UK defence firms eye funding surge as demand rises

Almost all UK defence companies and defence technology start-ups surveyed expect to raise significant external funding over the next 12 months, according to research commissioned by White & Case. The survey found that 97% of respondents were likely to seek substantial outside capital as they respond to rising demand for defence technologies and look to expand, as reported by IT Brief UK.

Funding strategies are diversified. Of those surveyed, 49% said they were looking to raise equity finance, 47% debt finance and 39% government grants, suggesting blended financing structures will be common. The research highlights a divide between younger defence technology ventures and established groups. Start-ups are more likely to target equity (59% versus 49%), while more mature businesses are more likely to seek debt (51% versus 41%). The research attributes this to stages of development: many newer businesses remain pre-revenue, while established operators may already hold major government contracts that make borrowing more feasible.

Among companies seeking equity, government-backed investors were ranked the most attractive source by 37% of respondents, followed by corporate venture investors (36%), strategic corporate investors and private equity firms (34% each), venture capital investors (30%), family offices (20%) and sovereign wealth funds (12%). Domestic capital still dominates: the number of businesses expecting investment from UK sources alone exceeded the total expecting capital from Asia-Pacific, the United States and the Middle East combined.

The research attributes investor interest to higher government spending, more visible contract pipelines, recurring revenues and high barriers to entry in defence procurement. It also cites geopolitical pressures, with governments emphasising resilience, domestic production and sovereign industrial capacity, and notes that technologies developed for military use may later find civilian applications. Daniel Turgel, Partner and Co-head of White & Case's Global Technology Industry Group, said global military expenditure is soaring and that scaling defence start-ups is capital-intensive given high cash burn rates, meaning many early-stage firms will likely undertake successive funding rounds. He added that "for the most promising businesses, there is no lack of equity financing."

Tom Clarke, Partner in White & Case's Global M&A Practice and Global Private Capital Industry Group, said that while overseas investor interest has risen markedly, UK investors remain the predominant source of expected capital, reflecting the UK's mature VC ecosystem, deep private capital pools and access to global money markets. He noted the UK's private markets have generated more fintech unicorns than any country outside the United States, and said the UK could see significant fundraising announcements over the next 12 months.