The war in Ukraine has served as a wake-up call for Europe, transforming defense technology into a highly invested sector within deep tech.

This shift is evident in Dealroom’s latest report on Defence, Resilience, and Security (DRS) in Europe, released in conjunction with the NATO Innovation Fund (NIF), a €1 billion initiative that involves direct investments and backing funds in this space.

NIF’s portfolio includes startups such as Portugal-based Tekever, a dual-use drone company that raised $74 million in its Series B funding in November. In aggregate, DRS-based startups secured a record $5.2 billion in venture capital last year, a 24% increase from 2023, and nearly five times more than in 2019.

Despite the surge, $5.2 billion is only twice as much capital as the U.S. defense tech company Anduril reportedly seeks to raise, yet this is a significant milestone of 10% of all VC funding in Europe – a 2.5-fold increase over the past two years, according to Dealroom.

“The appetite for defense, security, and resilience startup investment in Europe is unrecognizable from just a few years ago,” said Yoram Wijngaarde, the founder and CEO of Dealroom. “This follows a trend of putting capital and innovation to work on Europe’s core strategic needs, utilizing deep technologies.”

DSR now accounts for one-third of all deep tech venture funding in Europe, highlighting the overlap with defense tech. This is because DSR encompasses supply chain, quantum technologies, and energy, which are equally critical for the region’s sovereignty.

NIF aims to ease the process of selling dual-use technology in Europe. The fund has appointed British Army veteran John Ridge as its chief adoption officer.

A lack of founders isn’t an issue, as recent defense hackathons across Europe have showcased an active pipeline of early-stage companies looking to change the landscape.

Fragmentation and slow adoption have been obstacles, but the rise of dual-use startups has contributed to the evolution. This, in turn, has enabled generalist VCs to invest in defense tech, often a sector that they previously avoided.

Pure defense tech accounts for a smaller subset of overall funding but is on the rise. A previous Dealroom report estimated a $1 billion tally for 2024, a five-fold increase since 2018. Europe has seen a broader range of VCs investing in adjacent defense tech, with over 850 investors involved in DRS deals.

Germany has taken the top spot in DRS funding in 2024, followed by the UK and France. A German-based defense AI startup, Helsing, raised $487 million in its Series C funding led by General Catalyst last year with plans for Baltic expansion to counter Russian threats.

A new €175 million (approximately $182 million) fund, the Defence Equity Facility (DEF), launched in January 2024 by the European Commission and the European Investment Fund (EIF), is soon to announce its first investments. The fund had to update its rules on dual-use technology.

All challenges ahead, though, won’t involve a lack of founders, as recent defense hackathons across Europe have demonstrated an active pipeline of early-stage companies seeking to change the sector.