Europe’s Defence Tech Moment: Gold Rush or Minefield?

Could the geopolitical chaos of the 2020s create a once-in-a-generation opportunity for European defence tech startups? Or will they be caught in a maze of bureaucracy and politics, where momentum stalls? Ambitious teams can risk losing precious time navigating a system that wasn't built for speed.

In a world of rising defence budgets, shifting trade blocs, and increasingly assertive military strategies, European governments are finally putting real money behind defence innovation — through procurement reforms, sovereign investment funds and national strategies.

The EU has pledged to mobilise €800 billion through its “ReArm Europe” programme. Governments in Germany, France and the UK are setting up accelerators, procurement sandboxes and sovereign funds to support dual-use innovation.

Meanwhile, private capital is accelerating too. European VC investment into defence tech hit $626 million in 2024, up from $254 million in 2023, according to Reuters using Pitchbook data.

But the same founders who’ve mastered fast-moving SaaS or frontier DeepTech markets may be walking into a strategic trap. Working with government defence departments and primes demands different instincts - and very different timelines. Here’s what founders need to understand now.


The American pivot Is fuelling Europe’s urgency

The trigger for this shift lies across the Atlantic. The U.S. Department of Defense - traditionally the anchor buyer for global defence tech - is undergoing a massive reprioritization. Under the Trump administration, the Pentagon has been ordered to cut $50 billion from its $1 trillion budget.

Meanwhile, new U.S. tariffs on industrial inputs like steel, titanium and electronics are increasing the cost and complexity of military manufacturing globally. This has catalysed a European response. The EU currently sources 63% of its defence equipment from the U.S.

Now, amid growing transatlantic friction, European governments are scrambling to build homegrown capability. The result? Defence has become a political priority. National budgets are growing. Domestic innovation is being rebranded as strategic sovereignty. For startups, the money is real - but so are the constraints.


Government procurement Is a startup killer if you’re not prepared

The most dangerous assumption a founder can make is that a defence buyer behaves like a commercial customer. They don’t. Procurement cycles in the defence sector routinely stretch 18-36 months. Contract sizes are large - but slow, highly formal, and layered with security, policy and legal reviews.
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Startups used to iterating with customers weekly will struggle with the glacial pace. Worse, these delays put them on a collision course with their own investors. As Paul Graham once famously said, most startups are default dead. A venture-backed startup with a 12-18 month runway cannot afford to wait two years for a government cheque.

If your company is part of a consortium bidding for a defence contract, be aware of the payment dynamics. The MoD typically pays the prime contractor, who then pays subcontractors, who in turn pay their own vendors or partners.

This slow waterfall of payments can introduce long delays. It is not uncommon for startups toward the bottom of the chain to wait months to get paid, creating serious cash flow pressures that few early-stage companies are equipped to handle.


Dual-use is seductive - and strategically messy

Many founders believe the answer lies in dual-use strategy: build tech that’s valuable in both civilian and military markets. That way, you stay attractive to VCs while you wait for the MoD to come knocking.

It’s a good theory - but it requires careful execution. The most successful dual-use startups, such as Helsing.ai or ARX Robotics, develop a clear primary market while maintaining optionality in the other.

Investors want to know which go-to-market strategy leads. A company that chases too many opportunities - or flips between use cases - risks confusing both its buyers and its backers. Strategic clarity remains one of the biggest challenges in dual-use ventures.

As noted in a recent article from War on the Rocks, dual-use is not just a category - it's a strategy that requires founders to commit clearly to one primary market while retaining flexibility in the other. Without this clarity, both investors and customers struggle to place the company. 

Founders must build a clear narrative around their dual-use model. Are you a military-first company selling to commercial later (like Anduril)? Or a commercial-first play adapting to defence needs (like Palantir or HawkEye 360)? Clarity breeds conviction - and helps defend you from investor doubt.


Prime Contractors - allies or bottlenecks?

One of the fastest ways to enter defence markets is through prime contractors like BAE Systems, Leonardo, Thales or Airbus. These firms win multi-billion pound programmes and often bring in startups as tech suppliers or subcontractors.

But beware: working with a prime is not the same as partnering with an enterprise tech customer. These firms are built around risk-avoidance, compliance and predictable timelines. Many are locked into defence programmes awarded years ago - and changing scope mid-cycle is almost impossible.

Partnering with prime contractors can offer legitimacy and early opportunities - but it also introduces systemic barriers. Startups often find themselves stuck in long evaluation cycles or as minor subcontractors with little influence on system-level design decisions.

As noted in Bessemer Venture Partners' 'Roadmap: Defense Tech', many startups never progress beyond pilot programs due to compliance risks, slow procurement timelines, and the cultural mismatch between agile development and defence procurement norms.
 
For startups determined to work with primes, the key is to adapt to their rhythm without losing your agility. Success here means playing the long game. Get your security credentials in place early. Understand the regulatory and contractual landscape inside out. Use your agility to prove and derisk the cutting edge - but accept that systems integration and certification are the prime’s domain.

And above all: get good legal counsel before you sign anything.


The Investor Paradox - enthusiasm without understanding

According to Reuters, venture capital investment in European defence startups surged from $62 million in 2022 to $254 million in 2023, and further to $626 million in 2024 - a tenfold increase over just two years.

But enthusiasm doesn’t equal understanding. Most generalist VCs have little experience with government sales, dual-use constraints or export control law. Some are surprised when their portfolio companies need three-year plans, not 18-month ones.

The best defence-aligned investors now coach founders through milestone planning explicitly tailored to defence cycles. They understand that early MoU ≠ cash. And they help founders manage investor updates with the kind of transparency needed to maintain trust when timelines slip.

If you’re raising for a defence startup, ask yourself: is my investor aligned with the defence reality - or just chasing the headlines?


Beyond Defence: Why startups should also look to Security and Resilience

Founders often approach the European defence sector as a binary: you're either in or you're out. But the landscape is more nuanced - and filled with adjacent markets that may offer better fit, faster traction, and fewer institutional barriers. According to Dealroom’s February 2025 report, Defence, Security and Resilience in Europe, while most funding headlines focus on defence, there has been dramatic growth across security and resilience sectors.

In fact, the numbers are striking. While awareness and decision-making technologies for defence attracted $1B in VC funding in 2024, energy security and climate resilience reached over $900M, and critical infrastructure protection - driven by AI chips and quantum computing - approached $1B as well. These figures are not outliers: they represent a strategic expansion in what NATO and European investors classify as mission-critical tech.

Startups building in AI, autonomy, materials, energy systems, or biotech may find more immediate traction by positioning themselves toward resilience-first narratives - decarbonisation, grid security, supply chain robustness, and public health responsiveness. These markets are still deeply strategic but often come with fewer export controls, shorter procurement cycles, and broader applicability.

Founders should carefully assess where their tech sits on the defence–security–resilience spectrum. If your solution solves a mission-critical problem but isn't explicitly kinetic, you're not avoiding the defence market - you may just be entering it through a more scalable side door.


Bypassing the bidding war - the Anduril and Palantir playbook

Traditional defence procurement is structured as a slow-motion elimination tournament. Multiple vendors or consortia compete for new programmes. A few are selected to build demonstrators. Trials are run, evaluations made, and final commercial bids are submitted - often with just two survivors left standing. At that stage, commercial leverage evaporates. Margins get squeezed. Scale is still years away.

But companies like Anduril and Palantir rewrote those rules. Instead of waiting for tenders, they studied the strategic priorities of the U.S. Department of Defense, built working tech that directly addressed critical operational needs - and then showed up with a finished product. In several cases, the DoD created new acquisition pathways just to buy what was demonstrated.

Palmer Luckey, founder of Anduril, captured this strategy well in his appearance on the 20VC podcast: "When we started the company, we basically threw out the rulebook on how defence procurement is normally done... I didn’t want to start a company that had those natural incentives [of cost-plus contracting]."

Both companies were backed in their earliest stages by wealthy, well-connected founders. Peter Thiel personally funded Palantir. Palmer Luckey, co-founder of Anduril, used proceeds from Oculus to fund early development and secure capital from Founders Fund. These firms had capital before contracts, credibility before demos, and access to senior defence officials before formal partnerships. As Luckey recently put it: "We put our own money into building things and we show up not with a PowerPoint, but with a working product."

This is not a route open to most first-time founders - and it would be dangerous to pretend otherwise.

That said, the lesson is still powerful: if you can identify a decisive military capability gap, and if your team can deliver a working solution without waiting for permission, you may not need to wait for a tender. But this takes insight, capital and access.


In summary

Europe's defence technology sector undoubtedly represents a substantial and rapidly growing opportunity, fuelled by geopolitical realignments, funding influxes and governmental strategic shifts. But success in this space is not about chasing the hype - it's about deeply understanding the system you're entering.

Founders must be prepared to navigate complex procurement cycles, manage investor expectations in a long-sales-cycle world, and make difficult strategic choices - especially around dual-use positioning and prime contractor alignment.

The boldest may even choose to bypass the system entirely, building critical technologies independently and creating demand through demonstration, as Anduril and Palantir did. But that approach demands serious capital, credibility and high-level access - and will remain the exception, not the norm.

Startups entering this challenging arena must come armed not just with tech, but with strategic foresight, operational resilience and political acumen. The opportunity is real. But the costs - of failure, delay or naivety - are just as real.

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