The UK and Germany are emerging as key hubs for a new wave of defense AI startups, as Europe strives to rearm itself amid growing geopolitical tensions.
Private financing of defense startups in the region has intensified in recent years as investors seek to tap the government’s growing military budgets, spurred by the ongoing war between Russia and Ukraine and pressure from the Trump administration.
But it is the ecosystems of the United Kingdom and Germany that see the most activity. The majority of the industry’s biggest fundraising rounds have gone to startups based in these two countries, with both becoming key launch pads to new markets and battlefield training.
David Ordonez, senior associate at the NATO Innovation Fund, told CNBC this was “due to the scientific expertise of their talent base, national commitments to treating this sector as an economic engine of growth and a manufacturing base that enables the rapid scale-up of disruptive innovations.”
“Visible Pathways to Supply”
Venture capital for European defense startups has increased following agreement from members of the NATO military alliance. increase security spending to 5% of gross domestic product, and defense ministries in London and Berlin have increasingly signaled a willingness to adopt new technologies developed by younger market players.
Investors, buoyed by the promise of trade deals, have pumped a record $4.3 billion into the sector since the start of 2022, according to Dealroom, nearly four times the funds deployed over the previous four years.
German AI drone makers Helsing and Quantum Systems have reached valuations of 12 and 3 billion euros respectively this year, after funding rounds worth several hundred million euros. In the UK, manufacturing platform PhysicsX, which 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 proposed increasing spending on new technologies and streamlining procurement processes, as well as unveiling a £5bn technology investment programme.
“We are seeing a system increasingly open to non-traditional incentives, supported by broader investment in skills and technology,” Karl Brew, head of defense at Luso-British drone startup Tekever, told CNBC.
Tekever, which became a unicorn this year, announced in May a major contract to supply unmanned aerial systems to the Royal Air Force. Helsing has several contracts with the British government and US company Anduril signed a £30 million deal in March for its attack drones.
Tekever’s AR3 EVO drone undergoes pre-flight checks before launch. Credit: Tekever
Germany announced that its defense spending would increase to more than 100 billion euros – a record figure since German reunification – from 2026, and also changed procurement processes to make it easier for startups to participate.
While most European governments have increased defense spending, Germany stands out with “visible pathways from prototype to major purchase (for startups) that many other European markets still don’t offer,” Meghan Welch, managing director at financial consulting firm BGL, told CNBC.
Helsing and attack drone startup Stark are both in the running to win a contract for kamikaze drones, the Financial Times reported in October. Helsing and Stark declined to comment on this topic to CNBC.
Legacy infrastructure
Germany’s industrial heritage has also created talent pools and infrastructure that startups tap into.
“Germany has the industrial base, infrastructure and technical talent to produce the next-generation technologies that NATO urgently needs,” Philip Lockwood, Stark’s international managing director, told CNBC.
Founded in 2024, Stark builds 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 developed their expertise in Germany’s industrial and technology sectors, which have long been leaders in hardware, software, manufacturing and supply chain resilience,” Lockwood said.
The UK’s wider ecosystem is also a deciding factor in its appeal as a defense base, Tekever’s Brew said. “It brings together world-class universities and R&D centers with a dense network of aerospace, software and advanced manufacturing suppliers,” he said.
Launch bars
Another key driver of defense technology in the UK and Germany is that both countries serve as stepping stones to new markets or frontline training.
The UK has had a security and defense partnership with Australia and the United States since 2021, known as AUKUS, which has lifted some export controls and restrictions on technology sharing between the countries.
“As part of AUKUS, setting up in the UK was a natural entry point into Europe,” Rich Drake, managing director of Anduril UK, told CNBC.
As well as signing contracts totaling almost £30m for its attack drones earlier this year, Anduril is also planning to open a new manufacturing and R&D facility in the UK.
Seabed Sentry from Anduril UK. Credit: Anduril United Kingdom
“(AUKUS) allows us to work with the MOD (Department of Defence), align on operational needs and accelerate the deployment of cutting-edge autonomous systems in a context where trust, shared priorities and strategic alignment matter as much as technology,” Drake said.
US defense startups looking to sell into European markets have also often chosen London as a base from which to expand into the region. Second Front Systems and Applied Intuition expanded into the country in 2023 and 2025, respectively.
“Given the history of special relations between the United States and the United Kingdom, the United Kingdom provides an excellent launch pad to the rest of the European market,” said Enrique Oti, director of strategy at Second Front Systems.
The UK can also serve as a base for European defense startups with global ambitions, added Dmitrii Ponomarev, product manager at VanEck.
“In practice, the UK is becoming an interoperability test bed and a politically acceptable landing zone for technology flowing both ways,” Ponomarev told CNBC.
“If you can win a pilot with British forces, comply with security and export regimes aligned with those of the United Kingdom and the United States, and operate in English with British industrial and legal standards, you appear much more prepared to respond to American priorities, War Department programs, and AUKUS-related efforts.”
In 2025, some of Europe’s best-funded defense startups, including Helsing, Quantum Systems and Stark, have announced factories, offices or investments in the country.
Further east, Germany’s role as one of the largest donors of military aid to Ukraine has given the country’s startups a “front-row seat for battlefield commentary,” Ponomarev said.
Quantum Systems has deployed its reconnaissance technology in Ukraine, and Helsing announced in February that it would produce thousands of attack drones for the country.
Despite the progress, analysts, investors and startup executives warn that there is still work to be done to create the conditions necessary for the creation of global defense startups in the UK and Germany.
“Scaling remains difficult without continued policy and procurement reform,” Ponomarev told CNBC.
“The UK continues to struggle with slow supply cycles, customs clearance bottlenecks and a shortage of approved technical security talent,” he added. Germany’s biggest obstacles are bureaucracy, strict export controls and heavy reliance on a single customer: the country’s armed forces, Ponomarev added.
BLG’s Welch said the winners of Europe’s AI defense boom “will likely be companies that can master both the political economy, including export rules, alliances and public narratives, and the technology race, positioning themselves as enablers of national sovereignty rather than disruptors of it.”