The UK and Germany are emerging as key hubs for a new wave of AI defense startups as Europe rushes to rearm amid rising geopolitical tensions.
Private funding for defense startups across the region has increased in recent years as investors look to take advantage of rising government military budgets in the wake of the ongoing Russia-Ukraine war and pressure from the Trump administration.
However, the most active ecosystems are in the UK and Germany. Most of the largest rounds in this space are for startups based in these two countries, both of which have emerged as important launching pads for new markets and battlefield training.
David Ordonez, senior associate at the NATO Innovation Fund, told CNBC that this is thanks to “the scientific expertise of our talent base, our national commitment to treating this sector as an economic engine of growth and a manufacturing hub that enables the rapid expansion of breakthrough innovations.”
“Visible procurement route”
Venture capital into European defense startups has surged after members of the NATO military alliance agreed to increase security spending to 5% of gross domestic product, and defense ministries in London and Berlin have shown an increasing willingness to adopt new technologies built by younger companies in the market.
Investors encouraged by the promise of commercial deals have poured a record $4.3 billion into the sector since the start of 2022, according to Dealroom. This is almost four times the amount invested in the past four years.
German AI drone makers Hellsing and Quantum Systems reached valuations of €12 billion and €3 billion, respectively, this year after rounds worth hundreds of millions of euros. In the UK, PhysicsX, a manufacturing platform that works with defense companies, raised $155 million this year, and missile interception startup Cambridge Aerospace reportedly raised $100 million in August.
The UK government’s Strategic Defense Review in June announced a £5bn technology investment package, proposing increased spending on new technology and streamlining procurement processes.
“The system is becoming increasingly open to non-traditional primes, supported by increased investment in skills and technology,” Karl Belew, head of defense at Portuguese-British drone startup Tekever, told CNBC.
Tekever, which became a unicorn this year, announced a major contract to supply unmanned aircraft systems to the Royal Air Force in May. Hellsing has several contracts with the UK government, while US-based Anduril signed a £30m contract for attack drones in March.
Tekever’s AR3 EVO drone undergoes pre-flight checks before launch. Credit: Tekever
Germany has announced that defense spending will increase to more than 100 billion euros from 2026, a record since German reunification, and has also changed its procurement process to make it easier for startups to participate.
While most European governments are increasing defense spending, Germany stands out by having a “visible path from prototype to major procurement[for start-ups]that many other European markets don’t yet offer,” Megan Welch, managing director at financial advisory firm BGL, told CNBC.
Hellsing and attack drone startup Stark could both win contracts for kamikaze drones, the Financial Times reported in October. Hellsing and Stark declined to comment to CNBC about this.
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 technological talent to create the next-generation technologies that NATO urgently needs,” Philip Lockwood, Stark’s international managing director, told CNBC.
Founded in 2024, Stark develops 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 have developed their expertise in German industrial and technology sectors, where Germany has long been a leader in hardware, software, manufacturing and supply chain resilience,” Lockwood said.
Tekevers Brew said the UK’s extensive ecosystem was also a decisive factor in its attractiveness as a defense base. “We bring together world-class universities and research and development centers and a dense network of aerospace, software and advanced manufacturing suppliers,” he said.
launchpad
Another key driver for defense technology in the UK and Germany is that both countries serve as springboards for new markets and front-line training.
The UK has entered into a security and defense partnership known as AUKUS with Australia and the US from 2021, which lifts certain export controls and restrictions on technology sharing between the two countries.
“As part of AUKUS, expanding into the UK was a natural entry point into Europe,” Anduril UK managing director Rich Drake told CNBC.
Anduril signed contracts worth nearly £30m for attack drones earlier this year and also plans to open a new manufacturing and research and development facility in the UK.
Anduril British submarine observer. Credit: Anduril UK
“(AUKUS) will enable us to work with the MOD (Department of Defense) to align with operational needs and accelerate the deployment of key autonomous systems in situations where trust, shared priorities, and strategic coordination are as important as technology,” Drake said.
U.S. defense startups looking to sell into the European market also often choose London as a base for expansion across the region. Second Front Systems and Applied Intuition entered the country in 2023 and 2025, respectively.
Enrique Oti, chief strategy officer at Second Front Systems, said: “Given the history of the special relationship between the US and UK, the UK serves as an excellent springboard into other European markets.”
Dmitri Ponomarev, product manager at VanEck, added that the UK will also serve as a hub for European defense start-ups with global ambitions.
“In fact, the UK is becoming a test bed for interoperability and a politically acceptable landing zone for technologies that flow in both directions,” Ponomarev told CNBC.
“If we can get pilots with the British military, adhere to a joint UK-US security and export regime, and operate in English in accordance with UK industrial and legal standards, we look even better prepared for the US Prime Minister, the Department of War programs and AUKUS-related efforts.”
In 2025, some of Europe’s best-funded defense startups, including Hellsing, Quantum Systems and Stark, announced factories, offices or investments in the country.
Further east, Germany’s role as one of Ukraine’s biggest donors of military aid gives the country’s startups “a front-row seat to feedback on the battlefield,” Ponomarev said.
Quantum Systems is bringing its reconnaissance technology to Ukraine, and Hellsing announced in February that it would produce thousands of attack drones for the country.
Despite this progress, analysts, investors and startup executives all warn that more needs to be done to create the conditions for building global defense startups in the UK and Germany.
“Scaling up remains difficult without continued political and procurement reform,” Ponomarev told CNBC.
He added: “The UK continues to suffer from slow procurement cycles, customs bottlenecks and security-approved technical talent shortages.” Ponomarev added that Germany’s biggest obstacles are bureaucracy, strict export controls and heavy dependence on a single customer, the Armed Forces.
BLG’s Welch said the winners of Europe’s AI defense boom are “likely to be the companies that can navigate both the political economy and technological competition, including export rules, alliances, and public discourse, and position themselves as enablers of national sovereignty rather than its destroyers.”
