New military technology is all the rage in US and European VC circles right now.
Given global military spending hit an all-time high of $2.7tn in 2024, that’s not surprising. Readiness 2030, the UK’s freshly revamped Strategic Defence Review and other programmes have given significant uplift to the European defence market, as the Russia-Ukraine war approaches its fifth year and the number of conflicts around the world have surged.
At the same time, VC investments in European defence startups have hit an all-time high, amounting to $1.3bn so far this year, buoyed by the demands of ongoing conflicts more permissive interpretations of ESG guidelines and a recent unmooring of a longstanding taboo that put many investors off attempts to profit from the trauma and suffering of war.
The ethical parameters for capitalising on defence through investments may have shifted, but the moral tensions between VC investing and the deadly serious business of war remain.
VC is not simply another player in the defence industry game; it is one that needs the market to align with its expectations. And defence is not simply another business; it is a human domain with the highest moral stakes. Put the two together, without meaningful guardrails, and you might have a recipe for disaster.
VC introduces expectations around speed and scale to the business of defence. Startups need to grow their valuations quickly in order to make the extraordinary returns the industry has grown accustomed to.
Around 90% of startups fail. VC companies mitigate this risk through diversification and a hands-on programme for getting promising startups toward high-growth, with abundant capital and firm guidance as to what products might scale best (which is not always the most innovative product).
Viewed through the lens of business competition, Russia has been a driver for innovation for many drone startups.
Take unmanned weapons system company Stark, for example. The attack drone startup was founded just 15 months ago, and is currently valued at $500m after recruiting hundreds of new employees and drawing in another $62m in VC funding this year to build out capacity in, and for, Ukraine.
To date, the company, now led by VC Project A partner, Uwe Horstman, has had limited (if not disastrous) product success, but the speedy upward trajectory of valuations can continue for as long as the conflict in Ukraine (or elsewhere) warrants a fail-often-fail-fast mentality that comes with defence startups and wartime urgency. VC-funded testing pipelines, like Darkstar, have popped up to facilitate this practice.
Viewed through the lens of business competition, Russia has been a driver for innovation for many drone startups. So what would happen to the growth potential of defence startups if there were no enemy to push things forward, if the Russia-Ukraine war were to end, or if there was lasting peace?
Sure, some of the dual-use technology could be repurposed for non-military tasks. But this reorientation is unlikely to facilitate the same scale of high-speed growth the VC environment needs for extraordinary returns. Neo-prime startups like Anduril mitigate against that risk by turning toward a possible Taiwan-China conflict. Let no crisis go to waste.
The mandate of speed and scale now reverberates in defence procurement. Traditional defence procurements processes are, of course, too slow for startups looking to book revenue in line with the usual 12-18 month fundraising cycles. The UK Defence Industrial Strategy has adapted accordingly with plans to “create a regulatory environment” that is “as permissive and simple as possible, removing barriers limiting faster delivery, scale up, and innovation at wartime pace.”
VC has supercharged the defence industry, while eroding established guardrails and restraints.
A concession, perhaps, to VC entrepreneur, and former UK AI advisor and Helsing investor Matt Clifford, who suggested that “the mother of greatness is permissionless-ness … We need to build a country where you can just do stuff.”
But at what cost, and to whom? For VCs regulatory restrictions are an obstacle, for governments, they are a key instrument to prevent vested interests from causing harm.
Add to this that the VC sector lacks transparency. Unlike publicly traded companies, VCs and their startups have no legal mandate to accurately report on progress and performance of defence technologies. This gives VC-backed defence startups more latitude to hyperbolize products and promises. In defence, investors and startup founders should have a particular responsibility to ensure that the hype of new defence tech does not inadvertently produce a hype of war.
To be sure, the entire global defence industry is capitalising on the new market dynamics, not just VCs and startups, so much so that the UK is staking its economic growth on a ‘defence dividend’. But VC investment has ushered in a new pace and logic, and with that it has supercharged the defence industry, all the while eroding established guardrails and restraints.
VC capitalised on disruption comes with debris: it normalises overpromising of speculative technological capabilities; it encourages experimenting with prototypes in live conflicts; it promotes narratives of urgency to shift attitudes on regulations, relegating transparency, safeguards, democratic oversight and ethical limits in matters of warfare into the margins.
Governments work with finite public budgets. They neither have the resources, nor the democratic latitude, to bet on speculative possibilities or absorb risk in the same way VCs can. Nor should they. Especially not in the domain of defence. War is a horrendous tragedy for those that experience it firsthand. It should remain an exception, not the norm by which to game financial opportunities.
Elke Schwarz is a Professor of Political Theory at Queen Mary University of London, who specialises in the ethics of political violence and military AI.
