In May alone, two European dual-use scaleups, Tekever and Quantum Systems, operating in the defence, security, and resilience sector, reached unicorn status. Keen Venture Partners announced the first €40 million close of its new defence fund, while Rockaway Ventures closed its second fund at €55 million, targeting strategic sectors, including defence. Unsurprisingly, VC investment in these industries is at an all-time high — reaching $5.2 billion in 2024, according to Dealroom. Just five years ago, that figure was only $1.1 billion. The picture looks different in Central and Eastern Europe, where development is on the rise, but the region has received only 0.6% of overall European VC funding.
During the Vestbee’s CEE VC Summit, Partners from NATO Innovation Fund, Sunfish Partners, Balnord, and Keen Venture Partners came together to discuss the growing role of defence tech in the region and challenges that hold it back from catching up with the rest of the world.
The full list of the most active VC funds investing in European defence tech startups can be found here.
CEE is about talent
Defence, security, and resilience tech have been the fastest-growing industries in European VC funding over the last two years, according to Dealroom’s data. The CEE region still lags behind its peers, as confirmed by the numbers — just $30.7 million was poured into the entire ecosystem. Southern Europe, by contrast, secured more than ten times as much — $434.8 million, while the UK alone received $1.3 billion. This shows the so-called “CEE paradox”, which Marcus Erken, Founding Partner at Sunfish Partners, believes comes down mainly to capital, since the ecosystem itself is mature. “The role of CEE in defence tech is very mixed. The region is punching above its weight line when it comes to innovation and startups from the ecosystem,” he explained.
CEE’s geographic location leaves it with few alternatives, pushing the region, especially in light of lessons from the Russo-Ukrainian war, towards becoming a pioneer in defence technologies. “Even before the 5% defence spending targets were announced, Ukrainian-inspired innovation was already making a strong impact in the region,” said Patrick Schneider-Sikorsky, Partner at NATO Innovation Fund. He echoed the common investor belief that, although capital is still more limited in CEE than in ecosystems like the UK or Germany, the talents drive the innovative potential, and investment will naturally come with time.
Concerning trends: distancing from the US and adoption barriers
There is a growing tendency to see the US as an enemy, said Marcus Erken, describing it as a worrying trend. Despite Europe’s push for strategic independence and an increase in defence funding, there is a risk that resources could be wasted if the US-Europe relationship becomes too politicized, he explained.
“I think the real antagonist of the West in the years to come won't be the United States. The US is still our very best friend, despite the disagreements we have. My concern is that with all this new money, instead of focusing on the very important topics, it becomes too political, and we push for more redundancy from the US, where it’s not really needed.”
He also warned that the real challenge isn’t just the US. Regarding how defence budgets are managed, using Germany as an example, he said, “there’s a lot of stuff not working in our military”, yet “unconstitutionally, we put another one thousand billion euros on it.” Simply pouring money into the same institutions won’t fix the problems. Erken advocated for a more thoughtful approach, urging people to ask the real questions first — like the true nature of the US relationship — before labeling sides as simply good or bad. Only after this should the right people be chosen to allocate funds, implement policies, and invest money. So the priority must be on making decisions based on real needs rather than political motives.
Sikorsky agreed that the US remains a strong and important ally, despite occasional tensions. However, a key challenge remains the outdated procurement process: “We understand the need, but it’s a question of actually getting those systems working better so that they can be properly adopted,” he claims. Along with that, the panelists also highlighted several other urgent barriers that need to be addressed in the CEE defence, security, and resilience sectors, including:
- Procurement bottlenecks. Despite the clear demand signals from defence ministries and LPs, the adoption of critical innovations is slowed.
- Bringing short- and long-term needs. There is a tension between urgent battlefield needs and longer-term investments in strategic technologies.
- Technology-user alignment. It is crucial to ensure that defence innovations, especially in complex fields like sensor fusion and drone countermeasures, meet the actual operational needs of military end-users.
- Competing with giants. CEE funds are smaller — under $100 million versus $150 million in Western Europe and over $250 million in the US, making it tough to back frontier tech that demands big, long-term capital. Closing this gap is a critical challenge.
Ukrainian-inspired innovations shape the landscape
“A lot of the tech we see today — from sensors to software suites and drone effectors — is inspired by what’s been proven in Ukraine over the past few years,” said Schneider-Sikorsky. Ukraine’s battlefield has become a worldwide center for defence innovation, providing essential insights into adapting to modern warfare and redefining European security. That’s because Ukrainians haven’t had the luxury of testing something for years. On the other hand, they are not bound by EU regulations, so everything has moved much more quickly.
“I’ve been involved with the Darkstar meetings and connected with Ukrainian battalions, where they can place an order on Monday and test the tech by Friday. That’s enormous. Just yesterday, at the MIT event in Warsaw, they explained how they evaluate technology within a maximum of six weeks,” shared Marcin P. Kowalik, General Partner at Balnord.
Regarding the “trendy” focus areas in defence tech, Giuseppe Lacerenza, Partner, Keen Venture Partner, named: autonomous systems across all domains, decision support systems that speed up battlefield decisions, scalable and distributed production, and breakthrough materials that enhance performance in complex environments. “We spend a lot more time with the final users, so the people in the army, to understand what is needed before actually engaging with the MOD and make sure that they have clear requirements for that,” he claimed, underlying the necessity of being close to end-users, such as soldiers.
Beyond immediate needs, deeper technologies like quantum, cryptography, and space-based intelligence, surveillance, and reconnaissance (ISR) are also key to future battles, which are far from over. “I try to concentrate one-third of my time on preparing for the war,” shared Kowalik. “And this is something I ask of my partners and startups. This is the crucial message from my side: we need to be ready. So let's try collaborating as much as possible within the region,” he urged.
