Private equity firms are pouring billions into defense technology as rising military spending and geopolitical tensions fuel an investment boom.
Traditional buyout investors are increasingly backing young, high-growth companies in the sector, with private equity growth investments in defense reaching $4 billion in the first nine months of 2026, up from $500 million in 2024, according to PitchBook data.
Analysts say that as defense technology companies mature, private equity, debt and other forms of financing are expected to become more important in bridging the gap between innovation and industrial-scale production, as venture capital alone may not be enough to fund a company’s expansion.
It comes as geopolitical tensions, wars and efforts by countries to build up their military capabilities are creating opportunities for companies developing everything from autonomous drones to missile defense systems and satellite technology.
A survey of 250 senior decision-makers at UK defense companies by law firm White & Case found that 97% expect their businesses to seek significant external funding over the next 12 months.
“Private capital now plays an important role in financing defense technology companies,” White & Case partner Daniel Turgel told CNBC.
Turgel said there is a big change from just a few years ago, with private equity and venture capital firms, sovereign wealth funds and family offices all looking to invest more in the space, adding that previously many investors were reluctant or limited in their investments.
A new class of investors
The increase in private equity investment in defense technology also comes amid a surge in venture capital investment in defense technology. NATO and allied startups have raised $27.1 billion through September, nearly double the total for all of 2025, according to an October report from Dealroom and Resilience Media.
Venture capital traditionally backs young, high-growth startups, while private equity focuses on more established businesses, but the distinction is becoming increasingly blurred as some PE firms move into growth investing.
“Private equity firms are putting more money into defense and changing the way they do it,” Jim Corridor, principal industry analyst at PitchBook, told CNBC.
The number of defense PE growth deals increased from 15 in 2024 to 31 in 2025 and 48 by September 2026, according to PitchBook.
These investments accounted for 41% of defense PE deal value in 2026, up from just 3% in 2024.
“It’s clear that PE is moving into areas that were once owned by VCs,” Corridor said.
Private equity firm Advent International announced in March that it would spend up to $1 billion on next-generation defense technologies, including investments in autonomous systems developers Shield AI and Saronic.
Shonelle Malani, Advent’s managing partner and global head of aerospace and defense, told CNBC that the company has already deployed about three-quarters of its efforts.
Malani said Advent’s expansion into young defense technology companies is a natural evolution of its existing investments in more mature defense businesses.
Marani said Advent backs companies it knows well, prioritizing proven technologies that address specific military needs and have been validated by customers, rather than focusing primarily on financial metrics.
bubble concerns
While the influx of private capital is accelerating innovation in defense technology, it is also fueling concerns about soaring valuations and speculative investment.
Malani said defense technology companies are increasingly focused on technological promise rather than revenue, profits and order books, leaving a lot of room for interpretation when it comes to a company’s value.
He added that a correction may be inevitable as some companies struggle to translate technological expectations into commercial success.
Asked if there was a possibility of an investment bubble, he added: “I think the risk is very large.”
“There’s a lot of bubbles in the system,” Malani said, adding that Advent has backed away from several potential investments because the valuations are “ridiculous.”
PitchBook’s Corridore pushed back against the idea that the sector is overheated, but expects investment interest to continue to grow.
“Budgets are expanding, the military is using up a lot of ammunition, and new drone and counter-drone technologies are emerging,” he said. “All of this provides investors with the stable returns that PE needs to make long-term bets.”
Other private equity investors are sticking more to traditional buyout strategies.
Lionel Mestre, a partner at French private equity firm Weinberg Capital Partners, told CNBC that the company remains focused on profitable defense businesses with established products, customers and positive cash flow, rather than early-stage startups.
He said that despite increased investor interest in the sector, the valuations of the smaller, more established defense suppliers that Weinberg targets have not increased significantly.
Mestre sees an opportunity to fund manufacturing expansion and consolidate Europe’s fragmented defense supply chain, and believes the rapidly evolving drone market is too immature for Weinberg’s traditional acquisition strategy.
The small defense companies Weinberg targets need investments in production capacity, employees, working capital and commercial operations to meet growing demand.
“This sector needs to consolidate anyway,” Mestre said, arguing that smaller suppliers need to scale up and become more competitive.
He also noted that European institutional investors’ attitudes toward defense have changed significantly, especially since President Donald Trump returned to the White House and put new pressure on European countries to increase military spending.
Can the boom be profitable?
Both Marani and Mestre see an opportunity for PE firms to help defense companies expand production, providing not only capital but also industry connections and access to government clients.
Malani said some startups are rushing towards an initial public offering before achieving the operational maturity needed to become a sustainable public company.
And despite increased investment activity, exit remains a potential challenge.
Since 2021, there have been 504 defense PE deals, but only 101 exits, according to PitchBook, but this comparison also includes add-on acquisitions, so it doesn’t directly measure the proportion of investments waiting for an exit.
IPOs account for 70% of defense PE exits through September 2026, exposing investors to changing stock market conditions.
