Venture-capital investment in European defence and critical-technology startups jumped 55% between 2024 and 2025 (and +194% since 2021), reaching a historic high of $8.7bn, according to a joint report by Dealroom (a global business-intelligence platform) and the NATO Innovation Fund (NIF), an independent venture-capital fund backed by 24 NATO allies that invests in cutting-edge science and engineering startups.

"The DSR sector continues to grow rapidly across Europe, with substantial fundraising in major funding rounds," said Sander Verbrugge, a partner at NIF.

The figures reflect strong investor appetite for the sector. It now accounts for 13% of total European venture capital (up from 4% in 2020), as well as 43% of funding directed to deep-tech startups.

AI and quantum lead the way

In 2025, artificial intelligence captured 44% of DSR funding, the highest share in six years. Decision-making, surveillance, drones and satellite imaging alone attracted $1.7bn, boosted in particular by strategic demand in wartime.

The critical-technologies segment also surged, especially quantum (computers, cryptography, sensors), reaching $2.4bn - 2.4x more than in 2024.
"With revenues now proven and a clear trajectory, the time has come for banks and private funds to take over to support the next stages," Verbrugge added.

Industrial scale-up

European startups are no longer just innovating: they are winning public tenders, signing strategic partnerships with defence primes, and generating significant revenues.

Several startups in the sector are posting triple-digit annual growth, including the Netherlands' Destinus (+289%), Germany's Quantum Systems (+173%) and Finland's ICEYE (+143%). Among French players, Delair recorded annual growth of 78% to reach revenues of €50m.

While there were no IPOs in the sector in 2025, the number of mergers and acquisitions (20) quadrupled compared with 2021, Dealroom's report notes.

Europe gears up to compete with major powers

The UK remains the investment leader ($2.9bn), followed by Germany ($2.1bn) and France ($869m). Finland ($635m), the Netherlands ($535m) and Spain ($335m) round out the ranking.

By city, Munich has established itself as Europe's leading hub, with $1.7bn raised, ahead of London and Cambridge ($1.2bn each), Helsinki ($576m) and Paris ($453m).

Caution is warranted, however, against being dazzled by the vast sums involved. John Ridge, Chief Adoption Officer at NIF, warned: "As capital continues to flow into a sector that has never been so strategically important, investment alone does not automatically translate into stronger European defence capabilities."

What matters now, he said, "is the ability to turn these funds into real technologies, concrete contracts and operational impact."