Ventura Capital - with an eye on military security business

Donald Trump's possible return to the White House has helped spur a wave of investment in defense technology startups across Europe, eight top industry investors and executives say, according to a Reuters story last week.

The move comes as the Republican candidate for the presidency of the United States has threatened to withdraw the US from NATO and stated that it will not defend allies that have not increased their defense budgets.

According to the Stockholm International Peace Research Institute, the uncertainty brought by Trump's candidacy, along with the war in Ukraine and tensions in the Middle East, caused global military spending to reach a record $2.4 trillion last year.

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 strengthening the continent's security. Also, at the beginning of this year, the European Union unveiled its first industrial defense strategy, allocating more than one billion dollars for innovation in the military field, the mentioned publication also writes.

• The NATO Innovation Fund is supported by 24 member countries, but the United States and Canada are not among the participants

Munich-based Vsquared Ventures, one of Europe's leading deep-tech investors, recently raised 214 million euros for investments in robotics, space and other technologies, according to Reuters.

"Trump's threats have made European states think very differently about investing in their own capabilities (n.r. defense) and awarding contracts, often to startups," said Herbert Mangesius, co-founder of Vsquared, an entity that concluded a partnership with the NATO Innovation Fund. "We want to see faster cycles, larger scale experiments and better capabilities. Planning in a ministry is very cumbersome, and the venture capital area is a potential answer to this problem," he added.

To date, the fund is supported by 24 NATO member countries, but among the other eight non-involved countries are the United States and Canada. "My ambition is that eventually all NATO allies join the fund," said Andrea Traversone, managing partner of the organization, in an interview with Reuters. According to data from the International Peace Research Institute in Stockholm, last year defense and security spending in Europe increased by 16% compared to 2022, up to 552 billion euros, the cited publication also mentions.

• The former commander of the Israeli Air Force: "What is happening in Ukraine should concern every country in the world"

Amikam Norkin, a former commander of the Israeli Air Force, is launching an investment fund focused on defense, aviation and space, according to an article in the Israeli publication CTech last week.

The fund, called ACE Capital Partners, will have Harel Insurance as its anchor investor and plans to attract new investors next year. The fund will be launched in partnership with a brigadier general who previously led the technological division of the Israeli Air Force and with the investment fund Key1 Capital, established by three entrepreneurs who worked at Goldman Sachs, the mentioned publication also writes.

In recent months, Norkin and his partners have met with numerous Israeli defense startups and are already on track to invest in some of them. Although the fund intends to invest in both Israeli and international companies, its main objective is to strengthen the Israeli aviation ecosystem, the publication said.

According to Ctech, Norkin had been planning to launch the fund for a long time, before the outbreak of the war in the Gaza Strip. "What is happening in Ukraine should concern every country in the world. The missile threat has been compounded by the addition of drones, UAVs, and cruise missiles. They pose a threat to the home front and strategic targets, and the technology is becoming more widespread and cheaper," Norkin said in May 2023.

According to the Israeli publication, the new fund is expected to focus on technologies related to drones and UAVs. In recent months, dozens of defense startups have been established in Israel, mainly by reservists who have brought ideas for technological developments, especially regarding drones and missiles, writes Ctech.

• TechCrunch: US defense venture capital funds are hiring military personnel

Venture capital funds that invest in defense technology startups are more recently looking to hire former military personnel or officials from the United States Department of Defense, according to an article published by TechCrunch early last month.

Ali Javaheri, emerging technology analyst at financial advisory and software firm PitchBook said: "Co-opting ex-servicemen can be a major advantage for firms as it gives them some understanding of real issues on the battlefield." According to a recent report by PitchBook, Silicon Valley funds had invested nearly $35 billion in defense technology startups last year, and more than $9 billion by early July of this year.

Although the pace of funding this year has slowed, Javaheri characterizes funding as "resilient" in the context of a generally more difficult fundraising environment, writes TechCrunch.