It is a challenging task to build a successful start-up, especially in difficult times. Viktoriia Yaremchuk, co-founder of Farsight Vision, a start-up based in Lviv, Ukraine, faces even greater obstacles. With electricity blackouts, missile strikes, and sudden conscription of her employees, Yaremchuk’s mission is fraught with danger. She acknowledges that working underground in a cellar in Ukraine is far from the glamorous image of Silicon Valley garages.
Farsight Vision is among many Ukrainian start-ups that are defying Russia’s invasion by providing situational awareness software for drones. These companies are not only helping their country but also revolutionizing warfare by rapidly innovating based on feedback from the front line and securing funding from venture capital firms and wealthy donors to bolster defense spending. This privatization of war has caught the attention of NATO members and triggered a surge in defense tech investment across North America and Europe.
According to a recent report by Dealroom, VC investment in defense start-ups within NATO countries has quadrupled since 2019, reaching $3.9 billion this year. The United States accounts for 83% of VC defense tech investment, while EU countries and the UK make up 15% since 2018. Investment in this sector has risen from 0.4% to 1.8% of VC funding in Europe between 2022 and this year.
The Resilience Conference held last week highlighted the investment case for defense tech as entrepreneurs driven by the urgent need to defend democracy enter this field. Many start-ups are developing dual-use technologies that can be applied beyond military purposes into civilian markets such as mining or logistics industries. Increased defense spending by NATO governments serves as an attractive financial incentive for these companies’ growth prospects.
Magnus Grimeland, founder of global early-stage VC fund Antler emphasizes that weapons systems are undergoing significant changes as they become smaller, cheaper, and more connected through technology advancements. He argues that supporting innovative start-ups capable of developing software-enabled weapons systems is crucial for democratic societies seeking protection against hostile powers.
However promising it may seem though some investors remain cautious about investing in defense tech due to concerns about potential bubbles forming within this sector’s market value over time.
