We have been living in a very different world since Russia's invasion of Ukraine in 2022 and Hamas's attack on Israel on October 7. With global military spending that $2.4 trillion Last year, startups hoped to get a piece of the pie, and previously reluctant investors are eager to help them get there.
The US budget is by far the largest, with contracts worth $53 billion to major technology companies between 2019 and 2022. But the rise of defense technology as an investment trend is very global.
Germany-based AI startup Helsing is a strong example of the unprecedented amounts of capital available to technology companies with military potential.
Investors are particularly interested in technological solutions with dual-use potential, meaning they can be used for both civilian and military applications. The idea that defense technology can benefit society more broadly is also reflected in the emerging concept of “resilience tech.”
More than the worn-out term “defense,” the word “resilience” reflects the idea that innovation can make democratic societies less vulnerable to attack and help them recover more quickly.
For example Gundbert Scherf, co-CEO of Helsing said that he and his co-founders founded the company “because we believe that AI will be essential for democracies to continue to defend their values.”
The fact that Helsing’s mission resonated with mainstream investors like Spotify founder Daniel Ek reflects a change in mindset in society as a whole, but also in venture capital itself.
While they are typically prevented from investing in weapons due to their so-called vice clause, funds large and small are now willing to fund international startups in the broader resilience technology space, with the blessing of large limited partners such as the European Investment Fund.
From the EU to Ukraine and Israel, here are some venture capital firms taking a gamble on resilience technology outside the US
NATO Innovation Fund
NATO Innovation Fund is currently one of the most frequently mentioned players in resilience technology conversations. A $1 billion fund rarely goes unnoticed, especially when it’s deployed in a sector where venture capital is scarce. However, since its official launch in August 2023, it has remained on the back burner, even declining interview requests.
No more: One year on, NIF announced the first investments it made across a wide range of sectors – AI, space technology, manufacturing, transportation and robotics; but always with a view to “promoting defense, security and resilience.”
NIF's direct investments can only go to startups from the United States 24 countries that's the LPs. This includes Iceland, for example, but not France, which could help provide new funding to locations that have traditionally received less capital but are even more interested than larger countries in resilience technology.
The scope of the NIF is made somewhat more flexible, however, by the fact that it is also a fund of funds. The VC firms it has backed so far include Alpine Space Enterprises, Join CapitalOTB Ventures, and Vsquared Companies.
OTB companies
Founded in 2017, mentioned above OTB companies existed long before NIF, but its focus on deep tech is getting a new flavor. With support from NIF, but also from the European Investment Fund (EIF), the Amsterdam-based company with Polish roots has already started deploying its $185 million fund for early growth in what it calls “real tech.”
OTB’s view of ‘real technology’ translates into a focus on space technology, business automation and AI, cybersecurity, and fintech infrastructure; all of which could easily fall under resilience technology as well.
Co-founder and managing partner Marcin Hejka also sees dual-use technology as a reality for many startups. “It is completely normal that the defense sector is increasingly adopting technologies with civilian roots,” he told JS in March.
MD One Companies
Dual use is key MD One Companiesa UK-based venture capital firm that invests in early-stage companies. It was founded in 2021 and describes itself as “dedicated to supporting applied deep tech innovation for the UK, Europe and our allies.”
This leaves the door open for a wide range of applications. “We are agnostic across a range of subsectors and technology types and have invested in both software and hardware-based businesses, with [national security]corporate and defense backgrounds,” the MD One website explains.
The portfolio includes startups like Labrys Technologies, a Slack-meets-location-meets-payments for military and humanitarian scenarios, and Materials Nexus, which uses AI to discover new materials.
Israel Resilience Fund
It was launched in late 2023 in the wake of the Hamas attacks Israel Resilience Fund aims to raise $50 million to invest in startups affected by the war or developing solutions relevant to Israel's immediate needs.
It is one of the funds of the Israeli investment platform OurCrowd, which had it available since March $17 million in pledges secured for this special fund, for which all management fees and interest charges were waived, and with a focus on catalyzing co-investments from public and private sources.
From 8 investments announced last December, the Israel Resilience Fund's portfolio has now grown to 35 teams, supporting some 1,000 jobs in a country where 14% of employees work in the tech sector. It is arguable that the sector has shown resilience thanks to initiatives like this, with Israeli startups more than $3.1 billion since the start of the war.
D3
D3 is an early stage fund whose name represents the call to “Dare to Defend Democracy.”
“We launched our fund in the summer of 2023 with the primary goal of investing in founders who are using technology to help Ukraine defend itself and shape the future of the West’s national security,” the site explains.
With a typical investment of $125,000 for a 7% equity stake, it is also open to follow-on investments of up to $750,000 in later rounds led by other investors. Its current portfolio includes vertical products such as drones, sensors and unmanned aerial vehicles (UAVs), often with an element of AI.
D3 was also one of the initiators of a recent defense technology hackathon in London. It's the first of its kind, but probably not the last. It confirms that these VCs will also have a growing pipeline of startups to invest in.
