AI defense boom in UK and Germany as new wave of companies emerge
As Europe seeks to rearm amid rising geopolitical tensions, Britain and Germany are emerging as key hubs for a new wave of AI defense initiatives.
Private funding for defense initiatives in the region has surged in recent years as investors seek to take advantage of government military budgets that have ballooned under pressure from the ongoing Russia-Ukraine war and the Trump administration.
However, ecosystems in England and Germany see the most activity. The majority of the largest tours in the industry have occurred for startups based in these two countries, and both have emerged as important launch pads for new markets and battlefield training.
David Ordonez, senior partner at the NATO Innovation Fund, told CNBC that this is “thanks to the scientific expertise of their talent base, national commitments to treat this sector as an economic engine for growth and a production base that enables the rapid scaling of breakthrough innovation.”
‘Visible ways to buy’
Venture capital for European defense startups boosts as NATO military alliance members reach agreement To increase security spending to 5% of gross domestic product and defense departments in London and Berlin are increasingly signaling a willingness to adopt new technologies developed by younger players in the market.
Buoyed by the promise of trade deals, investors have poured a record $4.3 billion into the sector since the beginning of 2022, according to Dealroom; This is almost four times the funds used in the previous four years.
Germany’s AI drone makers Helsing and Quantum Systems reached valuations of 12 and 3 billion euros respectively this year, following rounds worth hundreds of millions of euros. U.K. manufacturing platform PhysicsX, which works with defense companies, raised $155 million this year, and missile interceptor startup Cambridge Aerospace reportedly raised $100 million in August.
The UK government’s Strategic Defense Review in June recommended increasing spending on new technology and streamlining procurement processes, as well as announcing a £5 billion technology investment package.
“We see a system increasingly open to non-traditional bonuses, supported by broader investment in skills and technology,” Karl Brew, head of defense at Portuguese-UK drone startup Tekever, told CNBC.
Tekever, which has become a unicorn this year, announced in May that it signed a major contract for the supply of unmanned aerial systems to the Royal Air Force. Helsing has several contracts with the UK government and US-based Anduril signed a £30m contract for attack drones in March.
Tekever’s AR3 EVO drone undergoes pre-flight checks before being launched. Credit: Tekever
Germany has announced that defense spending will rise to 100 billion euros from 2026 (a record figure since German reunification) and has also changed its procurement processes to make it easier for startups to participate.
While most European governments are increasing defense spending, Germany stands out as having “visible paths from prototype to major acquisitions” [for startups] Many other European markets still fail to deliver, Meghan Welch, managing director of financial advisory firm BGL, told CNBC.
Helsing and attack drone startup Stark are poised to win a contract for kamikaze drones, the Financial Times reported in October. Helsing and Stark declined to comment to CNBC.
old infrastructure
Germany’s industrial heritage has also created the talent pipelines and infrastructure that startups benefit from.
“Germany has the industrial base, infrastructure and technical capability to produce the next generation technologies that NATO urgently needs,” Philip Lockwood, Stark’s international general manager, told CNBC.
Founded in 2024, Stark produces 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 have developed their expertise in Germany’s industrial and technological sectors, which have long been pioneers in hardware, software, manufacturing and supply chain flexibility,” Lockwood said. he said.
Tekever’s Brew said the UK’s wider ecosystem was also a determining factor in its appeal as a defense base. “It brings together world-class universities and R&D centers with a dense network of aerospace, software and advanced manufacturing suppliers,” he said.
launch pads
Another key driver of defense technology in the UK and Germany is that both countries act as launchpads into new markets or front-line training.
The UK has had a security and defense partnership with Australia and the US since 2021, known as AUKUS, which removes certain export controls and restrictions on technology sharing between the countries.
“Moving into the UK as part of AUKUS was a natural entry point into Europe,” Anduril UK managing director Rich Drake told CNBC.
As well as signing contracts totaling £30 million for attack drones earlier this year, Anduril also has plans to open a new manufacturing and R&D facility in the UK.
Anduril is the UK’s Seabed Sentinel. Credit: Anduril UK
“[AUKUS] It allows us to work with MOD [Ministry of Defence]Adapt to operational needs and accelerate the deployment of leading autonomous systems in a context where trust, shared priorities and strategic alignment are as important as technology,” Drake said.
US defense startups looking to sell into European markets also often choose London as a base to expand across the region. Second Front Systems and Applied Intuition rolled out to the country in 2023 and 2025 respectively.
“Given the history of the special relationship between the United States and the United Kingdom, the United Kingdom serves as an excellent launching pad for entry into the rest of the European market,” said Enrique Oti, chief strategy officer at Second Front Systems.
VanEck product manager Dmitrii Ponomarev added that the UK could also act as a base for European defense initiatives with global ambitions.
“In practice, the UK is becoming an interoperability testing ground and a politically acceptable landing zone for technology flows in both directions,” Ponomarev told CNBC.
“If you can win a pilot with UK forces, comply with UK/US compatible security and export regimes, and operate in English with UK industrial and legal standards, you look much more prepared for US primes, War Office programs and AUKUS-related efforts.”
In 2025, some of Europe’s best-funded defense startups, such as 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 gives the country’s new initiatives a “front row seat to battlefield feedback,” Ponomarev said.
Quantum Systems has deployed its reconnaissance technology in Ukraine, and Helsing announced in February that it would produce thousands of attack aircraft for the country.
Despite the progress, analysts, investors and start-up executives remain cautious that more work needs to be done to create the conditions for establishing global defense start-ups in the UK and Germany.
“Scaling remains difficult without ongoing political and procurement reform,” Ponomarev told CNBC.
“The UK still struggles with slow procurement cycles, clearance bottlenecks and a lack of security-certified technical talent,” he added. Ponomarev added that Germany’s biggest obstacles are bureaucracy, strict export controls and over-reliance on a single customer: the country’s armed forces.
BLG’s Welch said the winners of Europe’s AI defense boom “are likely to be companies that can master both the political economy and the technology race, including export rules, alliances and public narratives, and position themselves as enablers of national sovereignty rather than disruptors of it.”
