Several of Europe’s defence technology start-ups are gearing up for fresh fundraisings this year as companies focus on delivering new weapons at scale for the region’s armed forces.
Companies that have announced financing packages over the past few weeks include Frankenburg Technologies, an Estonian start-up building low-cost AI-based anti-drone missile systems, and German groups Tytan Technologies and Quantum Systems.
With investment at a record of almost $9bn, 2025 was a banner year for capital raisings by European start-ups focused on defence and related technologies. The latest conflict in the Middle East has further highlighted the urgency for investment in producing cheaper weapons and defence systems developed at speed, a focus of many of the start-ups.
However, with many still relying on US investors to write the biggest cheques, industry executives said a key aim this year was securing European capital.
“The most important task of this generation in Europe is to rebuild defence readiness and deterrence in Europe . . . The only capital inherently interested in preserving freedom and prosperity in Europe is European capital,” said Frankenburg chief executive Kusti Salm.
As the European defence start-ups have attracted larger rounds, an increasing share of funds over the past three years has come from North American investors, accounting for more than a third last year.
Defence tech investment in Europe also still trails that in the US; venture capital investment going to defence in the past decade is 8.5 times bigger in the US than in Europe, according to recent research by the Boston Consulting Group.
Industry experts said the trends indicated the need for more growth in European capital going into the sector if the region was to develop scalable defence tech products.
Sten Tamkivi, partner at Plural, one of the backers of Frankenburg, said the “landscape is shifting”, with more funds being raised dedicated to defence tech. Frankenburg is building affordable air defence systems and plans to set up two EU-based “mass production sites”.
However, while it was relatively easy to raise smaller sums of money, finding European private capital to raise between €50mn and €200mn was “hard or impossible”, he said.
“That is where the market issue today is, how can Europe fund this ambition and growth beyond tens of millions of euros? Getting to that requires more pension funds and large capital pools,” he added.
Executives at Quantum and another leading drone start-up Helsing acknowledged the region’s continued reliance on US capital.
Surveillance drone group Quantum last month agreed €150mn in long-term debt financing backed by the European Investment Bank (EIB) and major European commercial lenders. It is backed by a number of European funds including Project A, HV Capital as well as Balderton Capital but also counts US investor Peter Thiel among early investors.
Florian Seibel, Quantum co-founder, credited Thiel — whose role as an investor in strike drone company Stark has come under fire in Germany — with backing the company in 2019 “against all odds”.
With the company now “looking into . . . [the] growth volumes and numbers needed to build a $100bn company we probably also have to look for some US funds now to invest in our next rounds,” said Seibel, adding that “it was not possible to raise these numbers purely from European or even German venture capital facilities”.
Gundbert Scherf, co-founder and co-chief executive of Helsing, highlighted the persistent difficulties of securing financing in Europe for companies solely focused on military technologies given ethical concerns among investors. “On the capital side, if we had easier access to just European capital, I think it’d be great to build more scaled companies, sovereign entities.”
Many European financial institutions “still have restrictions”, Scherf said, with requirements that the technology was dual-use rather than solely for military purposes. “That’s something that still needs more work even though you think we should have come a bit further,” he said.
Adam Niewiński, co-founder of OTB Ventures, a Polish venture capital firm whose defence investments include satellite image provider Iceye and Tytan, said there were still reputational risks associated with certain areas of defence such as explosives.
“In terms of reputation it is easier to not have anything to do with aggressive warfare and to explain why we are investing in something that is truly defensive, like a producer of kinetic drone interceptors, rather than something that is actually made to kill people,” he said.
Despite the challenges, experts point to more institutional funding becoming available.
Nadia Calviño, president of the EIB, said the bank’s €70mn loan as part of the €150mn debt financing package for Quantum had helped to act as a “catalyser”, underlining its ability to “crowd in private capital and that is key going forward”.
Separately, the EIB’s European Investment Fund said this week it would commit €50mn towards a third fund being raised by venture capital group Join Capital. The investment is the EIF’s largest to date in defence. Join Capital hopes to raise €235mn to invest in 25 early-stage cutting-edge disruptive start-ups.
Fiona Murray, chair of the Nato Innovation Fund, which led the recent €30mn fundraising for Tytan, said Europe was “beginning to see” larger funds being raised to back defence tech and that it was important for Europe to co-ordinate its efforts.
“If every country was trying to build its own 30 companies, they’d all be a bit sub-scale because no one of them could be big enough. And so we’ve got to lean into our competitive advantage and have a little more willingness to co-ordinate. And that’s very, very difficult.”
Money alone, however, will not be enough, with several executives raising concerns that governments were continuing to spend more on conventional weapons produced by the region’s large established players rather than on innovative capabilities.
At last month’s Munich Security Conference, senior officials pledged funding for defence tech start-ups after a mounting backlash over spending on conventional weapons. Quantum’s Seibel told the FT that Berlin was failing to spend enough on autonomous systems and AI.
A report by think-tank Bruegel, published on Thursday, calls on European governments to show greater willingness to enter into contractual arrangements with new players. Its authors found that defence procurement in selected European countries is primarily directed at the 10 biggest companies, with less than 30 per cent of total order volume typically going to other firms.
Guntram Wolff, one of the report’s authors and a senior fellow at Bruegel, said start-ups “need a signal that they will be considered in the order book”.
Companies, he added, “tell me, as soon as they have their first contract with the defence department, even if just €10mn, with [that] €10mn they can go to the market and get €100mn. That is the signal they need”.
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