Defense startups eye Iran war windfall
This report is taken from this week’s newsletter The Tech Download. As you see? You can subscribe Here.
Defense technology, once considered a taboo sector into which venture capitalists poured money, has undergone significant change in the last few years.
It raised just $869 million globally in 2020, according to deal counting platform Dealroom; this figure has increased more than tenfold, reaching $11.2 billion in 2025.
A lot can change in five years.
Increasing geopolitical tensions around the world have led to efforts by states to modernize their militaries and increased commercial opportunities for new defense initiatives.
Russia’s war in Ukraine has given rise to a new kind of drone warfare. It has also provided a testing ground for new defense technology being developed by startups, and tech companies now have their eyes set on the opportunities presented by the conflict in the Middle East.
Last week, defense technology startups in the US and Europe told reporters at CNBC that they were seeing increased demand and were looking to strike commercial deals as a result of the conflict.
Frankenburg Mark I interceptor missile live fire test. Credit: Frankenburg.
increasing demand
The industry has been trying to compete with bonuses for a portion of the growing Pentagon budget for years, start-ups told CNBC, and the US campaign in the Middle East provides an opening.
Several defense tech startups interviewed by Subin for the story said demand from Defense Department customers has increased since the United States and Israel first struck Iran in late February.
Many of these customers are offering to buy capacity or asking companies to increase production, the businesses said.
In Europe, defense technology executives told me they have stepped up trade talks with Middle Eastern governments since the start of the war. Interest from Gulf states has “skyrocketed” as they seek to step up countermeasures against drone and missile attacks, another defense CEO said.
More than 3,000 drones and missiles have been fired at the United Arab Emirates, Saudi Arabia, Bahrain and Kuwait since the beginning of the conflict, according to data compiled by the think tank Center for Strategic and International Studies.
Meanwhile, the number of personnel of European-based defense companies in the Middle East is expected to increase. Estonian drone and missile interceptor Frankenburg Technology and Ukrainian-UK Uforce told me they are stepping up recruitment plans in the region as a result of the Iran war.
Challenges ahead
But obstacles remain.
Subin wrote that the U.S. government is not offering a steady enough flow of contracts to make scaling rational for some businesses trying to sell to the Department of Defense.
“This leaves defense technology companies divided on whether to increase capacity to win contracts and risk profitability, or to hold off and potentially miss opportunities,” he said.
In Europe, where startups are more capital constrained than their U.S. counterparts and therefore have fewer resources to play with, decisions will need to be made about whether to double down on the opportunity in the Middle East.
This risks drawing resources away from markets in Europe and the US to meet potential demand in the Gulf. Time will tell whether this is the right bet.
Latest updates
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OpenAI announces it has completed a record-breaking funding round Tuesday, postal Its valuation is $852 billion.
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French AI startup Mistral said on Monday it had raised $830 million in debt financing fund a data center Powered by thousands of Nvidia chips.
Shares of Chinese artificial intelligence company Zhipu increased After posting strong revenue growth on Wednesday First earnings report.
Chart of the week
Defense is not the socially awkward investment area it once was in VC, and megarounds continue to come into play.
This week, autonomous ship startup Saronic made an announcement. The $1.75 billion financing round and the previous week, drone company Shield AI announced that it had received a $2 billion raise.
