The idea is that a competitive ground-up approach can deliver innovations faster and more efficiently than a top-down system.

Yet there are risks. Private investors’ first priority is profit, which could be at odds with strategic and security goals.

There is the danger of bloating a military-industrial complex and worries about how advances in military technology could be used.

Entrepreneurs and their investors are driven, to varying degrees, by money and a sense of mission.

Globally, venture capital investment in defence-related companies leaped to US$31b ($53.5b) last year, a 33% increase from the previous year, according to McKinsey.

And investments in European defence start-ups were five times as large from 2021 to 2024 as they were in the previous three years.

The money is pushing the outermost boundaries of what’s possible: low-cost missile and drone interceptors; fighter jets and naval ships piloted by artificial intelligence; cockroaches with remote-controlled backpacks; and surveillance cameras to collect data in inaccessible locations.

Ukraine was the turning point

American start-ups like SpaceX and Palantir in the early 2000s were some of the first companies to take the Silicon Valley mindset and technology to military procurement.

Today, start-ups receive a tiny fraction of the monumental sums countries are devoting to defence. But Russia’s invasion of Ukraine in February 2022 turbocharged the trend, especially in Europe.

“Before, no European VC was interested in defence,” said Torsten Reil, a video gaming entrepreneur and co-founder of Helsing with Scherf and Niklas Kohler, an artificial intelligence engineer. Now a gold rush mentality has set in. “Everyone wants to invest in defence,” Reil said.

EuroAtlas was a decades-old German defence company when it was bought in 2021 by Mimir Group, a Swedish private equity firm.

The new owners were expecting a safe and steady business that sold power supply systems for submarines. Then the war in Ukraine “changed entirely the course of the company”, said Verineia Codrean, head of strategy and special projects at EuroAtlas.

Now the company is on a “new mission”, Codrean said. EuroAtlas created a division to develop autonomous underwater vehicles that can monitor vital cables on the ocean floor.

Anti-militaristic sentiment, strong in Europe, also began to shift after Russia’s invasion.

This year, United States President Donald Trump’s retreat from Europe prompted another surge of investment as governments in the region vowed a huge build-up.

Germany is leading the way with defence start-ups that include Helsing, ARX Robotics, and Swarm Biotactics, the developers of the experimental spy cockroaches.

War creates a battlefield laboratory

The new business model reflects a sea change in warfighting that may be as profound as the shift from horse cavalries to armoured tanks and aeroplanes in World War I.

Technologies like robotics, artificial intelligence and computer vision are widely accessible, mass producible and increasingly affordable. Now they are being militarised.

Software is constantly updated and can be compatible with a range of existing weaponry.

In May, for example, Helsing conducted a test flight that allowed its AI system, Centaur, to temporarily take control of a Saab Gripen E fighter jet above the Baltic Sea.

Autonomous weapons that do not need complex and costly safety features to protect human life are also cheaper and simpler.

A drone made of plywood and foam costs a few hundred dollars, but it can destroy a multimillion-dollar tank.

Ukraine, which has established a huge and cutting-edge drone industry, is functioning as a battlefield laboratory. Roughly 80% of targets there are destroyed by drones.

“You can have a couple million bucks of venture capital money that can fund the development of these smaller technologies,” said Eric Slesinger, a former CIA officer who established a defence venture capital firm.

Many military analysts agree that start-ups are more innovative.

The big legacy defence contractors “may still be appropriate for large systems”, said Cynthia Cook, a senior fellow at the Centre for Strategic and International Studies, “but their approach doesn’t allow for the rapid adoption of emerging tech”.

The military often spends years or decades developing the next generation of equipment like fighter jets and tanks. Development on the F-35 jet began in 1995. Lockheed Martin won the contract in 2001. Production started in 2006. One plane costs roughly US$80 million.

Defence start-ups are working from a different playbook. “We’re building a ship with our own dollars,” said Dino Mavrookas, a former member of the Navy Seals and co-founder of maritime defence firm Saronic Technologies in September 2022.

In April, Saronic bought a shipbuilding yard slated for closure in Franklin, Louisiana. Its 45.7m unmanned ship, Marauder, will hit the water in December, Mavrookas said.

During Trump’s state visit to London, the British Government announced that Saronic would spend up to US$50m to build a production facility in Portsmouth, England.

Cambridge Aerospace, a British start-up that makes missile and drone interceptors, was co-founded a year ago by Chris Sylvan, a former Marine. The company tested its first prototype in February and is ready to start production, he said.

At a military trade show in London this month, crowds gathered in the rain to watch small autonomous boats like Kraken Technology’s K3 Scout navigate twists and turns on the Thames River.

Mal Crease founded Kraken in 2020 when the Covid-19 pandemic shut down his powerboat racing business. His team later got an innovation grant from the Atlantic alliance. In August, Kraken started a joint venture with German shipbuilder NVL Group.

“We built a prototype in 10 weeks,” Crease said. Kraken already has two plants in Britain and is building a third in Hamburg, Germany. The company can produce a boat in two days, he said, and has contracts with Britain and the US.

K3 Scouts, which are 8 to 18m long, are all “plug-and-play”, equipment that can be used right out of the box, Crease said.

The boat’s design is modular so parts and payloads can be easily swapped – like popping a cassette in and out of a tape recorder – for a variety of missions from surveillance to search and rescue.

Each ship costs US$250,000, he said, a bargain-basement price in the world of military procurement.

AI will be in control

Helsing, with its enormous pot of cash, has expanded rapidly. In June it bought German aircraft manufacturer Grob.

Helsing works with a range of new and established companies to develop advanced software like artificial intelligence systems that can co-ordinate reconnaissance missions and conduct electronic warfare. It is also building equipment, mini-submarines and strike drones.

“You have to start developing these systems before the government starts paying for them,” said Reil, a co-founder.

Last week, Helsing announced it would manufacture its latest project, an 11m-long unmanned fighter jet, the CA-1 Europa, at a Grob facility in Tussenhausen, 88km east of Munich. It expects the plane to be conducting missions within four years.

In Munich, a programme director explained how Centaur, the AI system, was trained to control a jet fighter through repeated re-enactments in dogfights with human pilots.

In the darkened training centre, two experienced veterans sat at cockpit simulators and faced off against two aircraft controlled by Centaur.

Viewers followed the skirmish on a simple digital screen that depicted the jets. Human pilots were shown in green and Centaur’s in red. The planes swivelled and ducked, charging ahead and retreating in a complicated tango as they fired missiles.

Centaur, which can process 10 decisions a second and figure out the most fuel-efficient course of action, managed to down one green fighter jet. A couple of minutes later, it destroyed the second.

Founders at Helsing and several other defence start-ups said many investors joining the frenzy did not really understand what it took to succeed.

Just having the right tech is not enough. The number of firms with the know-how to navigate government procurement processes is limited, they agreed.

And the timeline for returns is also much longer than many venture capital firms are accustomed to.

“Selling to the government is hard,” said Sylvan of Cambridge Aerospace. “But it should be hard. That’s our taxpayer dollars, pounds and euros.”

This article originally appeared in The New York Times.

Written by: Patricia Cohen

Photographs by: Roderick Aichinger, Emli Bendixen

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