FUNDING EUROPEAN MILITARY SOVEREIGNTY

The United States is actively boosting innovation in the defense sector

The doubling of investments in defense startups reflects the major commitment of the United States to promote cutting-edge innovation in the sector. The fact that investments in venture capital funds surged from $16 billion in 2019 to $33 billion in 2022 (source: Pitchbook) is proof of this. Government institutions (DARPA, the US Department of Defense, etc.) also serve as catalysts through their financing, their acceleration units and their public procurement tenders, which play a key role in the ecosystem’s development in the United States. In less than 10 years, new giants such as Anduril, Palantir and Shield AI have emerged in the defense industry as a result. 

Taking innovation to the next level in Europe

TSeveral strategies to make Europe more competitive in the global marketplace have taken shape. Public procurement helps startups get off the ground. Unlike subsidies, public procurement can support the development of products and secure the startups’ revenue streams, ultimately making it easier to raise funds. In Europe, various institutions and funds are driving defense innovation. Bpifrance manages a defense innovation fund with €400 million under management. Likewise, the European Defense Fund has been allocated an €8 billion budget for the 2021–2027 period.

All these industry partners play an essential role in facilitating collaborative research and capacity development projects. Even so, these initiatives and funds are not sufficient on their own by comparison with the amounts invested in the United States. European countries must overcome the limitations of intra-European national sovereignty and enhance their cooperation. For example, NATO has set up the world’s first multi-sovereign venture fund, with €1 billion set to be invested over a 15-year period in tech startups capable of developing technology able to solve defense and security issues.

Venture capital’s key role in European Union defense

In Europe, investors active in defense technologies are few and far between. However, despite funding being in short supply, a few leading tech companies have risen to the fore, such as Quantum Systems, that develops surveillance drones widely used in Ukraine, and Unseenlabs, a specialist in radiofrequency signal surveillance and analysis from space. All told, these two businesses have raised more than €100 million and have gained real commercial traction. These Omnes portfolio holdings are helping to underpin the European defense technologies sector.

Venture capital investors play a key role in this still emerging sector as they provide the requisite funding to support industry innovation and enhance European defense sovereignty – a priority we at Omnes are fully behind.

First published in Scope Spring 2024