Europe needs startups to defend democracy

FPV drones are revolutionising military operations. Credit: Origin Robotics

Imagine a robotic device autonomously scanning a battlefield for enemy positions, operated by personnel thousands of miles away. Or consider an uncrewed drone that carries its weapon to a target and autonomously returns to base, avoiding jamming and enemy interception.

These scenarios are not mere science fiction; they represent the near-future capabilities for modern military forces. In October 2024, Nato showcased these advancements in Latvia, testing 5G-enabled drones and low-Earth orbit satellites to maintain a strategic edge in the face of emerging threats.

For smaller European nations like Latvia, staying technologically ahead is critical to countering a formidable adversary like Russia. Immediately after the full-scale invasion of Ukraine, European leaders called for serious investment in defence capabilities. It was recognised that traditional approaches may no longer suffice.

Yet, Europe faces a critical challenge: while it commits to addressing the complex demands of modern warfare, it struggles to keep pace with other major global powers.

With ongoing war in Ukraine and the results of the US presidential election, European countries must prioritise a robust defence tech agenda.

“Resilience tech”, the idea that innovation can protect and help democracies to defend their values, must be at the heart of Europe’s strategy. This goes beyond traditional defence. It is about safeguarding democratic societies against a broad spectrum of modern threats. 

Warfare has evolved drastically in recent years, and nowhere is this clearer than in Ukraine. Drones have taken centre stage in the conflict.

Cheap FPV (first-person view) attack drones prove to be effective in offsetting artillery shortages. Loitering munitions, or “suicide drones”, hover over mission areas and strike by crashing into selected targets. They represent a new era of cost-effective warfare where off-the-shelf components and relatively simple software allow even smaller nations to wield advanced military power.

Ukraine’s extensive use of these drones underscores the critical role of affordable, autonomous technologies in levelling the battlefield. And the high-tech capabilities of large-scale drone fleets bring valuable lessons for Europe’s defence future. 

Driven by necessity and accelerated investment, Ukrainian forces have demonstrated how AI-powered drones can also enhance decision-making, targeting, and autonomy, even in environments where jamming would normally disrupt communications.

Aided by computer vision algorithms and AI models, these drones can autonomously lock onto targets and execute the terminal flight phase, demonstrating a level of combat capability previously thought achievable only with high-end weapon systems.

Traditional military systems remain mostly too expensive. These cheaper drones are widely available for just thousands of dollars, making them accessible even to smaller countries. This contrasts sharply with the development model used in Europe, which tends to prioritise “gold-plating” or overengineering, leading to drawn-out procurement processes and delayed deployments.

The rapid advancements in Ukraine make it clear that to remain competitive, Europe must transform how it approaches military procurement, placing speed and adaptability above perfection. 

While the United States, China, and Russia accelerate their military technology initiatives, Europe has struggled to keep pace. The Pentagon’s Replicator Initiative, for example, aims to deploy thousands of autonomous drones within the next year, funded with a budget of $1bn by 2025.

Simultaneously, the US Department of Defense has earmarked billions of dollars for AI projects such as Project Maven, which focuses on target recognition and surveillance. The US Air Force plans to allocate $6bn over the next five years to develop a fleet of 1,000 AI-enabled fighter jets. 

In Europe, investments are increasing, but not nearly at the scale needed to compete globally. The UK’s Ministry of Defence has committed 5% of its annual budget, or £2.7bn, to research and development, while the European Defence Fund (EDF) has allocated €8bn from 2021 to 2027. Yet, the bulk of EDF’s grants go to major players like France’s Thales, Italy’s Leonardo, and the European consortium Airbus.

Despite these investments, Europe is not where it needs to be to guarantee its defence independence. The European Defence Agency (EDA) was established to help EU countries strengthen their military capabilities and foster joint procurement. However, the EDA’s impact has been limited, as Europe continues to rely heavily on foreign suppliers.

Today, around 80% of EU defence procurement comes from non-EU contractors, including over 60% from the United States. The European Commission aims to reverse this trend, setting a goal for half of national defence budgets to go to local companies by 2030. Meeting this target, however, will require a radical shift in Europe’s approach to defence procurement. 

To keep up with the pace of modern warfare, Europe needs a new approach to defence technology. Traditional procurement focuses on creating “perfect” technologies, which can take years to develop, test, and deploy. This approach often leads to inflated budgets and significant delays. In contrast, “spiral development” is an iterative process where technologies are deployed, tested, and refined on the field. It offers a way for Europe to respond to threats more effectively.

In Ukraine, the speed with which drones have been adapted and redeployed has proven that battlefield realities demand flexibility. Under a spiral development model, Europe could deploy technologies earlier, make incremental improvements, and adapt to emerging threats faster than through traditional procurement processes.  

In adopting this model, Europe would benefit from closer collaboration between governments, defence primes, and innovative startups. Nato’s Innovation Fund and accelerator programme, DIANA, which focus on dual-use technologies that serve both civilian and military needs, represent a promising shift towards this agile development approach.

However, Europe’s institutional hesitancy remains an obstacle, and Nato must work to reduce bureaucratic barriers that hinder innovation.

Historically, the European defence sector has been dominated by large, legacy contractors – so-called primes. Yet, recent advancements underscore the importance of startups in the sector. Companies like Germany’s Helsing (a company now valued at $5.4bn after raising nearly $500m for its AI-powered defence software) demonstrate the value of smaller, flexible companies.

If we want to keep pace with the rapid development cycles of AI, autonomous systems, and other emerging technologies, procurement processes must be reformed to welcome the tech-driven innovation of startups.

Private VC funding remains weak for defence tech companies, particularly those focused on military applications. This makes it even more crucial for the Nato Innovation Fund to step in and address this critical gap.  

In other sectors, this is precisely what you would expect from such a vehicle: stepping in where the commercial sector is either ineffective or unable to operate effectively. The €1bn fund has announced investments across AI, space tech, and robotics, and it's definitely a big step forward.

However, this institution has avoided funding startups openly focused on lethal technologies, and this is exactly an area where Europe’s defence capabilities urgently need advancement. By overlooking such opportunities, the fund risks missing out on innovative defence solutions critical to maintaining Europe’s strategic edge. Opening the door to smaller, more innovative companies, can unlock a wealth of ideas and solutions that large primes may not be equipped to provide.

We indeed can build a defence ecosystem that is agile, responsive, and future proof. To achieve that, governments, industry leaders, and Nato must collaborate with urgency, funding innovative startups, adopting agile development methods, and breaking down bureaucratic barriers that slow progress.

Only through a dynamic, technology-driven strategy can Europe build a robust defence network capable of adapting to tomorrow’s challenges. We cannot afford to be left behind.

Australia could be one of the main beneficiaries of this dramatic increase in demand, where private companies and local governments alike are eager to expand the country’s nascent rare earths production. In 2021, Australia produced the fourth-most rare earths in the world. It’s total annual production of 19,958 tonnes remains significantly less than the mammoth 152,407 tonnes produced by China, but a dramatic improvement over the 1,995 tonnes produced domestically in 2011.

The dominance of China in the rare earths space has also encouraged other countries, notably the US, to look further afield for rare earth deposits to diversify their supply of the increasingly vital minerals. With the US eager to ringfence rare earth production within its allies as part of the Inflation Reduction Act, including potentially allowing the Department of Defense to invest in Australian rare earths, there could be an unexpected windfall for Australian rare earths producers.