape for defense tech is evolving, with analysts suggesting that while public sector funding exists through initiatives like NATO’s defense innovation fund, most capital will come from private sources. “Much of the funding will come from funds like ours,” Ferrara stated. “We see this is a growing area of the economy.”
As European nations continue to address capability gaps exposed by shifting global priorities and the demonstrated effectiveness of new technologies in Ukraine, startups appear positioned to play an increasingly critical role in the continent’s defense ecosystem, provided they can navigate the complex regulatory and standardization requirements of the traditional defense market.
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