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The UK and Germany are emerging as key hubs for a new wave of artificial intelligence defense startups as Europe scrambles to rearm amid rising geopolitical tensions.
Private funding for defense startups in the region has increased in recent years, driven by the ongoing Russia-Ukraine war and pressure from the Trump administration, as investors look to tap growing government military budgets.
But the UK and Germany have the most active ecosystems. Most of the industry’s biggest financings have been for startups in both countries, and both have become critical launch pads for entry into new markets and battlefield training.
David Ordonez, a senior fellow at the NATO Innovation Fund, told CNBC that this is “thanks to the scientific expertise of its talent base, the country’s commitment to the industry as an engine of economic growth and a manufacturing base that can rapidly scale breakthrough innovations.”
“Visible access to procurement”
Venture capital investment in European defense startups surges as NATO military alliance members agree Increase security spending Accounting for 5% of GDP, the defense sectors in London and Berlin are increasingly showing willingness to adopt new technologies developed by younger players in the market.
Buoyed by the promise of business deals, investors have poured a record $4.3 billion into the sector since the start of 2022, nearly four times the amount poured into the previous four years, according to Dealroom.
After raising hundreds of millions of euros in financing, German artificial intelligence drone manufacturers Helsing and Quantum Systems are valued at 1.2 billion euros and 3 billion euros respectively this year. In the UK, PhysicsX, a manufacturing platform that works with defense companies, raised $155 million this year, and missile interception startup Cambridge Aerospace reportedly secured $100 million in funding in August.
The British government’s strategic defense review in June proposed increasing spending on new technologies and simplifying procurement processes, and announced a £5 billion technology investment plan.
Karl Brew, head of defense at Portuguese-British drone startup Tekever, told CNBC: “We are seeing a system increasingly open to non-traditional prime factors, supported by broader investment in skills and technology.”
Tekever, which became a unicorn this year, announced a major contract in May to supply unmanned aerial systems to the Royal Air Force. Helsing has several contracts with the UK government, and US company Anduril signed a £30m contract for attack drones in March.
Tekever’s AR3 EVO drone is undergoing pre-flight inspection before launch. Image source: Tekever
Germany Announcing an increase in defense spending From 2026, this figure will reach more than 100 billion euros, a record figure since German reunification, and procurement processes have also been changed to make it easier for start-ups to participate.
Meghan Welch, managing director at financial advisory firm BGL, told CNBC that while most European governments have increased defense spending, Germany “has a clear path from prototype to major procurement (for start-ups) that many other European markets do not yet offer.”
Helsing and attack drone startup Stark were both expected to win the kamikaze drone contract, the Financial Times reported in October. Helsing and Stark declined to comment to CNBC.
legacy infrastructure
Germany’s industrial heritage has also created a talent pipeline and infrastructure that startups are leveraging.
“Germany has the industrial base, infrastructure and technical talent to produce the next-generation technologies that NATO desperately needs,” Philip Lockwood, international managing director at Stark, told CNBC.
Founded in 2024, Stark builds attack and reconnaissance drones and has raised $100 million from investors including Sequoia Capital, Peter Thiel’s Thiel Capital and the NATO Innovation Fund.
“Many of Europe’s best engineers developed their expertise in German industrial and technology sectors, which have long led the way in hardware, software, manufacturing and supply chain resilience,” Lockwood said.
Tekever’s Brew said the UK’s wider ecosystem was also a determining factor in its appeal as a defense base. “It brings together world-class universities and research and development centers, as well as a dense network of aerospace, software and advanced manufacturing suppliers,” he said.
launch pad
Another key driver of UK and German defense technology is that both countries serve as launchpads for entry into new markets or front-line training.
Since 2021, the UK has had a security and defense partnership with Australia and the United States, known as AUKUS, which removes certain export controls and restrictions on technology sharing between countries.
Rich Drake, managing director of Anduril UK, told CNBC: “As part of AUKUS, entering the UK is a natural entry point into Europe.”
As well as signing attack drone contracts totaling nearly £30m earlier this year, Anduril also plans to open a new manufacturing and R&D facility in the UK.
Undersea Sentinel of British Anduril. Image source: Anduril UK
“(AUKUS) allows us to work with the Department of Defense to coordinate warfighting requirements and accelerate fielding of leading autonomous systems in a context where trust, shared priorities and strategic alignment are as important as technology,” Drake said.
U.S. defense startups looking to expand into the European market also often choose London as a base for expansion across the region. Second Front Systems and Applied Intuition will expand into the country in 2023 and 2025, respectively.
“Given the history of the special relationship between the United States and the United Kingdom, the United Kingdom is an excellent springboard into other European markets,” said Enrique Oti, chief strategy officer at Second Front Systems.
VanEck product manager Dmitrii Ponomarev added that the UK could also become a base for European defense startups with global ambitions.
“In effect, the UK is becoming an interoperability testbed and a politically acceptable landing zone for the two-way flow of technology,” Ponomarev told CNBC.
“If you can win pilots for the British military, adhere to consistent UK/US safety and export regimes, and operate in English in accordance with UK industrial and legal standards, then you appear to be more receptive to the US Prime Minister, War Department programs and AUKUS related efforts.”
In 2025, some of Europe’s best-funded defense startups, including Helsing, Quantum Systems and Stark, announced factories, offices or investments in the country.
Further east, Germany, one of Ukraine’s largest military aid donors, gives the country’s startups a “front-row seat to feedback from the battlefield,” Ponomarev said.
Quantum Systems has deployed its reconnaissance technology in Ukraine, and Helsingborg announced in February that it would produce thousands of attack drones for the country.
Despite this progress, analysts, investors and startup executives have warned that more needs to be done to create the conditions for building global defense startups in the UK and Germany.
“Scaling up will remain difficult without continued political and procurement reforms,” Ponomarev told CNBC.
He added: “The UK still faces problems such as slow procurement cycles, customs clearance bottlenecks and a shortage of security-approved technical personnel.” Ponomarev added that Germany’s biggest obstacles are bureaucracy, strict export controls and heavy reliance on a single customer – the country’s armed forces.
BLG’s Welch said the winners of Europe’s AI defense rush “are likely to be companies that can master both the political economy (including export rules, alliances and public narratives) and the technology race, positioning themselves as enablers of national sovereignty rather than destroyers of it.”
