Key Takeaways
- • The U.K. defense industry contributed £15.8 billion to the economy last year, up 70% over the past decade, according to industry body ADS, yet struggles to attract substantial private capital from pension funds, venture capital and private equity.
- • Dealroom data show American defense-tech firms raised $19.6 billion in the first nine months of 2026 versus just $932 million in Britain, a gap of $18.7 billion.
- • The 2025 Modern Industrial Strategy pledged to halve the U.K.'s defense venture capital gap with the U.S. by 2035, but the government could not provide its own estimate of the gap or explain how progress would be measured.
- • Restrictive limited partnership terms and reputational concerns keep some European funds, including the European Investment Fund, out of weapons and ammunition investments.
- • Slow procurement is a key deterrent: the MoD's low-complexity pathway averages around 60 days to contract, while standard competitions can take about six years for major platforms.
Summary
Experts and industry figures warn that the U.K. and Europe lag the U.S. in drawing private capital into defense, according to a POLITICO report by Mason Boycott-Owen. The U.K. is increasing military spending and has committed to NATO's target of 3.5% of GDP on defense by 2035, with government expenditure on industry, weapons and SMEs rising over the past year. However, many firms lack the funding needed to grow and supply Europe, particularly without government contracts to sustain operations. The Ministry of Defence's top 10 suppliers account for 40% of procurement expenditure.
Britain led Europe in venture capital for defense, security and resilience startups in 2025, attracting $2.9 billion of the continent's $8.7 billion total, according to Dealroom and the NATO Innovation Fund. On a narrower defense-tech measure, however, American firms raised $19.6 billion in the first nine months of 2026 compared with $932 million in Britain. Nicholas Nelson, founder and managing partner of Archangel, said the U.S. has 42 venture funds investing fully or predominantly in defense or dual-use technology, versus three or arguably four credible early-stage defense investors in Europe. Archangel is the only British fund among Lakestar, Expeditions and Project A.
Contracting speed is another obstacle. Nelson noted that U.S. pitch-day events can award contracts the same day for purchases under $158,000. Jim Carter, the MoD's director general for commercial and industry, told the House of Lords that the low-complexity pathway averages about 60 days to contract in 2026, whereas standard competitions for major platforms historically take around six years.
Cultural and regulatory barriers also weigh on investment. Some European funds have long avoided defense alongside pornography, alcohol and tobacco. Sam Burrell, a partner at Expeditions, said Europe had decided there was reputational risk in investing in weapons. Restrictions can be written into limited partnership agreements, and the European Investment Fund, which contributed to almost a quarter of European VC raised in 2025, still bars weapons and ammunition investments despite relaxing its defense rules this year. Quantum Systems co-founder Florian Seibel said investor opposition led him to create Stark, a separate lethal-drone maker. Burrell also cited a Revolut account closure for a drone maker; Revolut said its risk list includes weapons and defense businesses, adding that the policy "may evolve in the future."
The U.K. budget due this month, followed by a defense investment summit and strategy later this year, could create an opening for reform. Burrell suggested directing the British Business Bank to allocate more capital to defense and encouraging pension funds to increase exposure, which he called the largest available pool of private capital. An anonymous industry figure also urged clearer export routes and criticized the £400 million annual UK Defence Innovation budget, roughly 0.5% of defense spending, as "pitiful."
Britain led Europe in venture capital for defense, security and resilience startups in 2025, attracting $2.9 billion of the continent's $8.7 billion total, according to Dealroom and the NATO Innovation Fund. On a narrower defense-tech measure, however, American firms raised $19.6 billion in the first nine months of 2026 compared with $932 million in Britain. Nicholas Nelson, founder and managing partner of Archangel, said the U.S. has 42 venture funds investing fully or predominantly in defense or dual-use technology, versus three or arguably four credible early-stage defense investors in Europe. Archangel is the only British fund among Lakestar, Expeditions and Project A.
Contracting speed is another obstacle. Nelson noted that U.S. pitch-day events can award contracts the same day for purchases under $158,000. Jim Carter, the MoD's director general for commercial and industry, told the House of Lords that the low-complexity pathway averages about 60 days to contract in 2026, whereas standard competitions for major platforms historically take around six years.
Cultural and regulatory barriers also weigh on investment. Some European funds have long avoided defense alongside pornography, alcohol and tobacco. Sam Burrell, a partner at Expeditions, said Europe had decided there was reputational risk in investing in weapons. Restrictions can be written into limited partnership agreements, and the European Investment Fund, which contributed to almost a quarter of European VC raised in 2025, still bars weapons and ammunition investments despite relaxing its defense rules this year. Quantum Systems co-founder Florian Seibel said investor opposition led him to create Stark, a separate lethal-drone maker. Burrell also cited a Revolut account closure for a drone maker; Revolut said its risk list includes weapons and defense businesses, adding that the policy "may evolve in the future."
The U.K. budget due this month, followed by a defense investment summit and strategy later this year, could create an opening for reform. Burrell suggested directing the British Business Bank to allocate more capital to defense and encouraging pension funds to increase exposure, which he called the largest available pool of private capital. An anonymous industry figure also urged clearer export routes and criticized the £400 million annual UK Defence Innovation budget, roughly 0.5% of defense spending, as "pitiful."
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