Donald Trump has secured his second term as US president. That means a lot of things, for a lot of people — including European defence tech startups, think VCs.
“If Trump comes out far more anti-NATO than he was in his previous term, I think that would be quite impactful because the US is the majority of NATO’s budget,” Michael Jackson, a Paris-based deeptech investor, tells Sifted.
“Hopefully European [ministries of defence] set new procurement regulations to encourage more contracts” to European startups, Jackson says, but a Trump presidency “might also mean fewer contracts to non-US companies in the defence space as US policy becomes more protectionist”. Many European defence tech startups currently have government contracts with the US.
European countries have found themselves heavily reliant on the US for funding NATO (an intergovernmental military alliance of 32 member states). They’ve historically underfunded their NATO budgets — meaning many have fallen short of the 2% defence spending target set for member states. Though many European countries have recently boosted spending in the wake of Russia’s full-scale invasion of Ukraine in 2022, some still think they need to be spending more. And President Trump has been critical of their underspending, even at one point calling for Russia to attack any underpaying NATO country.
Trump has “an unclear position on defence treaties,” says Nicola Sinclair, who spent 18 years in the UK’s Royal Air Force and is raising her first dual-use VC fund, Twin Track Ventures. “I’d judge his statements on NATO are likely an attempt to kick the alliance into a new gear, but these comments also encourage an [external] observer to see the alliance as a fractured and weakened entity. That’s not helpful right now,” she says.
It all means that startups may face a shifting buyer landscape for their products — like drones or demining technologies — which could mean changes to their revenue streams, at least temporarily.
A ‘short-term’ shock
Some — like Jack Wang, principal at VC firm Project A — believe there’s a high likelihood that under Trump the US will pull its non-direct support to Ukraine within the next two years. The US Department of Defence has been buying up stock (like drones, demining equipment and weapons) from US and European startups in the form of “US Aid to Ukraine” in recent years, Wang explains. If or when Trump pulls US support from Ukraine, “that revenue stream will fall away for a while,” he believes.
Europe and the UK “would have to decide if their national budgets are able to make up that hole left,” adds Wang. If the rest of NATO “steps up to make up that gap and keep Ukraine supported, they will have to increase their own defence spending on Ukraine aid (and domestically for themselves too)”.
In other words, the other NATO countries will have to accelerate their budget increases (except for Poland, which has already ramped up spending), which “is great for defence tech startups given the increase in pace,” says Wang. From his vantage point at Project A, most European startups “still sell to their home country first” and then to the rest of the EU and the US “in that order”, he says.
As for those European startups with US contracts, Wang predicts the Trump administration will make more domestic defence tech purchases in the medium to long term. “Those startups [such as those building drones] that rely on US-bought [or] aided sales for Ukraine will suffer through a short-term revenue slump potentially, and they should plan for that.”
“In the long run, that revenue should be replaced and potentially increased even by injections from EU [or] their home country’s Ukraine aid packages,” Wang adds.
Where’s Europe?
Still, Jackson points out that during Trump’s previous stint as president, “it didn’t really change a lot for European entrepreneurs”.
“Yes, he’s definitely more volatile, [and] he’s not necessarily seen as a reliable partner,” adds Jackson. But the 78-year-old president-elect also “didn’t really do anything particularly negative towards Europe” during his first stint in the White House.
Trump’s “approach to innovation seems to vary depending on stage and sector, so possibly some good news around talent and tax but maybe painful for some,” adds Sinclair, referring to proposals from Trump about making it easier for international students graduating from US universities to stay in the country and likely doing away with discussions to tax unrealised capital gains.
Some investors don’t think Europe will be as much of a priority for the next president — meaning the continent needs to bulk up its defence capabilities. “It’s inevitable that the US is going to shift more towards focusing on Asia,” says Jackson, adding that a Trump presidency likely won’t be as “Eurocentric as [President Joe] Biden has been, or as past presidents.”
Read the orginal article: https://sifted.eu/articles/trump-president-europe-startup/
