Venture investment in the defense tech sector is up fourfold Since 2018, running at approximately $3.8 billion for the first three quarters of 2024 according to data presented by the FT’s Innovation editor and founder of Sifted, John Thornhill. Geographically, 83% of the total is in the US and 15% in the EU and the UK.
Historically, venture capital has shied away from investment in defense. This is due to an amalgamation of lengthy procurement cycles, complex regulatory environments, and misalignment with what might be summarized as venture-backablity. A smaller market of buyers in the form of governments and ethical concerns or restrictions on investment in weapon systems can be additional limiting factors. This latter dimension is under question given the Russian invasion of Ukraine, with some arguing there is now an ethical imperative to invest in the defense sector, and create partnerships with industry to ensure combat readiness.
Professor Dame Fiona Murray of the NATO Innovation Fund (NIF) argues that philanthropic sources of capital increasingly target ventures with national security applications. “We absolutely see people who feel a sort of patriotic duty to invest in some of these things,” she noted during the Sifted Summit, referencing donations in areas ranging from food security to drone technology.
Our series on the state of investment in the 3D printing industry continues with this article drawing together a clear current theme, technologies application for the defense sector.
Professor Murray discussed NATO’s investment fund, which was officially launched in 2022 with €1 billion to promote defense tech in Europe. Murray is Vice Chair of the fund, backed by 24 NATO countries, and operates like a VC fund, although with a 15-year term, “we are more patient,” she says.
NIF focuses on deep tech for defense, security, and resilience. Early investments include iCOMAT, which focuses on lightweight composite manufacturing, and Space Forge, which aims to benefit from micro-gravity manufacturing. Space Forge’s miniature space factory, the ForgeStar satellite, deploys for up to six months and returns crystals to Earth using reentry technology. One specific application is semiconductors for the next generation of computing.
“Silicon has effectively hit its fundamental physical limit,” explained Space Forge CEO and co-founder Joshua Western during Sifted 2024. Gallium nitride (GaN) and silicon carbide (SiC) are critical materials for the coming compound semiconductors; both materials are “incredibly difficult to produce.” The combination of extreme temperature, microgravity, and high-purity vacuum conditions found in space “yield a three to five order of magnitude improvement in the purity of the crystal.”
“Beyond America, very few countries contribute meaningfully to the semiconductor value chain,” explained the Space Forge CEO while remaining tight-lipped on the specifics of the NIF investment.
On the subject of space launch options, Professor Murray cautions, “What we don’t want to happen is for every single country to try and have one of their own.” Still, she believes a fully European resource for accessing space will be a critical part of future security infrastructure, alongside quantum sensing and other frontier technologies.
In the broader VC world, concern over investment in dual-use technology with both military and commercial applications has created an unsatisfactory situation. Funds may prefer dual-use given the larger market, while those looking through a purely military lens prefer a specialised, mission-focused approach. Also speaking at the London VC event, Provizio CEO Barry Lunn advises a cautious approach to engaging with the defense industry, emphasizing the need to avoid becoming a design house for defense contracts.
With a 2025 budget of $849.8 billion, the USA has the world’s largest budget and represents approximately 40% of global defense spending, but is not a participant in NIF. a decision attributed to its abundance of private capital and different historical approach to sovereign funds. America’s absence from the NATO Innovation Fund reflects a conscious choice by Washington, according to Professor Murray. While all 32 NATO nations participate in the Defense Innovation Accelerator for the North Atlantic (DIANA). “We very proudly bear NATO’s name,” said Professor Murray. “We are NATO’s venture fund, but we do run it as a private fund.”
A defense market to rival the USA?
European defence-technology firms often contend with scattered procurement procedures, in stark contrast to the United States, where the Pentagon acts as the single “customer of first resort.” Murray notes that in Europe, “just because you have a contract from Estonia doesn’t mean that you then can access all the other markets.”
She compares Europe’s approach to evaluating new medicines, where clinical evidence is accepted across multiple regulatory jurisdictions. “I’m hopeful that over time, we can do that in defence,” she remarks, suggesting that innovations in smaller, nimble countries such as Estonia could then be scaled to larger markets like Germany and the UK.
Professor Murray sees NATO as a key platform for harmonising standards across member states and enhancing interoperability. “It’s no good us all showing up on the battlefield if the systems can’t talk to each other,” she says. The eventual goal is to create a single market spanning Europe and the broader NATO alliance. According to Professor Murray, this aggregated base would rival the scale of the American defense market—offering deep-tech companies a greater incentive to launch and expand on European soil.
According to Professor Murray, private-sector companies are increasingly viewed as a pivotal “sixth domain” of warfare. She underscored that while businesses have long supplied militaries, today’s conflict zones extend into financial services, hospitals, and power grids via cyber warfare. “We need the technological edge,” she said, explaining how a new wave of deep-tech firms is just as important as the large defense contractors of the past.
Such emphasis on business-led innovation, especially under NATO’s umbrella, stems from rising geopolitical pressures and the recognition that major security threats target civilian infrastructure. Professor Murray noted that the proliferation of startups with dual-use technologies has made managing export controls far more complex. “Instead of a handful of companies needing to understand regulations, now 5,000 companies need to,” she observed.
China’s approach to civilian-military fusion was also highlighted. Citing estimates that China leads in dozens of critical technologies, Professor Murray acknowledged that the country’s efforts are no longer purely reliant on acquired know-how. “I think China is absolutely producing a lot of that knowledge frontier,” she said. Yet she maintained that the West still holds a key advantage: the capacity to harness private capital and entrepreneurial zeal. She also pointed to the downturn in China’s startup ecosystem as a signal that heavy government control can hinder growth.
The conversation inevitably turned to the moral dilemma of investing in defense. Many institutional players have excluded weapon-related ventures from their ESG portfolios, fearing reputational risks. Professor Murray urged them to consider the strategic importance of security. “It’s almost impossible to have the space and opportunity to think about ESG if we don’t have safety and security,” she said, noting that her fund has extensive checks in place to ensure the responsible use of any technology it supports.
She believes NATO’s new approach—building deeper links with early-stage ventures, coordinating standards across multiple countries, and engaging more closely with institutional investors—could help Europe compete with the United States’ Pentagon procurement juggernaut. While the path forward is not straightforward, Professor Murray underscored the necessity of defending democratic values through technology. “What I would say is that it’s almost impossible to stand by and let our ecosystems be eroded. We absolutely have to protect our values.”
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The featured image shows Sifted Summit London. Photo by Michael Petch.
