"Trump's Potential Return Spurs Surge in European Defense-Tech Investments Amid Global Tensions"
By Martin Coulter
LONDON (Multibagger) - The potential re-election of Donald Trump has acted as a catalyst, driving a wave of investments into defense-technology startups across Europe, according to insights from eight leading industry executives and investors.
Trump, the Republican presidential contender, has repeatedly threatened to withdraw the U.S. from NATO and has stated he would not defend allies unless they increased their defense budgets. This rhetoric has put him in a tight race with Vice President Kamala Harris for the upcoming November 5th election.
His unpredictable stance, combined with ongoing conflicts such as the war in Ukraine and rising tensions in the Middle East, have contributed to global military spending hitting a record $2.4 trillion in 2023, according to the Stockholm International Peace Research Institute (SIPRI).
In June, NATO's $1.1 billion Innovation Fund (NIF) announced partnerships with venture capital firms and defense startups across Europe, aiming to bolster continental security. Earlier this year, the European Union rolled out its first defense industrial strategy, pledging more than $1 billion towards military innovation.
While Trump’s potential return is not the sole factor behind these initiatives, it has significantly influenced subsequent investments by governments and venture capitalists in technologies such as drones, robotics, and quantum computing, according to the eight executives.
Vsquared Ventures, based in Munich, is one of Europe’s foremost deep-tech investors. The firm recently raised a 214 million euro ($237.99 million) fund to invest in space, robotics, and other technologies.
"Trump's threats have made European states rethink their investment strategies, often awarding contracts to startups," said Herbert Mangesius, founding partner at Vsquared, which collaborates with the NATO fund. "We aim for faster development cycles, broader experimentation, and enhanced capabilities. The slow pace of governmental planning can be mitigated by the agility of the VC world."
Vsquared's portfolio includes IQM, a leading quantum computing company in Europe, and Isar Aerospace, a rocket manufacturer that has secured over 400 million euros in private capital.
Currently, the NIF is supported by 24 NATO countries, with eight nations, including Canada and the U.S., not yet participating. "My goal is to eventually have all NATO allies join the fund," Andrea Traversone, the fund's managing partner, stated in an interview.
When asked if Trump's potential return influenced NIF’s activities, Traversone commented, "I don’t believe it will impact our mission. Our focus is on protecting citizens of allied partners."
Structural Change in Defense Spending
Russia’s invasion of Ukraine has been the primary driver of increased defense spending. However, some defense industry investors believe Trump's approach has prompted NATO and European leaders to reconsider their defense strategies, resulting in increased spending and partnerships with new technology companies.
Ricardo Mendes, CEO of Lisbon-based drone manufacturer Tekever, which holds contracts with the UK, Ukraine, the EU, and others, remarked, "A second Trump presidency would have different implications for American and European defense companies. There is a structural shift in the defense sector here."
"We've become heavily reliant on the U.S.," Mendes added. "Conversations with defense sector contacts indicate that European countries need to be more self-sufficient. I might not like it, but that’s the direction we're heading towards."
As of 2023, defense and security spending across Europe had risen 16% to 552 billion euros from 2022, according to SIPRI data.
ARX Robotics, a German startup that recently secured a 9 million euro funding round backed by the NIF, develops autonomous robots for battlefield deployment. CEO Stefan Roebel noted, “The potential of a Trump victory is definitely influencing defense investments. Europe needs to increase its defense investments, and we’re seeing a shift in momentum.”
Resilience in Defense-Tech Investments
Despite a significant downturn in global VC funding in 2023, as investors evaluated their pandemic-era ventures against rising interest rates and market volatility, defense-tech investments in Europe remained more resilient. Overall startup investments in Europe dropped 44%, from $103 billion to $57 billion, according to Pitchbook data. In contrast, investments in local defense technology startups fell by a smaller margin of 21%, from $2.6 billion to around $2 billion.
Germany is easing regulations for defense company investments, Finance Minister Christian Lindner told Multibagger in February, as Berlin enhances its military spending.
Mangesius highlighted Quantum Systems, a German drone manufacturer that has recently secured deals with the German government, as a direct beneficiary of Germany's response to a potential Trump presidency.
"It was a direct consequence of Trump's statements. This led the German state to invest because European countries need to be self-sufficient," he explained. "You can’t rely on another country for your security."
Bulent Altan, founding partner at Munich-based Alpine Space Ventures, added that Europe has been investing in defense-tech to become a stronger partner to the U.S. "And if that partnership faces challenges, you’re not left empty-handed," he said.
($1 = 0.8992 euros)
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Breaking It Down: How This Affects You
What is this about?
This article discusses how the potential re-election of Donald Trump is driving significant investment in defense-technology startups across Europe. With Trump's unpredictable stance on NATO and defense spending, European countries are preparing for the possibility of needing greater self-sufficiency in their defense capabilities.
Why should you care?
- Global Security: Increased investments in defense technologies could lead to advancements in areas such as drones, robotics, and quantum computing, potentially enhancing global security.
- Economic Impact: These investments can stimulate economic growth by creating jobs and fostering innovation within the tech sector.
- Financial Markets: Understanding the trend of investments in defense technologies can guide your investment strategies, particularly if you are interested in VC funds or defense-sector stocks.
In essence, the article highlights a significant shift in global defense strategies, driven by geopolitical uncertainties and the potential return of a polarizing political figure. This shift has broad implications for global security, economic growth, and investment opportunities.