The Battlefield Is Now a Beta Test

Defence Tech used to mean decade-long procurement cycles and incumbent contractors. What is now emerging is fundamentally different: startups iterating in active conflict zones, building AI-native platforms, and deploying them within months.

We track how that shift happened and what it means for VC at large.

Written by: Ilya Vencjuns | Research Contributor, London Venture Capital Network

Not long ago, defence was the sector that European VCs simply did not touch. The ethics were complicated, the procurement cycles were long, and the customer was always a government. Silicon Valley had spent a decade creating software that was eating the world, and somewhere along the way building products for militaries became professionally unpopular. For most of the European tech community, defence was not just unfashionable, it was a no-go.

Russia's invasion of Ukraine changed that calculus. The combination of a conflict in Europe, rising government budgets, and the visible proof that software and drones were reshaping the battlefield opened a door that had been shut for years. In June 2025, NATO allies committed to spending 5% of GDP on core defence requirements by 2035, more than double the old 2% target most countries already struggled to hit. European defence VC went from $181 million in 2020 to a projected $2.3 billion in 2025, a 132% year-on-year growth rate. Defence is no longer professionally taboo. It is, in investor terms, one of the hottest categories going.

Figure 1, Defence funding 2016-2025.

The Companies Defining the Category

One of the most important companies to recognise is Helsing. Founded in Munich in 2021 with the statement "AI to protect democracies," it has raised over $858 million and is valued close to $5 billion. Its flagship platform, Altra, functions as an operating system for warfare: drone coordination, electronic warfare, artillery targeting, and battlefield intelligence in a unified software stack. It also builds the HX-2 kamikaze drone, currently delivering 6000 units to Ukraine, giving it real world test data at a scale no competitor outside the conflict is able to match.

The past few years have also seen the creation of several new defence unicorns in Europe and greater structural support for the commercialisation of IP into commercially viable defence startups. Tekever, a Portuguese UAV maker with UK production operations, and Germany's Quantum Systems both reached unicorn status in 2025, both companies benefiting from government contracts. In the UK, the Ministry of Defence created the Technology and Growth Alliance in September 2025, a partnership between large incumbent defence companies, investors, and policymakers, to facilitate the creation of twenty to thirty new defence tech spinouts each year. Projects supported would have both battlefield applications and support with the manufacturing process and logistics of military hardware. Zooming out to the broader European context, the European Defence Fund has invested over four billion euros into defence companies since 2021 and allocated an additional one billion in funding for future projects.

Figure 2, Defence Tech Landscape

Ukraine Goes to Wall Street

The most symbolically significant move of this cycle was the NASDAQ IPO of Swarmer, a Ukrainian-American drone AI startup, in March 2026. Priced at $5, it closed its first day at $31, a 520% first-day increase. Swarmer's software has facilitated over 100,000 drone sorties on the frontlines. As a software maker, it sidesteps some of the export control complexity that restricts Ukrainian hardware companies trying to reach Western markets, and the IPO sets an example others will try to follow.

The cultural shift amongst European VCs is now visible in who is writing cheques. Darkstar, an Estonian fund, captures it well. Its co-founder Ragnar Sass, a prominent figure in the Baltic startup ecosystem who built and sold Pipedrive, spent years making over 50 angel investments in consumer and SaaS companies before Russia's invasion prompted him to do something different. "It took quite a long time mentally to understand that I want to be involved in weapon systems," he said. Darkstar is now one of the few European funds willing to back purely military applications with no dual-use case required, investing in companies like Farsight Vision and Deftak that are being built and tested in Ukraine's active conflict zones. The fund's model is built around proximity to end customers. Sass and others have spent time with over 100 Ukrainian unit commanders in person and run bootcamps that give startups direct battlefield feedback and field-testing opportunities. That quick feedback loop is one of the most compelling structural advantages Ukraine has produced for the European defence tech ecosystem. Companies building in or near the conflict are iterating in real conditions, faster than any normal European procurement cycle would allow.

That same dynamic raises a question important to understanding the future of the industry. A significant portion of the commercial success European defence tech has seen in the past four years has come specifically through Ukraine, where procurement cycles are compressed, the feedback is immediate, and the customer need is pressing. But startups built primarily around Ukraine's needs are not automatically ready for other types of customer. Other NATO governments move more slowly, have different technical requirements, and operate through procurement systems that can take years from contract award to revenue. The question for a number of companies in this space is whether the skills that win in Kyiv translate to Paris or Warsaw, or whether they have been optimised for a context that is at some point going to change.

Figure 3, Defence Funding Flows

Comparative constraints surrounding capital and government procurement reinforce this. The US accounts for 85% of all NATO defence tech VC since 2019, against 10% for the EU and 3.1% for the UK. Anduril raised more in one round than the entire European defence VC market raised in all of 2025. In a capital-intensive sector like defence, where upfront costs are significant, this disparity creates a structural disadvantage for startups competing in the same markets. Most of the new defence spending flowing from European government budgets goes to established incumbents like Airbus and BAE Systems, not to early-stage startups. And Europe is not a single procurement market: a contract in Germany does not unlock France or Poland. Each country is its own market entry, its own compliance burden, and its own sales cycle, which means European founders are building in a more fragmented commercial environment than their US counterparts. Companies depending on Europe for revenue will have to overcome individual government customers one by one, navigating regulatory divergences as well as national priorities.

Defence as a sector has been pushed forward by geopolitical and regulatory tailwinds and could prove a compelling new opportunity for investors. But for UK-based VCs investing into defence, it is important to recognise that the quick success and growth witnessed in Ukraine and the broader European spending surge still come with their own dynamics, primarily the ability for companies to expand beyond the Ukraine context and the considerations surrounding go-to-market motion in a fragmented commercial setting.