AI defense boom in UK and Germany as new wave of companies emerge
2025-12-11 06:00:01
The UK and Germany are emerging as major hubs for a new wave of AI defense startups, as Europe seeks to rearm amid escalating geopolitical tensions.
Private funding for defense startups has surged across the region in recent years, as investors look to cash in on growing government military budgets, driven by the ongoing war between Russia and Ukraine and pressure from the Trump administration.
But it is the ecosystems in the UK and Germany that are seeing the most activity. The majority of major rounds in this sector have been to startups based in these two countries, as both have emerged as major launching pads into new markets and training on the battlefield.
This is “thanks to the scientific expertise of their talent base, and national commitments to treating this sector as an economic engine of growth and an industrial base that enables the rapid expansion of breakthrough innovations,” David Ordonez, senior associate at the NATO Innovation Fund, told CNBC.
“Visual paths to purchases”
Venture capital for European defense startups has soared after members of the NATO military alliance gave their nod Increase security spending to 5% of GDP, and the defense ministries in London and Berlin have increasingly indicated their willingness to adopt new technology made by younger players in the market.
Investors, buoyed by the promise of trade deals, have transferred a record $4.3 billion into the sector since the start of 2022, according to Dealroom — nearly four times the money deployed in the past four years.
German AI drone makers Helsing and Quantum Systems achieved valuations of €12 billion and €3 billion this year, respectively, after rounds worth hundreds of millions of euros. In the UK, manufacturing platform PhysicsX, which works with defense companies, raised $155 million this year, and missile interceptor startup Cambridge Aerospace reportedly raised $100 million in August.
The UK government’s Strategic Defense Review in June proposed increasing spending on new technology and simplifying procurement processes, as well as unveiling a £5 billion technology investment package.
“We see an increasingly open system for non-traditional primes, supported by broader investment in skills and technology,” Carl Bro, head of defense at Portuguese-British drone startup Tekever, told CNBC.
Tekever, which has become a unicorn this year, announced a major contract to supply unmanned aerial systems to the Royal Air Force in May. Helsing has several contracts with the UK government, and US-based Anduril signed a £30 million contract for its attack drones in March.
Tekever’s AR3 EVO drone undergoes pre-flight checks before launch. Credit: Tekver
Germany It announced that its defense spending would increase to more than €100 billion – a record since German reunification – from 2026, and procurement processes have also been changed to make it easier for startups to participate.
While most European governments have increased defense spending, Germany stands out as having “clear paths from prototypes to major procurement.” [for startups] Many other European markets still don’t offer it, Megan Welsh, managing director of financial advisory firm BGL, told CNBC.
The Financial Times reported in October that attack drone startups Helsing and Stark were on the verge of winning a contract for suicide drones. Helsing and Stark declined to comment to CNBC on the matter.
Old infrastructure
Germany’s industrial heritage has also created talent pipelines and infrastructure from which startups benefit.
“Germany has the industrial base, infrastructure and technical talent to produce the next-generation technologies that NATO urgently needs,” Philip Lockwood, Stark’s international managing director, told CNBC.
Founded in 2024, Stark builds attack and reconnaissance drones and has raised $100 million from investors, including Sequoia Capital, Peter Thiel’s Thiel Capital, and the NATO Innovation Fund.
“Many of Europe’s best engineers have developed their expertise in the industrial and technology sectors in Germany, which has long been a leader in hardware, software, manufacturing and supply chain resilience,” Lockwood said.
The UK’s wider ecosystem is also a crucial factor in its attractiveness as a defense base, Tekever’s Brew said. “It brings together world-class universities and research and development centers with a dense network of aerospace, software and advanced manufacturing suppliers,” he said.
Launch pads
Another key driver of defense technology in the UK and Germany is that both countries act as launching pads into new markets or front-line training.
The UK has had a security and defense partnership with Australia and the US since 2021, known as AUKUS, which has lifted some export controls and restrictions on technology sharing between the countries.
“As part of AUKUS, moving to the UK was a natural entry point into Europe,” Rich Drake, managing director of Anduril UK, told CNBC.
As well as signing contracts totaling around £30 million for its attack drones earlier this year, Anduril is also planning to open a new manufacturing and R&D facility in the UK.
Anduril UK’s Seabed Sentry. Credit: Anduril UK
“[AUKUS] It allows us to work with the Department of Defense [Ministry of Defence]“These systems align with operational needs and accelerate the deployment of leading autonomous systems in a context where trust, shared priorities and strategic alignment are as important as technology,” Drake said.
American defense startups looking to sell into European markets have often chosen London as a base for expansion across the region. The Second Front and Applied Intuition systems expanded in the country in 2023 and 2025 respectively.
“Given the history of the special relationship between the US and the UK, the UK is an excellent launching pad into the rest of the European market,” said Enrique Otte, chief strategy officer at Second Front Systems.
The UK can also serve as a base for European defense startups with global ambitions, added Dmitry Ponomarev, Product Director at VanEck.
“In practice, the UK has become a testbed for interoperability and a politically acceptable landing zone for technology that flows in both directions,” Ponomarev told CNBC.
“If you can win a pilot with British forces, comply with UK-US Allied security and export regulations, and operate in English to British industrial and legal standards, you appear more prepared to handle US initial programs, War Department programs, and AUKUS-related efforts.”
In 2025, some of Europe’s best-funded defense startups, including Helsing, Quantum Systems and Stark, have announced the establishment of factories, offices or investments in the country.
Further east, Germany’s role as one of Ukraine’s largest military aid donors has given the country’s startups “a front-row seat to feedback on the battlefield,” Ponomarev said.
Quantum Systems has deployed its reconnaissance technology in Ukraine, and Helsing announced in February that it would produce thousands of attack drones for the country.
Despite the progress, analysts, investors and startup executives warn that there is still more work to be done to create the conditions for building global defense startups in the UK and Germany.
“Expansion remains difficult without continued political reform and procurement,” Ponomarev told CNBC.
He added, “The United Kingdom continues to suffer from slow procurement cycles, clearance bottlenecks, and a shortage of security-certified technical talent.” Ponomarev added that the biggest obstacles facing Germany are bureaucracy, strict export controls, and heavy reliance on one customer, the country’s armed forces.
The winners of Europe’s AI defense boom “are likely to be companies that can master the political economy, including export rules, alliances, public narratives, and technology racing, positioning themselves as enablers of national sovereignty rather than disabling it,” BLG’s Welch said.
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