Europe’s defence tech sector is enjoying a bumper year. The continent has nine defence unicorns, compared to four at the beginning of 2026. There have been 84 defence deals made in H1, up from 28 in the first half of 2024.
VC interest has mounted, as the war in Ukraine and wider geopolitical instability have focused the minds of European policy makers towards building sovereign defence capabilities.
“Interest in the sector has grown significantly, driven by concerns around national sovereignty and geopolitical risk. At the same time, rising defence budgets are creating greater commercial opportunities and the potential for stronger returns,” says Ben Tickler, an executive director in J.P. Morgan’s UK Innovation Economy team.
Despite this momentum, when it comes to maturing from early-stage funding rounds to large-scale production and deployment in the real-world, the continent’s defence tech startups face challenges.
Compared to their US counterparts, European defence techs face a more fragmented buyer landscape spread across multiple national militaries. These companies, many of which need significant investment to scale hardware manufacturing, are also affected by the broader shortage of growth capital in Europe relative to the US.
But, with new initiatives and funding options emerging across Europe to support defence tech scaling, coupled with a deep pool of talent, the continent is gearing up to meet these challenges.
‘Capital follows contracts’
Europe is producing a growing list of policy directives to bolster defence tech, but the sector is moving to a phase where companies need to see concrete results from these announcements, says Naveed Nasar, Executive Director of EMEA Venture Capital Coverage at J.P. Morgan.
They are on that journey to multi-year contracts across multiple ministries of defence, companies still struggle with that.
“Capital follows contracts,” he tells Sifted. “It's great to have signal intent. In the UK there’s the Defence Investment Plan. There's lots of numbers in there: over £5bn allocated specifically for autonomous systems such as drones, which is great. But how is that then channelled through to companies that are innovating and delivering that technology? That's where we need more than just signalling.”
Compared with American rivals selling to the US Department of Defense, European defence techs have to contend with a more patchwork landscape of potential buyers across different countries, Nasar adds.
“They are on that journey to multi-year contracts across multiple ministries of defence, companies still struggle with that,” he says, adding that Europe would benefit from a more streamlined procurement process across NATO allies.
“[It would help to have] the ability for startups to be able to effectively sell across NATO, we hear that a lot.”
Firepower
While European defence startups grapple with unlocking public funding and selling across borders, they are finding it easier to access private capital as VC funds are increasingly keen to invest in companies in the sector.
“You see a number of new defence-related funds being raised right now. But even the generalists, a lot of them that we've spoken to have got defence tech on their radar,” says Nasar.
On top of a growing pool of VC capital to draw from, European defence techs are also increasingly looking at different funding options as they scale their technology, with debt beginning to play a bigger role.
We are spending a lot of time to make sure we support our clients with a wide range of solutions.
“We are seeing many companies, either instead of equity or in addition to equity, considering non-dilutive funding. Financing structures range from revolving working capital facilities, to term loans to finance acquisitions and production and factory expansion,” says Max Hauer, executive director in J.P. Morgan’s German Innovation Economy team.
He adds that the bank’s new programmes like the Security and Resilience initiative (SRI), which supports companies in critical industries through a $1.5tn, 10-year plan to facilitate, finance and invest in industries critical to economic security and resiliency.
“Defence is certainly an important sub-sector of our SRI initiative. We are spending a lot of time to make sure we support our clients with a wide range of solutions including lending and offering strategic advice when it comes to preparing for a next capital raise or potential exit.”
‘A hotbed of talent’
This growing institutional support for European defence tech, from across the financial landscape, comes at a time when the sector is moving in a direction that plays to Europe’s AI talent strengths.
Many of these founders have emerged from Europe’s universities.
“AI is the defining technology behind the next generation of autonomous systems, be it land, air or sea,” says Hauer. “I think the true competitive advantage for those companies no longer just comes from hardware alone. True competitive advantage very much depends on the optimal combination between software, AI, sensors, and then ultimately the hardware.”
Combining defence hardware and AI is creating European success stories of all sizes. These range from autonomous battlefield system maker Helsing’s recent $1.8bn fundraise, to voice-controlled drone developer SE3 Labs’ €5.5m seed round, after spinning out from the Technical University of Munich.
“Many of these founders have emerged from Europe’s universities, creating a deep and highly concentrated pool of talent across the continent,” says Tickler.
And, with this raw technical talent now being able to access programmes like J.P. Morgan’s Special Advisory Services, which launched in January to share specialist in-house expertise with clients, the sector has more support than ever.
“We have strong companies, strong founders, we've got the capital,” says Nasar. “We want to ensure that, as an ecosystem, we can help these companies scale without having to leave Europe.”
