The U.K. and Germany are emerging as key hubs for a new wave of AI defense startups, as Europe scrambles to rearm amid rising geopolitical tensions.
Private funding for defense startups across the region has ramped up in recent years, with investors looking to tap into increasing government military budgets, driven by the ongoing Russia-Ukraine war and pressure from the Trump administration.
But it’s ecosystems in the U.K. and Germany that are seeing the most activity. The majority of the biggest rounds across the sector have been for startups based in those two countries, with both emerging as key launchpads into new markets and battlefield training.
David Ordonez, senior associate at NATO Innovation Fund, told CNBC that this was “thanks to the scientific expertise of their talent base, national commitments to treat this sector as an economic engine for growth and a manufacturing base that enables the rapid scaling of breakthrough innovation.”
‘Visible pathways to procurement’
Venture capital for European defense startups has spiked as members of the NATO military alliance have agreed to increase security spending to 5% of gross domestic product, and defense departments in London and Berlin have increasingly signaled a willingness to adopt new technology built by younger players in the market.
Investors, buoyed by the promise of commercial deals, have funneled a record $4.3 billion into the sector since the start of 2022, according to Dealroom — nearly four times the funds deployed in the previous four years.
Germany’s AI drone makers Helsing and Quantum Systems hit valuations of 12 and 3 billion euros this year, respectively, after rounds worth hundreds of millions of euros. In the U.K., manufacturing platform PhysicsX, which works with defense companies, raised $155 million this year, and missile interception startup Cambridge Aerospace reportedly picked up a $100 million round in August.
The U.K. government’s Strategic Defence Review in June proposed boosting spending on novel tech and streamlining procurement processes, as well as unveiling a £5 billion tech investment package.
“We see a system increasingly open to non-traditional primes, supported by wider investment in skills and technology,” Karl Brew, head of defense at Portuguese-U.K. drone startup Tekever, told CNBC.
Tekever, which became a unicorn this year, announced a major contract to supply uncrewed aerial systems to the Royal Air Force in May. Helsing has several contracts with the U.K. government, and U.S.-based Anduril signed a £30 million contract for its attack drones in March.
Tekever’s AR3 EVO drone undergoing pre-flight checks prior to being launched. Credit: Tekever
Germany announced its defense spending would rise to upwards of 100 billion euros — a record figure since the German reunification — from 2026, and also changed procurement processes to make it easier for startups to participate.
While most European governments have ramped up defense spending, Germany stands out as having “visible pathways from prototype to major procurement [for startups] that many other European markets still do not provide,” Meghan Welch, managing director at financial advisory firm BGL, told CNBC.
Helsing and attack drone startup Stark are both in line to win a contract for kamikaze drones, the Financial Times reported in October. Helsing and Stark declined to comment to CNBC about this.
Legacy infrastructure
Germany’s industrial heritage has also created talent pipelines and infrastructure that startups are tapping into.
“Germany has the industrial base, the infrastructure and the technical talent to produce the next-generation technologies NATO urgently needs,” Philip Lockwood, international managing director of Stark, told CNBC.
Founded in 2024, Stark is building 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 developed their expertise in Germany’s industrial and technological sectors, which have long led in hardware, software, manufacturing and supply-chain resilience,” Lockwood said.
The U.K.’s broader ecosystem is also a decisive factor in its appeal as a defense base, said Tekever’s Brew. “It brings together world-class universities and R&D centres with a dense network of aerospace, software and advanced-manufacturing suppliers,” he said.
Launchpads
Another key driver of defense tech in the U.K. and Germany is that both countries serve as launchpads into new markets or frontline training.
The U.K. has had a security and defense partnership with Australia and the U.S. since 2021, known as AUKUS, which has lifted certain export controls and restrictions on technology sharing between the nations.
“As part of AUKUS, the move into the UK was a natural entry point into Europe,” Rich Drake, managing director at Anduril UK, told CNBC.
Alongside signing contracts totalling nearly £30 million for its attack drones earlier this year, Anduril also has plans to open a new manufacturing and R&D facility in the UK.
Anduril UK’s Seabed Sentry. Credit: Anduril UK
“[AUKUS] allows us to work with the MOD [Ministry of Defence], align on operational needs and accelerate the deployment of leading autonomous systems in a context where trust, shared priorities and strategic alignment matter as much as technology,” Drake said.
U.S. defense startups looking to sell into European markets have also often chosen London as a base from which to expand across the region. Second Front Systems and Applied Intuition expanded into the country in 2023 and 2025, respectively.
“Given the history of the special relationship between the US and the UK, the UK serves as an excellent launching pad into the rest of the European market,” said Enrique Oti, chief strategy officer at Second Front Systems.
The U.K. can also serve as a base for European defense startups with global ambitions, added Dmitrii Ponomarev, product manager at VanEck.
“In practice the UK is becoming the interoperability testbed and politically acceptable landing zone for tech flowing in both directions,” Ponomarev told CNBC.
“If you can win a pilot with UK forces, comply with UK/US-aligned security and export regimes and operate in English with UK industrial and legal standards, you look much more ready to US primes, Department of War programs and AUKUS-related efforts.”
In 2025, some of Europe’s best-funded defense startups, including Helsing, Quantum Systems and Stark, announced factories, offices, or investments in the country.
Further east, Germany’s role as one of the largest donors of military aid to Ukraine has given the country’s startups a “front row seat for battlefield feedback,” said Ponomarev.
Quantum Systems has deployed its reconnaissance tech in Ukraine and Helsing announced in February it would produce thousands of strike drones for the country.
Despite the advances, analysts, investors and startup execs all caution there’s more work to be done to create the conditions for building global defense startups in the UK and Germany.
“Scaling remains difficult without continued political and procurement reform,” Ponomarev told CNBC.
“The UK still struggles with slow procurement cycles, clearance bottlenecks and a shortage of security-approved technical talent,” he added. Germany’s biggest obstacles are bureaucracy, strict export controls and heavy dependence on a single customer — the country’s armed forces, Ponomarev added.
BLG’s Welch said the winners of Europe’s AI defense boom “are likely to be companies that can master both the political economy, including export rules, alliances and public narratives, and the technology race, positioning themselves as enablers of national sovereignty rather than disruptors of it.”
https://www.cnbc.com/2025/12/11/ai-defense-boom-in-uk-and-germany-as-new-wave-of-companies-emerge.html
