DEFENCE: Europe wants pan-European champions, but every country wants its own
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In 2025, European Union member states spent €115 billion on military equipment. That same year, European startups classified under defence, security and resilience raised $8.7 billion.
Between these two pools of money, a third figure tells most of the story: specifically European collaborative procurement reported by 19 countries accounted for just 11% of their investment.
Capital and public procurement obviously do not measure the same thing. The former bets on companies likely to increase in value; the latter determines which ones will end up with a certified product, an operational factory and sufficiently predictable revenue to survive beyond their next funding round.
Europe has already begun building a financial market for defence. It has yet to build the corresponding industrial market.
While investors increasingly think at continental, and sometimes NATO, scale, ministries still place orders in Paris, Berlin, London, Rome or Warsaw. Yet every country claims to want pan-European champions, provided, naturally enough, that those champions locate their headquarters, factories, engineers and decision-making centres on its own territory.
European sovereignty, as everyone will have understood, often stops where national industrial policy begins.
Capital has picked its first winners
And yet European defence is no longer the marginal category that major investors were still reluctant to touch at the beginning of the decade.
According to data compiled by DEALROOM and the NATO INNOVATION FUND, European defence, security and resilience companies attracted $8.7 billion in 2025, up 55% from 2024 and nearly four times the amount recorded five years earlier.
The category includes military systems alongside dual-use technologies, cybersecurity, space, quantum and critical infrastructure. It therefore does not measure investment in weapons alone. But it does show that a sector long wrapped in the lexical caution of dual use has become an acknowledged asset class.
Growth is now concentrating on more mature companies. Late-stage funding reached $4.7 billion in 2025, roughly three times the previous year’s level.
And the trend accelerated again in 2026. HELSING raised $1.8 billion in July at an $18 billion valuation. Founded in 2021 as a military artificial intelligence company, the German company now develops drones, underwater systems and technologies for airborne platforms.
QUANTUM SYSTEMS raised $1.2 billion only days earlier, at a post-money valuation of around $8 billion. The Bavarian manufacturer no longer intends merely to supply reconnaissance drones. It wants to build a family of autonomous systems spanning the air, land and maritime domains, connected through a common software layer.
These funding levels do not yet prove that Europe has produced its new ANDURIL or PALANTIR. They do, however, show that investors have decided to finance their emergence.
The funds themselves are also scaling up. EXPEDITIONS raised €197 million for its second vehicle, backed by the EUROPEAN INVESTMENT FUND, the NATO INNOVATION FUND, PFR, BAE SYSTEMS and KEYSIGHT TECHNOLOGIES. Its portfolio includes companies from France, Germany, the UK, Estonia, Croatia and Ukraine.
Funding rounds are pan-European, investors cross the Atlantic, and valuations assume a continental market, not least because no single national budget can sustainably support companies valued at between $8 billion and $18 billion.
Their financing forces them to become European. Their industrial development pulls them back towards their home countries.
A defence contractor is not created by valuation alone
A startup can become a unicorn the moment it signs a funding round. That does not make it a prime contractor.
A prime contractor does not merely sell software, a sensor or a drone. It assumes responsibility before the state for an entire system. It selects subcontractors, guarantees cybersecurity, organises production, obtains certifications, trains military personnel, maintains equipment and ensures its evolution over several years.
When a programme fails, the ministry knows which door to knock on. That convenience, which may sound somewhat administrative, explains part of the longevity of BAE SYSTEMS, THALES, RHEINMETALL, LEONARDO, SAAB, AIRBUS and MBDA.
That is why new players are now trying to move up the value chain. A drone manufacturer develops its mission software, then its communications systems, data platform and command functions. An artificial intelligence company adds sensors before designing its own autonomous systems.
Everyone wants to control the architecture, because architecture is what allows a supplier to own the relationship with the armed forces and decide which vendors operate beneath it.
Venture capital naturally encourages this integration. A component supplier receives a share of the budget. The prime controls procurement, data, upgrades and maintenance contracts. That is where both revenue and value tend to concentrate.
The state, however, plays a role that investors cannot replace. Germany is reportedly considering ordering €536 million worth of attack drones from HELSING and STARK. Such an order would provide the volumes, testing and operational references required to turn them into industrial companies.
In the UK, CAMBRIDGE AEROSPACE has secured a multimillion-pound contract to supply its SKYHAMMER interceptor missiles to the British military and Gulf partners. The government has emphasised the sovereign nature of the solution, the jobs created in the UK and its ability to deliver quickly.
National rationality creates continental inefficiency
Governments have good reasons for wanting to retain military capabilities on their own territory. A national champion provides jobs, skills, tax revenue and a degree of security of supply. The state maintains direct access to teams, can control exports and can require that its own needs take priority over those of foreign customers.
It also reduces the risk that a neighbouring government blocks a delivery precisely when it becomes indispensable.
Defence is not an ordinary market. A country may accept depending on a foreign supplier for videoconferencing software. It will hesitate more when military communications or the availability of ammunition are at stake.
This reasoning remains coherent when it protects a genuinely critical capability. It becomes considerably more expensive when every country attempts to recreate the entire value chain.
Everyone wants its own drone champion, command software, surveillance system, tactical communications platform and low-cost missile. Everyone can finance a demonstrator. Few have a domestic market large enough to amortise factories, support multiple suppliers and fund subsequent generations.
Europe therefore risks reproducing with its startups the fragmentation it has criticised for decades among its legacy industrial groups.
Data from the EUROPEAN DEFENCE AGENCY provides a measure of the problem. Military equipment procurement by member states reached €115 billion in 2025, up 26% in real terms year on year, while collaborative procurement, whether involving European partners or countries outside the Union, accounted for only 24% of that expenditure.
Among the 19 countries that reported specifically European figures, collaborative acquisitions represented just 11% of their aggregate investment. Depending on the country, the proportion ranged from 0% to 55%.
The European Union has a single market for most civilian goods. It has no equivalent for drones, missiles or command systems.
Each military retains its own testing procedures, security standards, budget timetable, doctrine and relationships with incumbent defence groups. Software must be adapted to national architectures. Classified data does not travel easily across borders, while export policies diverge.
A startup therefore does not sell once to “Europe”. It wins a contract in its home country, repeats the testing process in a second, adapts its communications systems in a third and sometimes finds an industrial partner in a fourth.
The addressable market may be pan-European in investor presentations. The sales process remains ministry by ministry.
The single market still has a military escape hatch
European legislation has been trying since 2009 to open national defence markets further. It nevertheless continues to preserve an important exception.
Article 346 of the Treaty on the Functioning of the European Union allows a country to set aside certain single-market rules when it considers its essential security interests to be at risk.
The principle is difficult to dispute. A government cannot be forced to share any classified technology or entrust its nuclear deterrent to the lowest European bidder.
The exception can, however, become a convenient mechanism for protecting a national supplier.
By protecting their national markets too aggressively, European countries sometimes prevent their own industrial companies from reaching the scale required to respond to an emergency, and then buy elsewhere.
Without a European market, orders go to the United States
Between the beginning of Russia’s invasion of Ukraine and June 2023, 78% of military acquisitions by EU member states were made from suppliers outside the Union. American companies accounted for 63% of those external purchases, according to figures cited in the European Defence Industrial Strategy and the DRAGHI report.
This does not reflect only a political preference for WASHINGTON.
American defence companies benefit from larger production runs, multiyear domestic contracts and already-certified equipment. Their systems are often integrated into NATO architectures and come with operational track records.
When a capability is needed immediately, they can sometimes deliver it faster than a European consortium can divide up industrial responsibilities.
Governments then have to choose between waiting several years for a jointly developed solution and buying a system that already exists. Military urgency usually decides before industrial policy does.
A lack of European coordination does not therefore necessarily preserve national sovereignty. It can create domestic markets too small to sustain a competitive offering, before ultimately increasing dependence on foreign suppliers.
Europe wants its own champions, but continues to give a large share of its orders to other countries’ champions.
Not every startup will become a prime
The companies funded since 2022 will not all become standalone defence groups.
Some will become prime contractors. Others will provide a technological building block to incumbent defence companies. Some will be acquired. Many will remain specialists in sensors, communications, software or propulsion.
That outcome would not constitute an industrial failure, even if it fits less neatly with the narrative of the new European champion.
COMAND AI illustrates the boundary between these paths. The French company raised €32 million to deploy its command platform across NATO armed forces. SAAB invested €11.1 million to acquire a 10% stake and integrate its technology into Swedish command, surveillance and air-control systems.
The deal combines French technology, a Swedish industrial group and a multinational market, a tangible form of Europeanisation.
It could also turn COMAND AI into a technology supplier dependent on an existing prime, rather than a competitor destined to replace it.
The scenario could repeat itself. Large defence groups already possess the contracts, security clearances, production chains and maintenance services. Startups bring speed, software and new architectures.
The boundary between cooperation and absorption will depend on who retains the customer relationship and control of the data.
The real issue, therefore, is not whether Europe will produce enough defence unicorns. It is where prime-contractor control will sit once their technologies become embedded in military systems.
Brussels funds cooperation, national capitals choose the suppliers
The European Union is trying to aggregate demand that member states have so far organised primarily at national level.
The industrial strategy presented in 2024 calls on countries to conduct at least 40% of their equipment procurement collaboratively by 2030. It aims to increase intra-European defence trade to 35% of the market and ensure that at least 50% of procurement budgets are spent within the Union by 2030, rising to 60% by 2035.
The SAFE programme is designed to make €150 billion in loans available to member states to finance joint procurement and expand production capacity. The scheme includes Ukrainian industry in certain projects from the outset.
The EUROPEAN DEFENCE FUND, meanwhile, finances research carried out by multinational consortia. EDIP is intended to extend this effort into industrialisation, supply chains and joint procurement.
These instruments can finance cooperation. They still do not create a European military customer.
SAFE lends money to member states, which retain the debt, supplier selection and political responsibility for procurement.
The EUROPEAN DEFENCE FUND can finance part of a product’s development without guaranteeing that a ministry will subsequently purchase it.
Joint programmes must still divide factories, intellectual property, prime-contractor responsibility and export rights.
European cooperation does not eliminate national industrial policy. It organises its negotiation.
Across the Channel, the UK adds another layer of complexity. Although it remains indispensable to any credible conception of European defence, it sits outside the European Union and is therefore not automatically integrated into all of its financing mechanisms.
European defence extends beyond the EU’s borders. Its instruments do not always follow.
Europe does not need a monopoly. It needs a common customer
Building a European market does not mean selecting a single company in every category.
Competition makes it possible to test several technologies, preserve multiple production chains and prevent a single supplier from controlling a critical capability.
Redundancy, often considered inefficient in programmes focused on budget savings, regains some appeal when a factory can be hit or a border closed.
Nor do all technologies require the same degree of sovereignty.
Nuclear deterrence, certain intelligence systems and the most highly classified communications will remain largely national.
Air defence, mass-produced drones, ammunition, space surveillance and tactical communications require greater scale.
Software, sensors and autonomous systems above all need common interfaces that allow them to operate across multiple platforms.
The objective, therefore, is not to replace national champions with a single company flying the European flag.
It is to enable a company to certify a product, sell it to several armed forces and organise production across several countries without renegotiating its entire architecture at every border.
MBDA demonstrates that a pan-European defence company can exist while retaining national footprints and responsibilities.
But that structure is the product of several decades of consolidation, joint programmes and negotiations over industrial workshare. It was not born from a funding round.
The next champions will have to follow a faster path. Their valuations, industrial requirements and the evolution of the threat environment do not give them thirty years to build their market.
Their future will depend less on how many billions they raise than on the ability of governments to turn several national requirements into sufficiently common procurement to finance production at scale.
The next European defence champion will not simply be the company that has raised the most money or convinced its government to sign an initial contract.
It will be the one whose system can be ordered in Paris, Berlin and Warsaw without having to be rebuilt three times.
