AI Defense Surge in the UK and Germany Amid a Wave of Emerging Companies

The United Kingdom and Germany are fast becoming the epicenters of a new wave of artificial‑intelligence‑driven defense startups, as Europe accelerates its rearmament in response to heightened geopolitical risk.

Private capital poured into defense‑tech firms across the continent has surged in recent years, spurred by expanding government military budgets that reflect the ongoing Russia‑Ukraine conflict and renewed strategic pressure from Washington.

Yet it is the ecosystems in the U.K. and Germany that are attracting the lion’s share of the biggest funding rounds, positioning both nations as launchpads for emerging market entrants and battlefield‑ready solutions.

David Ordonez, senior associate at the NATO Innovation Fund, attributes this momentum to “the scientific expertise of the talent pool, national policies that treat defense tech as an engine for economic growth, and a manufacturing base capable of scaling breakthrough innovations at speed.”

Venture capital for European defense startups has exploded as NATO members have pledged to raise defense spending to 5 % of gross domestic product. Both London and Berlin have signaled an openness to adopt new technologies from younger, more agile players.

According to data from Dealroom, investors have deployed a record $4.3 billion into the sector since the start of 2022—almost four times the amount invested over the preceding four years.

In Germany, AI‑driven drone firms Helsing and Quantum Systems have achieved valuations of €12 billion and €3 billion respectively after multi‑hundred‑million‑euro financing rounds. Across the Channel, manufacturing platform PhysicsX raised $155 million, while missile‑interception specialist Cambridge Aerospace secured a $100 million round in August.

The U.K. government’s Strategic Defence Review, released in June, outlined a £5 billion tech‑investment package and called for streamlined procurement processes that favour novel technologies.

“We see a system increasingly open to non‑traditional primes, backed by broader investment in skills and technology,” said Karl Brew, head of defense at Portuguese‑U.K. drone startup Tekever.

Tekever, which reached unicorn status this year, recently won a major contract to supply uncrewed aerial systems to the Royal Air Force. Helsing holds several U.K. government contracts, and U.S.‑based Anduril secured a £30 million deal for its attack drones in March.

Germany announced that its defense budget will exceed €100 billion from 2026 onward—a record since reunification—and has reformed procurement rules to make it easier for startups to participate.

“Germany offers visible pathways from prototype to major procurement that many other European markets still lack,” said Meghan Welch, managing director at financial‑advisory firm BGL.

Both Helsing and attack‑drone startup Stark are reportedly in contention for contracts to supply loitering munitions, according to industry sources.

Germany’s deep industrial heritage provides a robust talent pipeline and state‑of‑the‑art infrastructure that defense startups are leveraging.

“Germany has the industrial base, the infrastructure, and the technical talent needed to produce the next‑generation technologies NATO urgently requires,” said Philip Lockwood, international managing director of Stark.

Founded in 2024, Stark builds attack and reconnaissance drones and has attracted $100 million from investors including Sequoia Capital, Thiel Capital, and the NATO Innovation Fund.

“Many of Europe’s top engineers cut their teeth in Germany’s hardware, software, manufacturing, and supply‑chain sectors, which have long set global standards for resilience,” Lockwood added.

The U.K.’s broader ecosystem also bolsters its appeal. Tekever’s Brew noted that the country “brings together world‑class universities, R&D centres, and a dense network of aerospace, software, and advanced‑manufacturing suppliers.”

Both nations serve as strategic springboards into new markets and frontline training environments.

The U.K. is a key partner in the AUKUS security alliance with Australia and the United States, a framework that has relaxed certain export controls and facilitated technology sharing.

“AUKUS makes the UK a natural entry point into Europe,” said Rich Drake, managing director at Anduril UK. Anduril plans to open a new manufacturing and R&D facility in the country after securing nearly £30 million in contracts for its attack drones.

U.S. defense startups often choose London as a regional hub. Second Front Systems and Applied Intuition expanded to the U.K. in 2023 and 2025 respectively, citing the historic “special relationship” as a catalyst for rapid market penetration.

“The UK acts as an interoperability testbed and a politically acceptable landing zone for tech flowing in both directions,” explained Dmitrii Ponomarev, product manager at VanEck.

Success in a UK pilot, compliance with UK/US‑aligned security regimes, and adherence to English‑language and legal standards significantly improve a company’s prospects with U.S. primes and AUKUS‑related programs.

In 2025, leading European defense startups such as Helsing, Quantum Systems, and Stark announced new factories, offices, or strategic investments in the U.K.

Germany’s role as a major donor of military aid to Ukraine gives its startups real‑time battlefield feedback. Quantum Systems has deployed reconnaissance technology in Ukraine, while Helsing announced it will manufacture thousands of strike drones for the Ukrainian armed forces.

Despite the rapid progress, analysts warn that scaling global defense companies in the U.K. and Germany still faces hurdles.

“Scaling remains difficult without continued political and procurement reform,” said Ponomarev. “The UK still grapples with slow procurement cycles, clearance bottlenecks, and a shortage of security‑cleared technical talent.”

In Germany, bureaucracy, strict export controls, and an over‑reliance on a single customer—the national armed forces—pose the biggest challenges.

BLG’s Welch concluded that the winners of Europe’s AI defense boom will be those that can master both the political economy—navigating export rules, alliances, and public narratives—and the technology race, positioning themselves as enablers of national sovereignty rather than pure disruptors.