Venture capital flows into a sector once considered off-limits for many
Europe’s technology landscape is undergoing a radical transformation
Venture capital has poured into a sector once considered off-limits for many.
Defence, Security and Resilience (DSR) is proving the hot ticket in town.
According to the latest intelligence from Dealroom and the NATO Innovation Fund, VC funding in European DSR reached an all-time high of $8.7 billion in 2025, up 55 per cent from the previous year.
While the overall VC market grew by only 16 per cent, the DSR sector has nearly quadrupled in size over the last five years.
The engine room of this growth is AI, which underpinned 44 per cent of all DSR funding in 2025.
Investors are particularly keen on start-ups focusing on awareness, understanding and decision making, a sub-area that hit a record $1.7 billion in 2025.
This was fuelled by breakthroughs in drones, UAVs and satellite imaging. This defence renaissance is being led by late-stage mega-funding, which tripled last year to $4.7 billion as European start-ups began to mature and scale.
Geographically, the power map of European innovation is shifting. While the UK and Germany continue to lead, attracting $2.9 billion and $2.1 billion respectively, Munich has solidified its status as Europe’s premier DSR hub, raising $1.7 billion in 2025 alone.
Emerging players like Finland, now ranked fourth in Europe for DSR funding, and Bulgaria, led by space-tech pioneer EnduroSat, are proving that the next generation of security tech can come from anywhere in the Alliance.
The relationship between new tech and the established guard is also evolving. Defence primes like Airbus, Saab and Dassault Aviation are increasingly investing in and partnering with start-ups to integrate autonomous systems.
These are not just pilot projects, start-ups are increasingly winning public tenders and generating substantial revenue. Companies like Quantum Systems and ICEYE reached revenues of €300 million and €250 million respectively.
However, the path forward is not without its hurdles. While capital is abundant, it’s clear that investment alone does not automatically translate into stronger capabilities. The real test is how effectively these start-ups can turn funding into operational impact.
Furthermore, while M&A activity is up four times from four years ago, the sector saw a total lack of public listings in 2025, suggesting that the “exit” strategy for these deep-tech giants still largely relies on consolidation rather than the public markets.
This year, the focus has shifted toward securing the security of critical technologies, particularly quantum computing and AI chips, which saw funding more than double to $2.4 billion last year.
With the NATO Innovation Fund deploying over €1 billion and more national governments launching dedicated DSR funds, Europe is racing to cement its technological sovereignty in an increasingly volatile world.
As many observers put it, the trajectory for growth is clear, and the opportunity is now for broader capital providers, from banks to private equity, to support the next phase of this maturing sector.