There’s been a noticeable shift towards more interest in defence tech in recent weeks as Europe wakes up to the reality that it will need to up its defence spending and the US is becoming less supportive of Ukraine. It’s fuelled a huge boost in public European defence stocks in the last couple of days — and VCs are noticing a vibe shift in the private markets, too.
“In the last week, I’ve had more pings from investors, LPs and talent about the need and opportunity for new defence companies that are homegrown in Europe than I’ve gotten in a long time,” Nathan Benaich, general partner at AI-focused British VC Air Street Capital, wrote on LinkedIn over the weekend, adding that he felt a “micro vibe shift”. It “seems like finally [people] are starting to believe and take action with their capital and time.”
It’s been a tumultuous couple of weeks in the geopolitical sphere, with a testy clash between Ukraine President Volodymyr Zelensky and US President Donald Trump last week, and fresh talks in Europe to support a Ukraine peace deal over the weekend.
Since President Trump assumed office in January, the US has signalled it will be far less supportive of European defence, now reportedly including Ukraine. It’s prompted countries including Germany to look to increase their military spending — and juiced the shares of public defence stocks like Germany’s Rheinmetall and the UK’s BAE Systems this week.
The events of recent weeks seem to have broken through to the wider VC ecosystem, according to Nicholas Nelson, a defence-focused venture partner at early-stage investor Superangel. In “one [VC] group that I’m in on WhatsApp, I have never heard anyone mention the word ‘defence’ before, and that’s been mentioned twice in the last three or four days — so that’s something,” he tells Sifted.
Even bankers are noticing the interest. “If you look at how the stock market has reacted to international conversations in the last few weeks, we do expect to see an increased focus from a macroeconomic perspective on that area,” Sonya Iovieno, head of venture and growth at HSBC Innovation Banking, tells Sifted.
Iovieno expects that interest to be mirrored in where “VCs begin to deploy and where they spend their time. We will follow that with interest in terms of understanding where investments are being made [and] where we think those companies are likely to be able to grow and scale at pace.”
Though most banks have restrictions on what types of companies they can work with — and have long shunned the defence sector — there have been recent pushes in countries like the UK to get them more onboard with the industry.
“I certainly expect that it’s a sector that will be top of mind in terms of how investors behave, and therefore you would expect financial institutions will also start to figure out, how do those conversations then map into policy and appetite discussions?” Iovieno adds.
Still more talk than action
Though some data suggests there’s been record amounts of funding flowing into defence in the last year, investors on the ground say there’s still more talk than action — though that largely excludes countries in Eastern Europe and the Baltics, however, which have already woken up to the need for more defence funding, Nelson says.
Still, it’s unclear how much actual VC money will be mobilised into defence. As Sifted has previously reported, in the last year there’s been a lot of buzz around defence, but many VCs are still hindered by LP restrictions and scepticism over whether defence is a good case for VC.
“We now have yet another catalysing event — what’s it going to take to get everyone off the sidelines?” Nelson says. “I am optimistic this is going to be it, and we are hoping that this can be part of a longer story. But I guess the answer is, we’ll see.”
Those like Benaich are hopeful. The contentious talks between the US and Ukraine and the US’s broader move away from Europe are “just another punch to the face, and hopefully after many of these, this is the last one it’ll take before Europe stands up a serious defence for its freedom by upping spend — especially on new homegrown players that are fit for the era of autonomous warfare,” Benaich tells Sifted.
Read the orginal article: https://sifted.eu/articles/defence-tech-vibe-shift/
