Incoming German chancellor Friedrich Merz’s conservative party may have won last weekend’s election – but it remains unclear exactly what that means for the nation’s startups, particularly those focused on defence.
Merz aims to up Europe’s largest economy’s military spending to counter Russian aggression, but faces pushback on reforming strict limits on state borrowing (known as the debt brake) when the new parliament takes hold — and could be blocked by far-right and far-left parties in the Bundestag.
To approve more defence spending as quickly as possible, Merz could create an emergency fund of up to €200bn — something the CDU and its likely coalition partner the Social Democratic Party (SPD) are already discussing, as reported by Bloomberg on Tuesday.
Some local defence tech founders are cautiously optimistic that the new government will be positive for their business: “I see a silver lining on the horizon,” says Florian Seibel, cofounder of Munich-based autonomous drones startup Quantum Systems and founder of strike drones startup Stark. “We don’t know if it’s the sunrise or the sunset, so I just hope it’s a rising sun.”
“Not all of this is going to be funded with new credit lines; I’m sure they will save money in other areas — they have to,” adds Seibel. Though he’s wary, “we are confident that these budgets will increase,” Seibel says, adding that he believes Germany will boost defence spending to 3.5% of GDP — a higher number than NATO’s 2% target. “We are the winners here.”
The CDU and the SPD is precisely what Germany needs right now.
Marc Wietfeld, cofounder and CEO of German unmanned robotics startup ARX Robotics, believes a new government with the CDU and the SPD “is precisely what Germany needs right now.”
He says the CDU has a “clear vision” for the Bundeswehr and a more resilient Europe: “With a holistic idea of how the German armed forces should evolve and be equipped in the coming years,” he thinks it’s prime conditions for defence and dual use startups.
And for one, Wietfeld is optimistic the debt brake won’t stand in the way: he wishfully thinks that politicians understand the debt brake “is not an end in itself,” and that defence may be a place where it makes sense to change the rules.
“Ongoing conversations about unlocking more defence investments are very positive for the future of the sector and we are optimistic about Germany’s ability to lead on that with the new government,” adds Patrick Schneider-Sikorsky, partner at the €1bn NATO Innovation Fund, which invested in ARX.
While it’s unclear how these debt issues will play out, other VCs expect Germany to generally spend more on resilience and defence moving forward, which “hopefully also includes increased procurement on the earlier stage side — not only established companies,” says Uwe Horstmann, general partner at Berlin-based Project A, which has Quantum Systems and ARX Robotics in its portfolio.
Horstmann says it’s still “too early” to determine whether the new government will change the firm’s investment strategy in German defence.
A vacuum only Europe can fill
Despite the rhetoric, some founders like Seibel worry that defence is “not really” a top priority for the CDU.
Despite the US’ increasingly protectionist stance, Seibel says he doesn’t feel a sense of urgency in Germany. “I think we’re still in that lethargy of, you know, we can travel, go on vacation four times a year, have a nice house, have a nice apartment, spend our weekend skiing. I don’t feel that we’re preparing for this,” he says of the threat of Russian aggression.
Seibel says the incoming government needs decisive plans about defence spending within the first days: “Why is everybody so reluctant? I don’t get it. What else has to happen in order for them to really get things going? Let’s give them a few days, but there’s not much time left,” he says.
I don’t feel that we’re preparing for this.
Others are more upbeat. “The reduced support from the US has created a vacuum — a gap that only a united Europe can fill, thereby presenting an opportunity for enhanced European cohesion and capacity building,” Wietfeld says.
“The sooner we embrace this responsibility for ourselves and our partners, the quicker we can restore a strong transatlantic alliance.”
But defence founders aren’t counting on Germany to sustain their businesses.
Quantum Systems has offices in a number of other countries including Ukraine and, soon, the UK, Seibel tells Sifted, adding that half of Quantum’s €115m revenue in 2024 came from the US. ARX Robotics also has contracts in places like the US, Spain, Ukraine and Australia.
Quantum Systems isn’t detaching from Germany though. Seibel says “even if they don’t drastically increase their budget, it’s still one of the biggest budgets in Europe.”
He adds: “I just hope they wake up and now say, ‘We have to put the security of Europe above everything else’.”
Read the orginal article: https://sifted.eu/articles/german-government-means-defence-tech/
