Part One: Winning the First Contract

There is more money for defence start-ups today than I have seen at any point in my career. European defence start-ups raised $7.4 billion in the first nine months of 2026, almost three times the whole of 2025. In the UK, the Ministry of Defence (MOD) has ring-fenced at least £400 million a year for innovation.

And yet, most of the founders I meet are still waiting for their first real contract.

I have sat on the buying side of this problem inside the MOD, and I now sit on the investing side, where much of my week is spent with founders working through it. From both vantage points, a similar pattern emerges: good teams, with good technology, run out of money somewhere between the first promising meeting and the first contract that pays for production. That gap, called the “Valley of Death”, kills more defence tech startups than anything else.

This two-part series, written for companies between pre-seed and Series A, sets out the route I would take today as an early-stage defence tech founder in Britain. Part one covers why good companies die, and how to win at home. The second covers Europe, NATO, the United States.

Why Good Companies Die Young

A start-up wins a small innovation contract, delivers a working prototype, impresses the soldiers who test it, and then hears nothing for eighteen months. Keen Venture Partners’ guide to German procurement describes this as a typical situation, and one that is all too familiar in the UK, as well.

The cause is partly structural. Innovation units hold innovation budgets, which are small and fast. The large budgets, by contrast, are planned years ahead, and with completely different decision-makers. To a start-up, an innovation award is an early proof-of-concept; it is not a surefire path to real orders.

So, every founder selling to defence is really selling to four people at once. The end user confirms that the product solves a real problem. The problem owner, usually a senior officer or official, decides whether that problem is a priority. The budget holder decides whether there is money for it this year, and the commercial officer decides which contract can be used to buy it.

The takeaway: a founder who has met only the end user has not yet started selling. It is important to map all four stakeholders before starting any proposal, and also to name the follow-on contract with every innovation bid.

The quickest way to find those four people is face to face. In my experience, defence sector events give the highest return on investment of any go-to-market activity in defence: trade shows, industry days, think-tank briefings, and regional defence and security clusters. A non-technical founder who wants to scale should be at one or two a week, at minimum. The technical founder builds the product, and the other one builds the relationships.

Start in Britain, Sell to Britain

For a British founder who does not already know the problems or the people inside defence, the front door is now UK Defence Innovation (UKDI). It launched in July 2025 and brought the Defence and Security Accelerator (DASA), the old Defence Innovation Unit, and the individual command innovation hubs under one roof.

The system is in transition: the old defence Open Call has closed, and Defence Innovation Loans are being paused while a new service is built. One thing to note is the abundance of conflicting advice floating around the web as the transition happens, so founders should consult the live UKDI funding page instead of outdated DASA information.

Starting at home is important for another reason. UKDI also cannot contract with a company that is not registered at Companies House, and its Innovation Partner support is now limited to UK-based companies.

UKDI’s current priorities fall under five themes: autonomy, decision advantage, logistics and support, effects, and protection. The front-line commands spend their budgets against their own capability gaps, in line with these innovation priorities.

A founder’s first job, then, must be to find a specific gap to close, described in a way that resonates with these commands. A product pitched as artificial intelligence for “the battlespace” may attract a lot of interest, but ultimately no buyer.

Founders who already know relevant people, either through service, an earlier career in government, or an adviser who has worked on the inside, can often go straight to talking to these commands. Their firsthand experience informs the product, allowing these founders to move and build faster than the ones without inside channels.

The second route is Commercial X, a small MOD team that places contracts of up to £50 million lasting less than two years. Its Defence Unicorn Fund awarded contracts of up to £4 million each to 13 small British firms in May 2026. A new Defence Office for Small Business Growth, stood up in January 2026, offers help with procurement, security clearance, and introductions to primes.

Policy is moving the right way. The MOD’s SME Action Plan commits to raise spending with small and medium-sized enterprises (SMEs) to £7.5 billion a year by summer 2028, and the Procurement Act 2023 lets buyers run multi-stage competitions with live demonstrations. Targets are still only targets, though, and ministers have acknowledged the gap between ambition and reality on procurement reform.

Amateurs Talk Contracts, Professionals Talk Compliance

Security checks are the most common hurdle that kills defence contracts before they even see the light of day. The following are questions that every defence buyer will ask – but every answer takes months to put in place. The fastest way to lose a contract is to win it and then fail the security checks.

First, cybersecurity. Most MOD contracts require Cyber Essentials, a government-backed certification, and many require the stricter Cyber Essentials Plus. Above that, the Defence Cyber Protection Partnership (DCPP) gives every contract a cyber risk level and sets the controls a supplier must meet at that level. Cheap to do early, and painful to do in a hurry.

Next, personnel considerations. A start-up cannot apply for its own security clearance; instead, clearance has to be sponsored by a government customer or by a company that already holds facility clearance. United Kingdom Security Vetting (UKSV), the agency that runs these checks, does not publish timelines, but the founders and officials I speak to put it at anywhere from six to twelve months.

There is one piece of good news. National vetting services can endorse their own clearances up to the matching NATO level, so in the UK a person cleared to Security Check (SC) or Developed Vetting (DV) can be cleared for equivalent NATO work without starting again. A founder planning to sell to NATO should secure one national clearance, and secure it early.

Export controls can often catch founders out. Military and certain dual-use items need a licence to leave the UK, including equipment sent abroad for trials. The AUKUS partnership between Australia, the UK, and the United States has eased some transfers between the three, though by no means all. Founders should know the export classification of the product before the first overseas conversation.

Then there is intellectual property (IP). MOD contracts use standard terms known as Defence Conditions, or DEFCONs. Under DEFCON 705, the usual condition for research and development, the company normally keeps the new IP it creates and the government receives a licence to use it. DEFCON 703 gives ownership of that new IP to the Crown.

A founder who signs a 703 contract concerning core technology is handing over core IP ownership at the same time, which is not ideal for further investment, to say the least. Every contract needs checking, and background IP needs marking clearly from day one.

What Comes Next

A founder who gets these two things right has a product with an owner, a route to a contract, and a company that can pass the checks when the contract arrives. That is the foundation. Part Two covers how to build on this momentum: Europe, NATO and Ukraine as places to prove the product works, why America should wait, and how to raise money on orders.

Founders working through any of this are welcome to get in touch through the details below.

Ruh Hussain is a former Director at the United Kingdom Ministry of Defence, where he worked across the Special Projects portfolio, and now invests in defence and dual-use start-ups as a Venture Partner at Halceon and a member of Ante-Bellum Angels. He is also the founder of Dawnstar Partners, a boutique firm that advises defence and national security founders on go-to-market, capital strategy and fractional support, and publishes The Chronicle, its weekly brief on defence funding and policy across NATO. The views expressed here are his own.

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