VCs in European defense sharpen focus on weapons and hardware

Strike, air defense and counter-UAVs is the fastest-growing segment of the continent’s defense tech market.

Specialized hardware and weapons systems are becoming priorities for VCs as their appetite for Europe’s defense tech market heats up.

According to our latest analyst note, European defense tech startups raised $4.2 billion in the first nine months of this year, almost reaching 2024’s total.

The segment attracting the most funding is autonomy and platforms, which includes autonomous air and ground systems. Defense AI, C2 (command and control) and mission software—covering AI-driven systems for mission planning, decision support and training—has also received significant funding over the past year.

But one area is increasingly gaining traction: strike, air defense and counter-unmanned aerial systems (UAS).

This segment, which has only recently been on the radar of VCs, encompasses technologies ranging from detecting and neutralizing hostile drones to innovative strike systems such as lightweight precision missiles and tactical projectiles.

While not the most heavily invested segment of the defense tech market, it is the fastest-growing. Through Q3 2025, startups in the space had raised just under $250 million, compared to just $5.1 million in 2024.

Among the deals closed this year are a $100 million investment in UK-based Cambridge Aerospace, which develops interceptors for drones and larger ballistic missiles, and German unmanned weapons systems developer Stark‘s $62 million round.

The sudden rise in investment in strike, air defense and counter-UAS comes as investors and LPs increasingly embrace single-use technologies.

For many years, dual-use technologies—those that can serve both civilian and military purposes—were the only way for investors to gain exposure to defense due to ESG or reputational risks. But mindsets among European LPs and GPs are changing as geopolitical conflicts intensify.

Earlier this year, Estonian LP SmartCap launched a defense fund with the requirement that the VCs it invests in can back weapons. Finnish pension fund Varma removed some restrictions on defense investments, now only excluding companies making “controversial weapons.”

Companies in the strike, air defense and counter-UAS space can have dual-use applications, for example, in civil aviation safety or weather monitoring. However, the fact that single-use players and weapons makers are now part of the investable set marks an important psychological shift in the VC ecosystem.

Besides shifting mindsets, this segment now presents a clear financial case. European defense budgets have dramatically increased, with regional total defense spending surpassing 2% of GDP.

Spending increases have been combined with policy initiatives to create scale and facilitate procurement. From a procurement perspective, there is now a clear demand for developing effectors—systems that deliver a physical impact—and related munitions, making VC investments more attractive to investors.

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By Leah Hodgson |