Defence Tech Investment: Procurement Challenges, Innovation Gaps, and Transformative Change

Capital Call #57

This is your curated resource on how dominant companies of the future are being funded across the evolving financial landscape. We are Willy Braun, Nicolas Colin and Vincent Touati-Tomas.

This edition explores the exciting but complex world of defence tech investment. From the growing demand for innovation to the barriers slowing progress, investors and experts weigh in on the challenges and opportunities facing startups. Whether it’s navigating procurement hurdles or leveraging AI for military strategies, the sources below offer crucial insights into the future of defence technology. Dive in to explore how the sector is evolving and what needs to change for real impact. We welcome your feedback and suggestions for future topics. Follow us on LinkedIn: Capital Call.

For Sifted, John Thornhill 🇬🇧 examines the investment paradox facing European defence tech, citing investors Sille Pettai 🇪🇪 and Michael Jackson 🇺🇸. Despite surging capital flows and strategic urgency, fundamental obstacles remain. Fragmented procurement systems and inconsistent demand create structural challenges that even promising startups like Helsing must navigate: Europe's rearming. But does defence tech make investment sense? (February 2025—paywall)

Sherman Williams 🇺🇸, Forrest Underwood 🇺🇸, James Palmer 🇺🇸, Chris Porter 🇺🇸, Cael McCormick 🇺🇸, and Derek Reim 🇺🇸 question whether soaring defence valuations outpace operational maturity. They caution investors against applying commercial SaaS patterns to defence, where adoption and exit timelines differ structurally. Is Defense Technology in a Bubble? (June 2024)

A few months after their inaugural report on European defense, Nathan Benaich 🇫🇷 and Alex Chalmers 🇬🇧 find the gap between Eastern Europe's wartime mindset and Western inertia unchanged. Despite spending boosts, procurement reform remains critical over innovation theatre. Dynamism and defense: six months on (May 2024)

Bessemer’s David Cowan 🇺🇸, Tess Hatch 🇺🇸, Janelle Teng 🇺🇸, Christopher Wan 🇺🇸, and Jason Scheller 🇺🇸 outline a strategic framework for investing in defence startups, focusing on dual-use technologies, software-first platforms, and new procurement pathways. While US-focused, the report draws global parallels, incl. with Europe’s defence modernisation efforts. Roadmap for Defense Tech (January 2024)

TechCrunch gathered insights from leading VCs in the defense space, including Jackson Moses 🇺🇸 (Silent Ventures), Jake Chapman 🇺🇸 (Marque Ventures), David Ulevitch 🇺🇸 (a16z), Raj Shah 🇺🇸 (Shield Capital), and Josh Manchester 🇺🇸 (Champion Hill Ventures). They highlight the potential of dual-use markets but warn of systemic exit challenges, as defence tech IPOs remain rare and M&A is hindered by policy and procurement opacity. Defense Tech Investor Survey (November 2023)

Eric Tegler interviews Jake Chapman 🇺🇸 of Marque VC on why traditional venture models struggle in defence, highlighting long sales cycles, unpredictable exits, and narrow M&A options. The Math: A Venture Capitalist Breaks Down Investment In Defense Startups (October 2023)

• Jake later deepened this view on his firm’s blog, offering a candid breakdown of what needs to change for returns to materialise in the sector. Venture Math in Defense, Part II: Exits (December 2023)

Startup executive Erik Kannike 🇪🇪 explores the operational and cultural realities of investing in defence startups. He contrasts the expectations of generalist VC funds with the pace of defence procurement, advocating for long-term capital and investors with deep ecosystem expertise. Beyond the hype — how to actually invest into defence startups (March 2025)

Public affairs consultant Ussal Şahbaz 🇹🇷argues that funding defence alone is insufficient without structural reforms to drive innovation. While Europe allocates just 4% of its defence budget to R&D and new technology—far below the US’s 14%—one key reform would be easing restrictions on public venture funding. Currently, institutions like the EIB, a major private equity backer, impose strict limits on investing in defence tech. Europe’s defense spending should focus on innovation (March 2025)

Torsten Reil 🇬🇧, co-founder of Helsing, highlights how AI-driven military platforms are reshaping deterrence strategies. He stresses that sustained government support is crucial for strengthening Europe’s democracies, emphasizing the convergence of moral and strategic imperatives in the race to develop lethal autonomous systems. We have to be prepared (March 2025—paywall)

Our own Nicolas Colin 🇫🇷 examines how William Perry’s Cold War-era ESL Incorporated transformed warfare by integrating commercial computing with military needs. He draws key lessons for Europe’s defence innovation, urging procurement reforms to better leverage civilian technology and venture capital. The ESL Way: A Cold War Playbook for Modern Defence (February 2025)

• Nicolas also explores how Frederick Terman transformed Stanford University into a hub for defence-related entrepreneurship by blending government funding with innovation: How Fred Terman Turned Stanford Into an Entrepreneurial Powerhouse (July 2020)

Azeem Azhar 🇬🇧 examines Europe’s defence challenges, citing Helsing’s Kadi Silde 🇪🇪 on moving beyond legacy systems. He notes a fivefold increase in defence tech investments since 2019 and suggests a “peace through strength” strategy, calling for Europe to triple defence spending to 4% of GDP. Preparing for the next European war (February 2025)

In a conversation with economist Tyler Cowen 🇺🇸, former Pentagon official and author Christopher Kirchhoff 🇺🇸 explains how he helped create the Pentagon’s Silicon Valley office, revolutionising military procurement. He highlights how acquisition specialist Lauren Dailey found a legal loophole that sped up contracts from 18-24 months to 30-60 days, enabling $70 billion in tech acquisitions and bridging the gap between commercial innovation and defence needs. Christopher Kirchhoff on Military Innovation and the Future of War (October 2024) 🎧

Nikolai Fomm 🇫🇷, co-founder of startup Corma, explores the evolution of France’s defence tech ecosystem, highlighting the country’s strategic push for innovation amid the growing entrepreneurial landscape supported by La French Tech initiatives. Defense Tech in France (October 2024)

Amir Mizroch 🇮🇱 of The Dejargonizer explores why Israeli defence tech startups struggle to deploy innovations despite active battlefields, citing Hamutal Meridor 🇮🇱, former Palantir Israel GM. Bureaucratic procurement cycles, risk aversion, and “over-classification” hinder startup participation, with entrepreneurs like Moshik Cohen 🇮🇱 bypassing official channels. The article highlights systemic funding barriers preventing promising innovations from reaching soldiers on the front lines. Where are Israel's Defense Tech Startups? (July 2024)

• Azeem Azhar 🇺🇸 Founder, Exponential View, LinkedIn

• Nathan Benaich 🇫🇷 Founder & General Partner, Air Street Capital, LinkedIn

• Alex Chalmers 🇬🇧 Editor, Works in Progress, LinkedIn

• Jake Chapman 🇺🇸 Managing Partner, Marque VC, LinkedIn

• Moshik Cohen 🇮🇱 Founder, Nanophotonics, LinkedIn

• Nicolas Colin 🇫🇷 Publisher, Drift Signal, LinkedIn

• David Cowan 🇺🇸 Partner, Bessemer Venture Partners, LinkedIn

• Tyler Cowen 🇺🇸 Faculty Director, Mercatus Center at George Mason University, LinkedIn

• Nikolai Fomm 🇫🇷 Co-founder & COO, Corma, LinkedIn

• Tess Hatch 🇺🇸 Partner, Bessemer Venture Partners, LinkedIn

• Michael Jackson 🇺🇸 Venture Partner, Multiple Capital, LinkedIn

• Erik Kannike 🇪🇪Chief Strategy Officer, SensusQ, LinkedIn

• Christopher Kirchhoff 🇺🇸 Author, Unit X: How the Pentagon and Silicon Valley are Transforming the Future of War, LinkedIn

• Cael McCormick 🇺🇸 Venture Fellow, AIN Ventures, LinkedIn

• Josh Manchester 🇺🇸 General Partner, Champion Hill Ventures, LinkedIn

• Hamutal Meridor 🇮🇱 Founder, Kela, LinkedIn

• Amir Mizroch 🇮🇱 Founder, The Dejargonizer, LinkedIn

• Jackson Moses 🇺🇸 Founder & Managing Partner, Silent Ventures, LinkedIn

• James Palmer 🇺🇸 Venture Fellow, AIN Ventures, LinkedIn

• Sille Pettai 🇪🇪 CEO, SmartCap, LinkedIn

• Chris Porter 🇺🇸 Venture Fellow, AIN Ventures, LinkedIn

• Torsten Reil 🇬🇧 Co-founder, Helsing, LinkedIn

• Derek Reim 🇺🇸 Skillbridge Fellow, AIN Ventures, LinkedIn

• Ussal Şahbaz 🇹🇷 Managing Partner, Ussal Consultancy, LinkedIn

• Jason Scheller 🇺🇸 Investor, Bessemer Venture Partners, LinkedIn

• Kadi Silde 🇪🇪Director of European Engagement, Helsing, LinkedIn

• Eric Tegler 🇺🇸 Journalist, LinkedIn

• Janelle Teng 🇺🇸 Partner, Bessemer Venture Partners, LinkedIn

• John Thornhill 🇬🇧 Co-Founder, Sifted, LinkedIn

• David Ulevitch 🇺🇸 General Partner, Andreessen Horowitz, LinkedIn

• Forrest Underwood 🇺🇸 Venture Partner, AIN Ventures, LinkedIn

• Christopher Wan 🇺🇸 Vice President, Bessemer Venture Partners, LinkedIn

• Sherman Williams 🇺🇸 Managing Partner, AIN Ventures,LinkedIn