Investors Flock to Defense Industry, Driven by Tech and Dual-Use Potential
Investors are increasingly focusing on the defense industry, with 30% already investing in defense tech or dual-use firms, and 45% planning to do so within the next year, according to a KfW survey. This shift comes as successful startups like Helsing and Quantum-Systems have emerged as unicorns in the sector since 2023.
The defense industry's attractiveness lies in sub-sectors such as cyber defense, robotics, artificial intelligence, surveillance, and reconnaissance. However, investors face challenges like a lack of reliable data on returns and valuations, unclear ESG application criteria, and limited information on investment opportunities beyond VC and PE. Regulatory aspects, including ESG requirements and legal restrictions, also pose hurdles.
Interest in the defense industry has surged among participation investors, particularly since the Russian attack on Ukraine. This is reflected in the venture capital deal volume for defense tech and dual-use companies in Germany, which jumped from €28 million in 2019 to nearly €800 million in 2024. The EU Commission has hinted at a possible easing of ESG hurdles for defense financing in individual cases.
The defense industry's potential, driven by dual-use potential and attractive sub-sectors, is drawing investors despite challenges. As regulations evolve and successful startups emerge, the sector is poised for further growth.
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