Gundbert Scherf, co-founder of Helsing, Europe’s most valuable defence startup, has witnessed a seismic shift in the continent’s approach to defence innovation. Once a challenging environment for attracting investment, Europe is now prioritising defence technology acquisition over the United States, with Germany at the forefront of this transformation.
Helsing, which produces military strike drones and battlefield AI, more than doubled its valuation to $12 billion in a recent fundraising round. Scherf attributes this surge to Europe’s renewed focus on defence, likening the current momentum to the Manhattan Project—a scientific endeavour that rapidly developed nuclear weapons during World War II. “Europe is now coming to terms with defence,” Scherf said, underscoring the continent’s evolving priorities.
Germany, Europe’s largest economy, is spearheading this shift. Chancellor Friedrich Merz’s government views AI and startup technology as critical to its defence strategy, slashing bureaucracy to connect startups directly with the military’s upper echelons. Historically, Germany’s defence sector was modest, shaped by pacifist ethos and reliance on U.S. security guarantees. However, with U.S. military support now uncertain, Germany plans to nearly triple its defence budget to around €162 billion ($175 billion) annually by 2029. Much of this funding will drive innovation in warfare, from AI-powered robots to unmanned mini-submarines and spy cockroaches.
“We want to help give Europe its spine back,” Scherf said, reflecting the ambition of a new wave of German defence startups. These firms are advising the government alongside established players like Rheinmetall and Hensoldt, which have long backlogs for conventional systems. A new draft procurement law, approved by Merz’s cabinet, aims to reduce hurdles for cash-strapped startups by enabling advance payments and limiting tenders to EU bidders.
Marc Wietfeld, CEO of ARX Robotics, highlighted a recent meeting with German Defence Minister Boris Pistorius, who declared, “Money is no longer an excuse—it’s there now.” This shift signals a turning point in Berlin’s commitment to defence innovation.
Germany’s push for defence innovation is also driven by geopolitical realities. With Donald Trump’s return to the political stage and his questioning of NATO commitments, Germany has pledged to meet the alliance’s 3.5% GDP defence spending target by 2029—faster than most European allies. Officials in Berlin emphasise fostering a European defence industry rather than relying on U.S. companies. However, scaling up industry champions in Germany and Europe faces challenges, including fragmented markets and differing procurement standards.
The United States, the world’s top military spender, has an established defence industry and a head start in key technologies. European startups, until recently, lacked government support. However, an analysis by Aviation Week showed Europe’s top defence spenders projected to outspend the U.S. in military procurement this year.
Hans Christoph Atzpodien, head of Germany’s security and defence sector association BDSV, noted that the military’s procurement system is geared toward established suppliers, not the rapid pace of new technologies. Germany’s defence ministry is taking steps to accelerate procurement and integrate startups, with a focus on drones and AI. Annette Lehnigk-Emden, head of the Bundeswehr’s procurement agency, highlighted the revolutionary impact of these technologies on the battlefield.
Sven Weizenegger, who heads the Bundeswehr’s innovation accelerator, noted a shift in social attitudes towards the defence sector. The war in Ukraine has removed stigma, with Weizenegger receiving numerous LinkedIn requests daily for defence technology ideas. Some of these ideas, like Swarm Biotactics’ cyborg cockroaches equipped with cameras for surveillance, seem straight out of science fiction.
Germany’s defence innovation could provide an economic boost, addressing recent economic challenges. Markus Federle, managing partner at Tholus Capital, emphasised that a strong defence industrial base means a strong economy and innovation on steroids. With increased defence spending, Europe now boasts three unicorn startups: Helsing, Quantum Systems, and Tekever.
Germany’s leadership in European defence is under pressure, with Sven Kruck, Quantum’s chief strategy officer, noting the expectation for Germany to lead. As Ukraine’s second-biggest military backer after the U.S., Germany’s commitment to defence innovation is reshaping the continent’s future. This transformation could redefine Europe’s role in global security and economic progress, marking a new era in defence technology.
