Trump’s concern spurs investment in European defense startups

Republican Party presidential candidate and former U.S. President Donald Trump takes the stage to address the crowd during an event in Asheboro, North Carolina, at the North Carolina Air Museum and Hall of Fame. (AFP)

Donald Trump’s potential return to the White House has fuelled a wave of investment in defence technology start-ups across Europe, according to eight prominent defence industry executives and investors.

The Republican presidential candidate has threatened to pull the U.S. out of NATO and said he will not defend allies that have not increased their defense budgets. He is in a close race with Vice President Kamala Harris in the Nov. 5 election.

Trump’s unpredictability, combined with the war in Ukraine and tensions in the Middle East, has helped push global military spending to a record $2.4 trillion in 2023, according to the Stockholm International Peace Research Institute (SIPRI).

In June, the $1.1 billion NATO Innovation Fund (NIF) announced partnerships with defense venture capital firms and startups across Europe to strengthen security on the continent.

Meanwhile, the European Union earlier this year unveiled its first-ever defence industrial strategy, committing more than $1 billion to military innovation.

The prospect of a Trump presidency was not the only factor behind these initiatives, eight executives said, but it was also a significant driver of subsequent investments by governments and venture capitalists in makers of drones, robotics and quantum computers.

Munich-based Vsquared Ventures is one of Europe’s leading high-tech investors, having recently raised €214 million ($237.99 million) in funding to invest in space, robotics and other technologies.

“Trump’s threats have made European countries think completely differently about investing in their own capabilities and awarding contracts, often to start-ups,” said Herbert Mangesius, founding partner at Vsquared, a company that has partnered with the NATO fund.

“We want to see faster cycles, broader experiments and better opportunities. Planning in the ministry is so slow and the VC world is one potential answer to that problem,” he added.

Vsquared’s portfolio includes IQM, one of Europe’s leading quantum computing companies, and Isar Aerospace, a rocket manufacturer that has raised over €400 million in private capital.

Currently, the NIF is supported by 24 NATO countries, with eight other countries — including Canada and the United States — not involved. “My ambition is to eventually have all NATO allies join the fund,” Andrea Traversone, managing partner of the organization, told Reuters.

Asked whether Trump’s potential return would affect NIF operations, he said: “I don’t think it matters to our mission. It matters to anyone who is interested in our mission to protect the citizens of our allied partners.”

Structural change

While Russia’s invasion of Ukraine was a major reason for the higher spending, some defense investors say Trump’s approach to U.S. allies has shaken leaders at NATO and across Europe, prompting governments to boost defense spending and invest in and partner with new technology companies.

Ricardo Mendes, CEO of Lisbon-based drone maker Tekever, which has contracts with Britain, Ukraine, the EU and others, said: “A second Trump presidency means different things for American and European arms companies. There is a structural change happening in the arms sector.”

“We have become very dependent on the United States,” he added. “I talk to a lot of people in the defense sector and I hear that it is very important for European countries to be more self-sufficient. I don’t necessarily like it, but that’s the way it is.”

According to SIPRI data, in 2023 defence and security spending in Europe increased by 16% to €552 billion.

ARX ​​​​Robotics, a German startup that recently raised €9 million in funding from NIF, builds autonomous robots that can be used on the battlefield.

Asked whether a potential Trump victory in November had an impact on defense investment, CEO Stefan Roebel said: “Of course. It’s something that’s on everyone’s mind. Europe needs to increase defense investment, and now you see a change in dynamics.”

Resistance

Globally, VC funding faced a major decline in 2023 as investors waited to see how their pandemic-era ventures would fare against a backdrop of rising interest rates and public market volatility. In Europe, overall startup investment fell 44%, from $103 billion to just $57 billion, according to Pitchbook.

By comparison, investment in local defense tech startups remained relatively resilient, falling 21% over the same period – from $2.6 billion to about $2 billion.

Germany is easing the red tape associated with investing in arms companies, Finance Minister Christian Lindner told Reuters in February, while Berlin is increasing military spending.

Mangesius cited Quantum Systems, a German drone manufacturer that recently signed deals with its government, as a company that has directly benefited from Germany’s planned comeback.

“It was a direct consequence of what Trump said. It made the German state react and invest money in it, because European countries have to be self-sufficient,” he said. “You can’t outsource your security to another country.”

Bulent Altan, founding partner of Alpine Space Ventures, also based in Munich, told Reuters that Europe is investing in defense technology to become a better partner to the United States.

He said: “And if there are any problems during this partnership, you are not standing there with nothing in your hand.” — Reuters