As interest in defence tech skyrockets — and Europe is ramping up its spending on defence — climate tech startups and investors seem to want in on the trend.
Climate VCs are increasingly using words to describe the sector that edge closer to defence — notably “resilience” — as the broader investment and political landscape veers toward technologies that bolster Europe’s sovereignty and security.
As interest in defence has grown, climate tech has faltered: Europe’s poster child, Swedish gigafactory Northvolt, filed for bankruptcy at the end of last year, leaving many in the sector existential about its future.
Headwinds in climate; tailwinds in defence
Climate tech enjoyed significant hype in 2021 and 2022: funding jumped and numerous new VC funds popped up, focused specifically on the vertical. But funding has fallen since then, dropping in 2023 and 2024.
That’s coincided with a scramble among European countries to pledge more funding for defence, as the US, under President Trump, has grown far less supportive of the continent. Earlier this month, the EU unveiled an €800bn plan to rearm the continent; meanwhile countries like Germany are angling to up their own defence spending.
World Fund, a European climate tech VC, published a white paper last month explicitly linking climate to European “resilience” — a blanket term that’s often used in a similar but broader vein as defence.
Defence-focused VCs echo the same phrase. The defence and deeptech-focused €1bn NATO Innovation Fund, backed by 24 allied nations, is interested in areas it classes as “resilience” including climate, energy and new materials.
“There are a lot of headwinds in climate and there’s a lot of emerging tailwinds in defence,” says Will Wells, investor at Lightspeed — where he’s focused on both climate and defence — and venture partner at early-stage generalist fund Firstminute. Prior to investing, Wells cofounded a startup, Hummingbird, which ran a network of drones in Ukraine pre-war, monitoring agriculture.
“There’s a logical, economic move into dual-use,” says Wells — meaning technologies that have both civilian and military applications. “I love both, but there might just be more government dollars in defence applications than there are in climate,” he says.
Wells gives the example of a company extracting precious metals from e-waste. A few years ago, that company may have got a deal with a corporate company keen to up their climate credentials, Wells says. That’s less likely now — with corporate budgets for sustainability on the decline — but, today, it’s now more likely that a government defence department might want to sign them to reduce the reliance of their supply chains on China.
“It’s a good hygiene moment for climate tech, it sharpens the pencil,” Wells says.
For some startups, that shift in focus away from climate and towards “resilience” may be a necessity.
“A lot of climate companies do really need to rebrand and just rethink their value proposition,” one VC, who requested anonymity to speak freely as their firm is still determining how they approach these topics, said. “Anyone that was betting on that moral, altruistic side of climate tech taking off…are just not going to survive.”
From EV batteries to drones
As the economic case for selling to governments has ramped up, so has the understanding of climate tech’s military applications.
A good example is GDI, an American company which is building a plant in Germany to produce silicon anodes for batteries, funded by the European Investment Bank. It produces them for EVs, but has an increasing focus on defence applications too, such as wearables for soldiers, as well as drones.
Founder Rob Anstey says GDI’s tech offers an opportunity for Europe to remove its reliance on China for batteries — a dynamic that’s even more pressing in the defence world than it is for EVs.
“There’s a lot of concern about whether China will do a similar thing to what Russia did with Ukraine, but with Taiwan, and, as a result, these defence supply chains are going to be much more sensitive to material supply from China as a result,” he says.
Others like Ukrainian-born Karolina Attspodina, who founded Berlin-based solar startup WeDoSolar in 2021, have pivoted to angel investing in defence. “Pretty much all of my money went into developing defence systems and military equipment for the front lines,” she recently told The Times.
A continuing trend?
To some defence-focused VCs, the apparent rebranding seems a bit like chasing a fad.
One defence investor, who requested anonymity to speak freely, points out the “joke that some of the interested voices on LinkedIn had climate in their bio a year ago and crypto three years ago,” they said. “I’ve seen those people do things like PE in defence.”
But they haven’t seen many dedicated climate funds moving fully into defence: “Even if their [limited partner agreements] let them, some of their LPs might refuse to participate” in defence deals. “It’s a big hassle for the manager to keep track of who is in what if they then go ahead and do the deal.”
Others believe it may be a lasting trend among generalist investors more broadly.
Particularly for companies that combine hardware and software, “we’ve seen interest not only from specialist defence funds, but also from generalist funds which have not historically been associated with the sector at all,” Paul Thorpe, a partner at law firm Taylor Wessing, tells Sifted, adding that he expects it’s a trend that will continue this year.
Read the orginal article: https://sifted.eu/articles/climate-vc-startups-defence-tech/
