Key facts
- Investment in defense tech startups has reached a record $4.1 billion this year.
- 42 defense mergers and acquisitions were completed globally in the first half of 2026, a 56% increase year-over-year.
- Major defense companies like Lockheed Martin, BAE Systems, and Airbus are significantly increasing their venture capital investments and funding rounds.
- Demand is strong for companies developing AI, cybersecurity, and autonomous systems within the defense sector.
- Higher defense budgets and record private capital are expected to sustain investment and dealmaking.
Investment in defense technology startups has surged to a record high this year, fueled by increased spending from major arms manufacturers seeking to bolster their technological capabilities. Dealroom data reveals that defense contractors, including BAE Systems, Lockheed Martin, and Airbus, have participated in $4.1 billion of venture capital funding rounds, marking the highest figure on record.
Further underscoring the sector's growth, White & Case research identified 42 completed defense mergers and acquisitions globally in the first half of 2026, a significant 56% increase compared to the same period last year. Daniel Turgel, co-head of White & Case’s Global Technology Industry Group, noted the intense demand for companies specializing in AI, cybersecurity, and autonomous systems, which are seen as critical for modern conflict.
"The world’s largest defence companies are seeking to strengthen their technology portfolios through acquisitions and large funding rounds," Turgel stated, attributing the trend to higher defense budgets and substantial private capital availability. He anticipates that investment and dealmaking will remain robust beyond 2026.
Recent large investments highlight this trend. Lockheed Martin recently committed at least $100 million to UK and European defense tech startups, expanding its venture fund to $1 billion. BAE Systems has invested €50 million in European defense-focused venture funds, while Airbus has anchored a new €500 million fund for dual-use technologies. Notable funding rounds include German drone maker Quantum Systems raising $1.2 billion at an $8 billion valuation, and UK firm Kraken Technology securing $175 million at a $1 billion valuation with backing from Rheinmetall.
In the UK, the government is also actively supporting the sector. Ministers awarded £708 million to BAE Systems and its partners for the Future Combat Air System program, which involves AI, robotics, and digital engineering. Initiatives like the Technology and Growth Alliance aim to foster defense technology spinouts from military research. The appointment of John Healey as Chancellor, with a mandate to prioritize higher defense spending, further signals the UK's commitment.
Axel Belorde, head of business development for EMEA and Asia at TMX VettaFi, observed that investors are increasingly looking beyond traditional hardware to software, cybersecurity, and autonomous systems, emphasizing the importance of data in warfare. He also noted that many defense technologies have dual civilian applications, broadening the investment landscape.