Deeptech

Q2 202420.06.2024

Defence tech (Q2 2024)

Daria Dmytrenko

at Sifted

The rising Russian threat has European governments urgently reviewing the state of their armies, so expect to see steady investment in new military kit in the coming years. Europe’s defence startups have bucked the trend of diminishing fundraising rounds: the sector saw $614m in deals in 2023, up from $408m in 2022, according to Dealroom.

For proof of how much the ground has shifted on defence in Europe, look no further than Nato’s €1bn fund, announced in 2022. The fund is led by former Amadeus Capital chief Andrea Traversone, who has said that he believes the region can produce multibillion-dollar companies to rival those in the US.

There’s a long way to go here. Consider just one example: in 2022, American defence contractor Anduril Industries announced a $1.48bn Series E raise. This one deal is greater than the total amount invested in UK defence tech between 2013 and 2022 (£1.05bn, according to Dealroom). Granted, a lot has changed in recent years: since 2019, the UK has seen at least 56 new defence tech startups and the defence ministry says it plans to invest at least £6.6bn in military R&D by 2025.

With governments promising record investment in defence, the market’s obviously starting to appear lucrative. Public contracts promise a stable customer base and long-term revenue, with projects often spanning years to decades. VCs have slowly come round to the potential of defence investment. However, many remain too hesitant to fund lethal tech — often their LPs simply won’t allow it. The big question is whether governments can become active buyers of the wares of smaller startups, or will they continue to favour working with traditional defence contractors? The US has paved the way here: its army was forced to change its contracting procedures, after SpaceX and Palantir sued it for opaque processes. Europe should take a lesson here, techies say. “All investors want… is European government engagement with deeptech. Unfortunately it looks like we aren’t getting contracts, we are getting the EU AI Act instead,” Michael Jackson, an investor at Multiple Capital, told the FT in late 2023.

20 startups to watch

Sifted score
7.73
-
Blackshark.ai
Strong investor(s)
Serial founder(s)
Hiring
- Year founded
  2020
- HQ
  Graz, Austria
- Latest round
  Early VC
  €13.6m / Nov 2023
- Total funding
  €31.8m
View company profile
Sifted score
7.72
-
Living Optics
Hyperspectral cameras for detailed imaging.
Strong investor(s)
Serial founder(s)
- Year founded
  2019
- HQ
  Oxford, United Kingdom
- Latest round
  Series A
  €24m / Sep 2022
- Total funding
  €31.0m
View company profile
Sifted score
7.46
-
Reflex Aerospace
Strong investor(s)
Serial founder(s)
Hiring
- Year founded
  2021
- HQ
  Berlin, Germany
- Latest round
  Seed
  €1.8m / May 2023
- Total funding
  €10.3m
View company profile
Sifted score
7.22
-
Adarga
Hiring
- Year founded
  2016
- HQ
  Bristol, United Kingdom
- Latest round
  Series A
  €20.9m / May 2023
- Total funding
  €35.3m
View company profile
Sifted score
7.08
-
Nu Quantum
Strong investor(s)
Hiring
- Year founded
  2018
- HQ
  Cambridge, United Kingdom
- Latest round
  Seed
  €8.4m / Nov 2023
- Total funding
  €12.5m
View company profile

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