A growing number of defence VCs are circling investments in offensive weapons, as the war in Ukraine breaks down longstanding taboos and pushes Europe’s militaries to upgrade their arsenals with modern tech.
Since Russia’s full-scale invasion in early 2022, ethical red-lines around the defence tech sector, particularly offensive weapons, have eroded. Investment in European ‘defence, security and resilience’ tech hit a record high of $5.2bn in 2024, according to Dealroom data.
But industry insiders say there’s still a dearth of investors in Europe willing to back offensive tech, including weapons systems, for use on the battlefield, with most VCs in the sector backing dual-use tech, which has civilian and military capabilities.
“Lingering legacy LPAs or sin areas” prevent a lot of investors putting money into lethal battlefield technology, says Nicholas Nelson, a general partner at Archangel, a fund which invests in defence tech across Europe up to Series A.
“Others have reputational concerns or may not be as familiar with the ecosystem,” he adds. “It’s a sad state of affairs that it’s contrarian, defence first and defence companies produce better capabilities and significantly more LP returns than dual use firms or dual use as a whole.”
But there are signs of change. This week Darkstar, an Estonia-based coalition of founders and investors focused on defence tech, announced a first close of €15m for a new €25m fund to exclusively back startups working on military applications, including weapons systems, across Europe. Its largest LP, Estonia-based SmartCap, won’t back VCs unless they can back weapons.
“It’s a positive signal for the ecosystem, especially one which is relatively nascent, growing and evolving,” Nelson says.
Proximity to the war plays a part. “Estonia, Finland and Poland all feel a sense of urgency about innovating in defence that you simply do not see in Madrid or London,” Federico Fini, an investor at Join Capital, tells Sifted.
“They have local Russian-speaking minorities and know that if something happens, it will likely happen there first. They are focused on funding pragmatic, single-purpose companies, while the rest of Europe tends to concentrate on broader resilience tech, dual-use solutions and general deeptech that might have defence applications.”
Real-world testing
There’s an emerging view that the best defence technologies are being developed in Ukraine, and it’s a mistake to not be there as a founder or investor.
“I don’t believe you can build defence tech products without being active in Ukraine […] the best teams I‘ve seen are working in Ukraine 24/7,” Darkstar cofounder Ragnar Sass told Sifted earlier this week.
Darkstar runs regular bootcamps which see a cohort of defence tech startups work with Ukrainian military units to test their technology on the frontline. “We’ve had the case in the bootcamp that the Ukrainian units made orders on the spot to buy some of the systems,” Sass said.
“If you’re backing a defence tech startup and they’re not testing in Ukraine, 90% of the time you’re not doing the right thing for it,” Nelson tells Sifted. “We’ve seen countless examples [of companies] who’ve sent tech into Ukraine and it doesn’t work, works for a short time or stops working and becomes a liability.
”Ukraine is the best place to test [defence tech], however mercenary that sounds […] most VCs worth their salt have their own networks in Ukraine.”
Moral responsibility
But not everyone thinks the immediate deployment and testing of tech on the battlefield is the best way to build a defence product long term.
“Real-world testing is critical […] but battlefield-proven shouldn’t mean battlefield-first,” says Paul Heiden, the CEO of Optics11, a Netherlands-based fiber optic startup working to protect underwater cables.
“Improving on the battlefield eventually gives an insurmountable competitive edge, however the baseline breakthrough requires way more than just being on the battlefield: our technology took years of the best minds in photonics working in laboratories to get to a baseline that promised a real unfair advantage on the battlefield.”
Heiden also says that the defence investors he’s encountered in and around Ukraine “prioritise practical, rapidly deployable technologies that enhance immediate operational readiness, as opposed to longer-term moonshots.”
“There’s an added dimension of urgency and moral responsibility, and unlike other areas of tech and innovation, they’re effectively shaping national security strategies and directly influencing Europe’s ability to safeguard its citizens.
“The realities of warfare also mean investors are less tolerant of solutions that aren’t scalable or resilient enough to handle real-world conditions […] This dynamic places greater emphasis on proven or immediately provable technologies that can make an immediate difference.”
Joakim Espeland, cofounder of QuadSAT, a Denmark-based company building drone-based antenna testing and tracking, has already trialled his company’s tech in active conflict zones in Ukraine.
“Traditional VC mindsets look at spreadsheets and hypotheticals,” he says. “Defence investors in regions like ours see burning urgency and immediate human stakes.”
Read the orginal article: https://sifted.eu/articles/defence-vcs-double-down-on-weapons/
