Why is Defense Suddenly Flirting With Startups?
So here’s something no one tells you at demo days: the defense industry—yeah, tanks, drones, spy satellites—now desperately needs startups. And some founders are about to get very rich. But let’s not kid ourselves. This new money train is loaded with politics, ethical landmines, and the kind of contracts that can eat 5 years of your life without seeing a dime.
This post was inspired by a recent episode of the Upside podcast by Dan Bowyer. They did a great job digging into how the reshuffling of the world order — Ukraine, Iran, oil spikes, China tensions — is pumping billions into European defense budgets. The UK plans to jack spending from £35 billion in 2015 to £85 billion by 2027. The EU? Defense budgets shooting from €280 billion to €426 billion by 2030.
That’s no joke. But here’s the catch: only about 10% of that money flows into tech. The rest funds old-school procurement — ships, jets, boots. Still, even that 10% is huge.
No wonder I’ve been hearing from a bunch of family offices lately poking around defense-adjacent deals. At London Tech Week a couple of weeks ago, a friend in the defense space told me it was crawling with people from the sector. Same story when he went to a defense conference in the US — apparently everyone was awkwardly pretending they didn’t know each other. Says a lot.
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Dual-use or just well-packaged missiles?
The sexy term right now is “dual use.” It’s the fig leaf VCs slap on anything that might otherwise look like direct war profiteering. A drone startup? Sure, it can also do forestry surveys. AI target recognition? Well, it could also spot traffic jams. This is how some funds dodge their LP restrictions, since many European venture funds have cash from the EIF or British Business Bank, which literally forbid investing in companies “primarily making weapons.”
But let’s be honest. You’re not raising €600 million from Daniel Ek (Spotify) and Plural for tree counting.
Daniel Ek took serious flak for pouring money into Helsing, a European defense darling now worth €12 billion. But he’s blunt: no defense, no freedom to enjoy your music. Fair point.
Founders — excited yet? Maybe be careful
If you’re a startup founder, you might smell opportunity. And fair enough. Defense needs new tech: AI, robotics, satellite imaging, cybersecurity, quantum. The European Space Agency is asking for €1-2 billion to build a new satellite network with military-grade eyes — Europe’s own mini Starlink (but slower and with way more paperwork). They’ll need software, sensors, data platforms — the kind of stuff startups build.
But defense is NOT SaaS. Your customer isn’t swiping a credit card. You’re looking at:
5+ year sales cycles. Good luck surviving on your seed round.
25-30 buyers total. Mostly governments. Lose one tender? That’s half your market gone.
Heavy regulation & export controls. Can’t just ship to whoever pays best.
Exit headaches. Most acquirers are massive primes who’ll squeeze you.
And the ethics aren’t small print. Plenty of founders are conflicted — build tech that might save lives, or end them? Some say, if it’s not us, it’ll be China. Others just want the checks.
Meanwhile, the US still runs this show
Europe’s only just waking up. The US is a decade ahead, with a near-trillion-dollar annual defense budget. VCs there are all-in: Palantir, Anduril, Scale AI — their biggest bet yet. European funds are small, many still legally blocked from going pure defense. The European Investment Fund, which underwrites half of EU venture, still bans direct weapons investments.
So ironically, Europe’s hottest defense startups are bankrolled by American money: Accel, General Catalyst, Lightspeed. Which means when they exit, a lot of the upside skips Europe entirely.
The provocation: gold rush or colossal distraction?
So yeah, there’s money. Massive, shiny, tempting money. But defense isn’t your usual startup playground. It’s slow, political, risky — and could torch your reputation (or conscience).
Want customers who are mostly governments? Who move glacially, then decide on politics, not just product?
Want to survive 5 years of burn before you even land a real contract?
Ready to be known as the team that built smarter ways to kill people?
Still, someone’s going to win big. Maybe it’ll be you. Just go in with your eyes open. This isn’t another SaaS dashboard. It’s defense. Once you’re in, it’s damn hard to get out.
It’s time for a POLL (👉 Vote now — we’ll share the results in next week’s issue. All votes are anonymous)😀
If your startup could land a huge contract in defense (think drones, AI, surveillance), would you go for it?
INDUSTRY PULSE 🩺
(Last week’s poll results)
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