European Defense Tech Start-Ups: Trends and Challenges Ahead

After digging into McKinsey & Company’s latest take on European defense tech start-ups, we’re breaking down the key issues driving this growing field. These companies are shaking up the continent’s defense industry, fueled by tech breakthroughs and shifting global pressures. Here’s a look at what’s powering their rise, the hurdles they’re facing, and where they might take Europe’s security landscape as of February 2025.

A Response to Geopolitical Shifts

The ongoing war in Ukraine has significantly influenced Europe’s defense priorities, acting as a catalyst for increased investment and focus on technological solutions. This conflict, now in its third year, has prompted governments to bolster budgets, with nations like Estonia and Poland allocating 5% and 4.7% of GDP to defense, respectively. Amid these developments, start-ups are stepping in to address gaps left by traditional industry players, offering innovations such as autonomous systems and advanced cybersecurity tools tailored to modern threats.

A parallel trend is the push for greater self-reliance. European countries are increasingly seeking to reduce dependence on foreign suppliers, turning to domestic firms to develop critical technologies. This environment has created opportunities for smaller companies to contribute solutions that align with national and regional security goals.

Investment Trends and Constraints

Private capital is flowing into the sector, with venture capital firms showing growing interest. In 2024, European defense tech start-ups secured hundreds of millions in funding, though this accounted for just 1.8% of the continent’s total venture capital pool. While modest, this figure underscores a strategic shift: investors are recognizing the long-term potential of defense technologies, even if returns may take seven to ten years due to extended development and procurement cycles.

However, funding remains a challenge. Traditional venture capital models, which prioritize rapid returns within three to five years, are poorly suited to the defense sector’s timelines. Additionally, some institutional investors hesitate to engage, constrained by ethical guidelines or ESG frameworks that limit involvement in military-related ventures. This misalignment restricts the capital available to scale promising innovations.

Talent and Collaboration Dynamics

Access to skilled talent is another hurdle. Europe has a strong pool of engineers and technologists, yet many are reluctant to work in defense due to perceptions of the industry or competition from other tech sectors. Start-ups must compete with consumer tech firms and established defense contractors to attract expertise, often with fewer resources to offer.

To address these constraints, collaboration is proving essential. Governments are facilitating partnerships through accelerators and networking initiatives, connecting start-ups with industry leaders and military end-users. These efforts help bridge gaps in experience and infrastructure, enabling smaller firms to refine and deploy their technologies more effectively.

Scaling for Impact

The path to widespread adoption is complex. Defense technologies require rigorous testing, certification, and integration into existing systems, processes that demand significant investment and time. Scaling production to meet the needs of national or multinational contracts—potentially worth billions—poses a further challenge for companies starting with limited operational capacity.

Despite these obstacles, the sector’s outlook is promising. If start-ups can navigate regulatory landscapes and secure sustained support, they could play a pivotal role in strengthening Europe’s defense capabilities over the next decade. Their agility complements the scale of traditional firms, creating a more dynamic industry ecosystem.

A Sector in Transition

European defense tech start-ups are at the forefront of a broader transformation, balancing innovation with the practical demands of security. Rising budgets, private investment, and collaborative frameworks signal a sector poised for growth, though success hinges on overcoming structural and operational barriers. As of early 2025, their trajectory suggests a meaningful contribution to Europe’s strategic resilience.

For a deeper analysis, readers can explore additional insights in McKinsey & Company’s publication at this link.