From PitchBook, March 7:
Europe is redefining defense priorities as global geopolitics shift and relations with its closest ally become increasingly strained.
It’s been just over three years since Russia invaded Ukraine, and the threat to Europe’s security borders is only intensifying as the US freezes military aid to that nation. Europe has been left vulnerable with lagging defenses. The EU’s response: a massive spending spree.
This week, European Commission President Ursula von der Leyen announced an €800 billion (about $868 billion) plan to boost the EU’s defenses. The proposal includes €150 billion in investment loans and directs more capital from the EU budget towards defense-related spending.
The urgency of the EU’s defense needs and spending plans has caused a surge in the share prices of Europe’s most prominent companies in the sector. German arms manufacturer Rheinmetall has seen its share price increase over 20% since Feb. 28, while the UK’s largest contractor, BAE Systems, has seen its share price jump by more than 15%.
While much of the EU’s spending will be directed toward established contractors and manufacturers, the expected rush of state-backed funding into the region’s defense sector will also reach European startups, bringing new innovations to the 21st-century battlefield.
Unprecedented appetite
In a statement about the ReArm Europe push, von der Leyer said that a key ambition of the plan is to mobilize more private capital for defense. Private money has already been pouring in at an unprecedented rate.This article appeared as part of The Weekend Pitch newsletter. Subscribe to the newsletter here.According to PitchBook data, last year saw a record amount of VC spending enter the European defense tech space, with €576.6 million invested—more than double 2023’s total.
New investors, including London-based Twin Track Ventures and Lithuanian VC Scalewolf, have emerged to capitalize on the boom. The €1 billion NATO Innovation Fund, launched in 2023, also announced its first investments last year. They include robotic systems manufacturer ARX Robotics and Berlin-based deep tech VC Join Capital.
New unicorns have emerged in the space in recent years, including Germany’s Helsing, which was worth €4.95 billion as of last June, highlighting the strength of investor appetite.
Hurdles to overcome
Still, Europe’s defense tech industry lags other markets. A recent report from VC firm Lakestar estimates that the region is five years behind the US market. For comparison, deal value for US defense tech startups reached €2.3 billion last year.While Europe’s defense tech market is likely to remain smaller than in the US due to the scale of the latter’s VC market and budget spending, there is still significant room for growth in Europe.
According to a European Commission study last year, around 40% of defense SMEs surveyed found access to finance difficult or very difficult. The study estimated an equity financing gap of an average €2 billion for companies in the space.
Multiple factors contribute to a smaller defense tech market, the first of which is budgetary. While the US spent nearly $900 billion on defense last year, European nations collectively spent far less. EU defense spending reached €326 billion over the same period....
At the time of his death the General was the most decorated Marine in history with a Marine Corps Brevet Medal - awarded for "Extreme gallantry and risk of life in actual combat with an armed enemy force" and two Congressional Medals of Honor, two Distinguished Service Medals (one step higher in precedence than the Silver Star) with a chestful of lower-ranking awards and medals....
