Defence technology is at the forefront of global discussions as battles continue in Ukraine and the Middle East. The recent Resolution Conference and Sifted Summit in London highlighted the remarkable strides being made by Ukrainian companies. These firms are innovating at a rapid pace, driven by direct feedback from frontline units and backed by generous donors and charities.
This dynamic progress contrasts sharply with traditional defence tech, dominated by major contractors, lengthy government procurement processes, and aching bureaucracy. However, real-world developments have prompted a fourfold increase in venture capital investment in defence tech within NATO countries since 2019. Zeki’s data reveals the establishment of 59 new European and 51 new American defence companies in this period.
Historically, Europe has produced more defence companies than the US, yet recent growth has stalled. Many companies have either failed or been acquired, balancing out new market entrants. This sector presents significant challenges, and success is far from guaranteed.
Defence tech demands patience, with scaling taking considerable time. Only in the cybersecurity realm is rapid scaling feasible, often leading to swift acquisitions post product-market fit achievement.
This will be a bigger challenge for European companies much more going forward than US companies as they make up a much higher proportion of the defence ecosystem in their countries than the US. Despite possessing bright ideas and talent, they face intensified competition in a fragmented market.
Software is now king in the sector but only if you can adapt it fast. Ukrainians firms exemplify this by adapting their software around electronic warfare and drones every few weeks as the Russians learn from them and adapt.
The new players on the bloc know this and are scaling much faster as a result. Companies like Helsing and Anduril are spearheading this movement by prioritising investment in AI-driven software.
Major contractors have also shifted focus to recruiting software engineers and the likes of Helsing know you need to work with them, not ignore them. These established players possess the systems and hardware essential for software integration, underscoring their permanence in the industry.
Not all AI-first Defence companies can attract the necessary talent to thrive. While Helsing has successfully drawn top AI experts, Rebellion Defense faces the risk of market failure due to talent shortages.
Ultimately, the defence tech companies that will succeed are those demonstrating tangible success on the battlefield. However distasteful or risky this may seem to some, this necessitates founders deploying their technology on existing frontlines, such as in Ukraine. Investors should question when such practical applications will occur, as claiming technology is merely “dual-use” is inadequate in today’s defence tech landscape.
Authored by: Tom Hurd, Zeki CEO and Co-Founder