Donald Trump’s potential White House response has helped boost investment in defense technology startups across Europe, according to eight prominent industry executives and investors.
The Republican presidential candidate has threatened to withdraw the US from NATO and said he will not defend an ally that does not increase its defense budget. He is locked in a tight race with Vice President Kamala Harris in the Nov. 5 election.
Mr Trump’s unpredictability, combined with the war in Ukraine and tensions in the Middle East, have contributed to global military spending reaching a record $2.4 trillion by 2023, according to the Stockholm International Peace Research Institute.
In June, the $1.1 billion NATO Innovation Fund (NIF) announced partnerships with venture capital firms and defense startups across Europe, with the aim of improving security on the continent.
Meanwhile, the European Union earlier this year unveiled its first defense industrial strategy, committing more than $1 billion to military innovation.
While the prospect of Trump’s presidency is not the only factor in the initiative, it is an important driver for the next investment made by the government and venture capitalists in drone manufacturers, robotics and quantum computing, the eight executives said.
Operating out of Munich, Vsquared Ventures is one of Europe’s deep tech investors, having recently raised 214 million euros ($237.99 million) to invest in space, robotics, and other technologies.
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“Mr. Trump’s threats have made European countries think very differently about investing in their own capabilities and awarding contracts, often to startups,” said Herbert Mangesius, founding partner of Vsquared, which has collaborated with NATO funds.
“We want to see faster cycles, more experiments, and better capabilities. Planning in a ministry is very slow, and the VC world is one of the potential answers to this problem,” he said.
Structural changes
While Russia’s invasion of Ukraine was the main reason for higher spending, some defense industry investors said Mr Trump’s approach to US allies had shaken leaders in NATO and across Europe. This has led the government to increase defense spending, invest in, and partner with new technology companies.
Ricardo Mendes, CEO of Lisbon-based drone maker Tekever, which has contracts with the UK, Ukraine, the EU and others, said: “The potential for a second term for President Trump brings various implications for American and European defense companies.”
“Discussions are still ongoing on the improvement of the procurement procedure, with a focus on being more flexible and introducing agility, which will favor smaller and medium-sized technology companies,” he said. In 2023, defense and security spending across Europe will increase by 16% to 552 billion euros from 2022, according to data compiled by SIPRI.
ARX Robotics, a German startup that recently raised a funding round of 9 million euros supported by NIF, is building autonomous robots that can be deployed on the battlefield. Asked if the potential for Trump’s victory in November affects defense investment, CEO Stefan Roebel said: “Absolutely. That’s all in the back of his head. Europe needs to increase investment in defense, and you see a change in momentum.
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Endurance
Globally, VC funding is experiencing a major downturn in 2023 as investors wait to see how pandemic-era ventures will fare against a backdrop of rising interest rates and general market volatility. In Europe, overall startup investment fell 44%, from $103 billion to just $57 billion, according to Pitchbook data. By comparison, investment in local defense technology startups remained relatively resilient, falling 21% over the same period, from $2.6 billion to $2 billion.
Germany is shedding red tape for investment in defense companies, Finance Minister Christian Lindner told Reuters in February, as Berlin ramps up military spending.
Mangesius noted Quantum Systems, a German drone maker that recently signed a deal with its home government, as a company that directly benefits from Germany’s plan to get back at Trump.
“This is a direct consequence of what Trump said. That made the German state react and give money because European countries should be independent,” he said. “You can’t outsource your own security to other countries.”
Bulent Altan, founding partner at Alpine Space Ventures, also based in Munich, told Reuters that Europe had invested in defense technology to become a better partner for the US. , you are not standing there with nothing in your hands.