European defence tech startups face funding slowdown

European defence technology startups appear to be hitting a funding wall. Reporting suggests the sector’s early momentum could be stalling as investors reassess priorities and returns.

The slowdown follows a period of rapid growth. In September alone, DTCP closed a €455 million defence-focused fund, Epigamia’s cofounder spun out Kokasa to target defence systems, and the Estonian military partnered with VC firm Archangel for a three-year tech pact. That same month, European startups secured over €2 billion across 65 rounds—a rare bright spot in an otherwise sluggish funding environment.

But the defence tech surge may not be sustainable. Observers note that investors could be growing more cautious about the sector’s long sales cycles and regulatory challenges. Some funds might be reconsidering their exposure, while others could be exploring dual-use technologies with clearer commercial applications.

The shift raises questions about the sector’s future. Defence startups often depend on venture funding to bridge the gap between prototype and procurement, but patience may be thinning. While institutional investors like those backing DTCP’s fund remain active, the gap between well-funded players and early-stage ventures could grow.

Outcomes may depend on whether governments increase direct support. Estonia’s partnership with Archangel indicates some states are willing to engage, though broader public funding commitments remain uncertain. For now, the message to founders seems to be that unchecked growth is no longer assured.

Sources: sifted.eu