How Europe can build a self-reliant defence tech ecosystem

2026-06-16 · Source: Sifted · Field: Government & Public Sector — Public Policy & Governance, Public Finance & Administration, Regulatory & Compliance · Depth: Intermediate, medium

Summary

Europe's defence tech investment reached €2.5bn in 2025, more than doubling 2024's €1.2bn, driven by geopolitical instability and evolving warfare. Early-stage dealmaking is accelerating, with pre-Series B defence startups raising €556m this year, compared to €635m in all of 2025. However, experts like Paolo Surico, Chris Coghlan, and Ram Puvinathan argue that scaling is hindered by misdirected government funding and insufficient growth capital. European defence budgets allocate around 80% to procurement, largely from the US, and only 20% to domestic R&D, falling short of the European Defence Agency's 35% collaborative procurement benchmark. To foster a self-reliant ecosystem, Europe needs to shift spending towards homegrown R&D, reform fiscal rules to exempt R&D investments, and attract private sector finance, including pension funds, to support late-stage startups.

Key takeaway

For European policymakers and defence sector investors aiming to strengthen sovereign capabilities, you must prioritize domestic R&D over foreign procurement. Shift fiscal policies to exempt R&D investments from deficit limits, encouraging homegrown innovation. Additionally, attract private capital, including pension funds, to support late-stage defence tech startups, preventing their migration to the US. This strategic reorientation will foster a robust, self-reliant defence ecosystem and drive long-term economic growth.

Key insights

Europe must rebalance defence spending from foreign procurement to domestic R&D and innovation to build a self-reliant tech ecosystem.

Principles

• Prioritize domestic R&D for long-term productivity.
• Innovation rarely originates from large incumbents.
• Catalyze private finance alongside government spending.

Method

Reform fiscal rules to exempt R&D investments from deficit limits, redirect tax breaks like the UK's Patent Box to fund existing equipment, and utilize public institutions for late-stage startup funding.

In practice

• Shift defence budgets towards homegrown R&D.
• Attract pension funds for patient capital.
• Use British Business Bank/EIB for late-stage funding.

Topics

• Defence Technology
• European Defence Agency
• R&D Investment
• Fiscal Policy Reform
• Startup Funding
• Procurement Reform

Best for: Entrepreneur, Executive, Investor, Policy Maker

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Editorial summary, takeaway, and curation by AIssential. Original article published by Sifted.