The defense industry - on the radar of some venture capital funds in our country

The managers of some venture capital funds in our country follow the defense industry to identify investment opportunities in start-ups in the sector or have made investments in technologies that, although not developed for military security purposes, can be used in this field.

• Cristian Munteanu, Early Game Ventures: "We are open to defense start-up investments"

Cristian Munteanu, Managing Partner of Early Game Ventures, says that Early Game is a generalist venture capital fund that, through its investment thesis, considers start-ups from most industries, including the defense industry.

"In the almost six years of investment activity, the number of start-ups in the military industry that applied for financing was extremely low. We have not seen an increase in the number of these start-ups recently, not even after the start of the war in Ukraine. Early Game remains open regarding the analysis of investment opportunities in defense start-ups," Cristian Munteanu told us.

At the beginning of May, the venture capital firm from Bucharest launched its second investment fund, worth a total of 60 million euros, with an exclusive focus on technology start-ups in fields such as cyber security or software for companies.

• Valentin Filip, Fortech Investments: "We believe that start-ups that develop such technologies present an advantage in terms of business opportunities"

Valentin Filip, managing partner of Fortech Investments, says that the fund's team does not specifically target the defense industry, but many of the start-ups in which Fortech invests have dual-use technologies that, although not developed for defense purposes/ security, can be used in this direction.

"We have also noticed this trend in the venture capital market, it is a direction that is becoming more and more popular and we believe that the start-ups that develop such technologies present an advantage in terms of business opportunities ", Valentin Filip told us.

Fortech Investments is an investment fund from Cluj with a focus on companies in early stages of development in energy, health, production, automotive and FinTech.

• Startups can fill some critical national security needs, according to McKinsey

American strategy and management consulting firm McKinsey & Company has identified three distinct waves of defense technology start-ups in the United States over the past 20 years, according to a report published at the end of February this year.

SpaceX and Palantir were important first-wave companies in the early 2000s, both developing technology for government channels other than the Department of Defense. The second wave, which lasted from 2010 to 2017, was represented by then-new companies such as Anduril Industries or ShieldAI - both of which now have unicorn status - that adapted certain technologies to defense applications. The third wave is now emerging and consists of a much larger ecosystem of start-ups and companies outside the traditional paradigm that are innovating, attracting significant venture capital funding and seeking means to scale, according to McKinsey.

In many cases, in Europe and the United States, these start-ups are well positioned to meet some critical national security needs, thus complementing traditional industrial structures that may not have sufficient capabilities to meet the requirements in a continuous change.

According to McKinsey, among the new technologies for which there is demand are those related to so-called "disparate capabilities", which refer, for example, to the division of military forces into networks of smaller nodes, which can reduce points of failure and increase the probability of missions success, connecting air, land, sea and space forces. There is also a need for effective communications networks to make these "disparate capabilities" work collectively in real time and facilitate instant responses and operational decisions.

However, all of this requires new technologies, for example command and control systems based on artificial intelligence, which connect air, land, sea and space systems. On the other hand, the McKinsey report highlights a series of obstacles that must be overcome so that the solutions provided can be easily used on a large scale in activities related to national security.