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Once considered a taboo field for venture capitalists to pour money into, defense technology has seen significant changes in recent years.
According to deal aggregation platform Dealroom, the company raised just $869 million globally in 2020, but this number increased more than tenfold to $11.2 billion in 2025.
Many things may change in five years.
Rising geopolitical tensions around the world are forcing countries to modernize their militaries and increasing commercial opportunities for new defense startups.
Russia’s war in Ukraine has sparked a new kind of drone warfare. It also provides a testbed for new defense technologies developed by startups, and technology companies are now eyeing the opportunities presented by the Middle East conflict.
Over the past week, defense technology startups in the United States and Europe told a CNBC reporter that they are seeing increased demand as a result of the conflict and are eyeing commercial deals.
Live test firing of Frankenburg Mark I interceptor missile. Credit: Frankenburg.
growing demand
The Iran war is “the moment defense technology and Silicon Valley have been waiting for,” my colleague Samantha Subin wrote last Saturday.
The field has been seeking to compete with Prime for a slice of the swelling Pentagon budget for years, but the U.S. campaign in the Middle East presents an opportunity, startups told CNBC.
Several defense technology startups Subin spoke to for this article said demand from Pentagon customers has increased since the United States and Israel first attacked Iran in late February.
Companies say many of these customers are offering to buy production capacity or asking companies to expand production.
In Europe, defense technology executives said they had stepped up commercial negotiations with Middle Eastern governments since the war began. Another defense chief executive said there was a “surge” in interest from Gulf states as they scrambled to strengthen their defenses against drone and missile attacks.
More than 3,000 drones and missiles have been launched toward the United Arab Emirates, Saudi Arabia, Bahrain and Kuwait since the conflict began, according to data compiled by the think tank Center for Strategic and International Studies.
Meanwhile, the number of employees in the Middle East for defense startups headquartered in Europe is expected to increase. Estonian drone and anti-missile startup Frankenburg Technology and Ukrainian-British joint venture UForce both told me they were ramping up hiring plans in the region in the wake of the Iran war.
Future challenges
But hurdles still remain.
The U.S. government is not providing a stable enough flow of contracts for some companies looking to sell to the Department of Defense to streamline scaling up, Subin wrote.
“This leaves defense technology companies divided on whether to win deals and risk profitability to increase production capacity, or postpone and potentially miss out on opportunities,” he said.
Start-ups are typically more capital-constrained than their U.S. counterparts, so in Europe, where they have fewer resources to draw on, they will have to decide whether to double down on opportunities in the Middle East.
Therefore, there is a risk that resources will be pulled from markets in Europe and the United States to meet potential demand in the Gulf region. Only time will tell if it’s the right bet.
Latest updates
Elon Musk’s SpaceX has secretly filed for an IPO with the Securities and Exchange Commission, sources told CNBC’s David Faber on Wednesday, moving the rocket company one step closer to what is expected to be a record-setting initial public offering.
OpenAI announced Tuesday that it has completed a record funding round at a post-money valuation of $852 billion.
oracle CNBC confirmed Tuesday that the software maker has begun telling employees it is cutting thousands of jobs as it grapples with a plunging stock price related to massive capital commitments to build AI infrastructure.
French AI startup Mistral announced Monday that it has secured $830 million in debt funding to finance a data center powered by thousands of Nvidia chips.
Chinese artificial intelligence company Zhipu’s stock price soared on Wednesday after posting a big revenue increase in its first earnings report.
This week’s chart
Defense is no longer the socially awkward investment field that VC used to be, and mega-rounds keep coming in.
This week, autonomous ship startup Saronic announced a $1.75 billion funding round, and the week before that, drone company Shield AI announced it had secured $2 billion in funding.
