Europe’s defence spending is rising – but where is the innovation?
The European Union has committed to increasing defence spending to €800 billion by 2030. Most of these resources will flow to established contractors such as Airbus and Rheinmetall. Yet alongside these giants, a new generation of defence technology startups is emerging – agile, innovative, and capable of developing solutions that traditional players cannot deliver at the same pace.
Despite growing demand, the European defence tech ecosystem remains underdeveloped compared to the United States or Israel. In 2024, startups in this sector attracted $1 billion in venture capital, up from $373 million in 2022. While this fivefold increase signals momentum, it still represents only 1.7% of total VC investment in Europe. By comparison, U.S. defence tech receives several times more private capital annually.
Only three unicorns have so far emerged in Europe’s defence tech landscape: Helsing, Quantum Systems, and Tekever. Their common denominator is not traditional weapons but dual-use technologies – solutions that serve both civilian and military purposes.
ESG barriers: a structural challenge for investors
One of the biggest obstacles for European investors is the EU’s strict ESG framework, which prevents public or semi-publicly financed funds from backing “lethal” or purely offensive technologies.
As a result:
Startups struggle to raise late-stage capital, limiting their ability to scale.
Public financing constraints discourage many institutional investors from entering the defence sector.
Procurement processes remain slow and rigid, making it difficult for young companies to sell directly to governments.
The paradox is clear: Europe acknowledges the need for technological sovereignty and security, yet its capital allocation structures still inhibit investment in precisely the solutions that could deliver it.
Dual-use technologies: the bridge between ESG and defence
The way forward lies in dual-use innovation – technologies that combine civilian utility with strategic defence relevance. These solutions are increasingly attractive to both governments and private investors, as they can be justified under ESG criteria while providing clear security benefits.
Examples include:
Cybersecurity platforms securing both public infrastructure and military networks.
Computer vision and AI for industrial automation as well as situational awareness on the battlefield.
Autonomous drones used for logistics, agriculture, and reconnaissance.
Energy storage and grid resilience solutions critical for both civilian and defence applications.
These technologies demonstrate that Europe does not need to choose between sustainability and security. The dual-use model offers a path to align ESG principles with strategic imperatives.
Why Central and Eastern Europe matters
Central and Eastern Europe (CEE) is uniquely positioned to lead in this transformation. The region combines:
High STEM talent density – some of the strongest technical universities in Europe.
Growing startup ecosystems in cybersecurity, AI, and robotics.
Direct exposure to geopolitical threats, which accelerates adoption and testing of dual-use technologies.
For investors, CEE offers both access to talent and real-world testbeds, making it an ideal environment to build scalable solutions that can expand globally.
Strategic capital: the missing piece
Europe’s challenge is not a lack of ideas or talent – it is the absence of growth capital dedicated to dual-use innovation. Most venture investors remain hesitant, constrained by ESG or risk profiles. Meanwhile, public budgets favour established contractors.
This creates a gap – and an opportunity – for funds specifically designed to:
Bridge early-stage innovation with late-stage scaling,
Align private capital with public security priorities,
Invest in dual-use companies that combine resilience with global competitiveness.
By deploying strategic capital, Europe can ensure that dual-use startups do not simply get acquired by foreign buyers, but instead mature into global leaders anchored in Europe.
Conclusion: from spending to sovereignty
Rising defence budgets alone will not guarantee Europe’s security. Without a structural shift in how capital is allocated, the continent risks becoming a consumer of foreign technologies instead of a creator of its own.
The path forward lies in:
Embracing dual-use innovation as the bridge between ESG and strategic necessity,
Leveraging CEE’s unique strengths in talent and resilience,
Deploying growth capital focused on sovereignty and resilience.
Defence tech in Europe is a strategic frontier – and those who align investment with resilience will shape not only returns, but the long-term security of the continent.
Source: Reuters, June 2025