How To Start a Defence Tech Startup in the UK: Part 2

Part Two: Europe, NATO, and the United States

In Part One of this series, I argued that most defence start-ups die in a gap called the “Valley of Death”, between the first promising meeting and the contract that pays for production. For a British founder, the route through the valley should begin at home, starting with UK Defence Innovation, pinpointing an existing capability gap, and thinking about compliance early.

Part Two describes the next steps, through Europe, NATO, and the United States. Venture capital is pouring into defence, now more than ever: globally, defence technology start-ups drew a record $24.4 billion of venture funding in the first quarter of 2026 alone. A founder with a working product and a fresh round will be tempted to head straight for Washington – but for an early-stage European company, that will usually be the wrong move.

Grow in Europe, Prove with NATO

Defence funding in Europe, too, has grown exponentially in the last few years, though it is spread across national systems that favour their own industries.

Germany is the biggest player, and therefore the first logical destination. A law to speed up procurement for the Bundeswehr came into force in February 2026, which favours commercial and dual-use products, allows advance payments, and adds a Europe-first check on purchases from outside the European Union. The Bundeswehr also runs an innovation centre and a Cyber Innovation Hub that can buy for troop trials outside formal programmes. The catch, as Keen Venture Partners’ founders’ guide to German procurement sets out, is that engagement needs to start 18 to 24 months before a requirement exists.

At the European Union level, the European Defence Industry Programme (EDIP) has a €1.5 billion work programme for 2026 and 2027, including €100 million of equity for start-ups and small companies. British founders, however, need to read the small print – the UK stayed out of the EU’s €150 billion Security Action for Europe (SAFE) loan scheme after talks collapsed in late 2025. British companies can still take part in SAFE as third-country suppliers, with non-EU content in any project capped at 35 per cent of its cost. For many British start-ups, a European partner or subsidiary will be the practical answer.

NATO offers the best – and cheapest – credibility in the market. The Defence Innovation Accelerator for the North Atlantic (DIANA) chose 150 companies from 3,680 applicants for its 2026 cohort. Each received €100,000 for its first phase and access to more than 200 test centres across the Alliance, with up to €300,000 more for those that progress. Not a huge sum, but the test data, and the NATO name attached to it, will open doors in every allied capital.

NATO’s spending pledge opens another door that many founders miss. At The Hague in June 2025, allies agreed to spend 5 per cent of gross domestic product by 2035: 3.5 per cent on core defence and 1.5 per cent on wider security, including infrastructure, cyber defence, and resilience. Dual-use companies in energy, communications, and resilience fit that second category far more easily than they fit a weapons budget.

Then there is of course Ukraine, the hardest test range in the world. Ukraine’s Brave1 defence technology cluster and its Test in Ukraine programme let foreign companies test prototypes in front of frontline units and pair them with Ukrainian manufacturers. Feedback arrives quickly, often in a matter of weeks. Export licences, intellectual property (IP) protection, and the safety of staff are important considerations in this case.

America Can Wait

The United States is the largest and fastest defence buyer in the world. The Defense Innovation Unit (DIU), the commercial front door to the U.S. Department of Defense, can often award a prototype agreement within 60 to 90 days. To accelerate things further, the Pentagon is reorganising its buying around Portfolio Acquisition Executives, individual officials who can move money across programmes.

The drone effort once called “Replicator” is currently with the Defense Autonomous Warfare Group, which is chasing a budget request reported at $54 billion. The Small Business Innovation Research (SBIR) programme was reauthorised in April 2026 through to 2031 after a six-month lapse, with new awards of up to $30 million. Clearly, there are rewards to be had.

Even so, my advice to early-stage European founders is to leave the Department of Defense until later. The cost of entry is brutal for a small team: selling seriously means a separate U.S. legal entity and U.S. citizens in key roles. Where a company has foreign investors, it needs a formal arrangement that walls off classified work from them, known as foreign ownership, control or influence (FOCI) mitigation. Only U.S.-owned companies can apply for SBIR at all.

Software companies face a second wall. Hosting sensitive government data requires authorisation at the higher levels of FedRAMP, the U.S. government’s cloud security programme, followed by the Pentagon’s own Impact Level authorisations. Working with the National Security Agency and the wider intelligence community brings separate – and far more intensive – vetting standards.

The Pentagon’s Cybersecurity Maturity Model Certification (CMMC) paused its next phase in July 2026, but the security controls that underpin it, a federal standard known as NIST SP 800-171, still apply in full.

Each of those is a year of work, and a large share of a seed round. A start-up that has not yet won a contract should spend that money winning one at home.

America becomes realistic once a company has revenue, a product in service with a European customer, and a clear reason to be there – usually a large prime contractor or American partner that wants what it builds.

Raise on Orders

Venture capital has run ahead of procurement. A handful of very large rounds now take most of the money, and the warnings are coming from inside the house, as the saying goes. Fortune reported in July that early-stage defence start-ups were raising at multiples of 50 times and sometimes even higher – a bubble indicator, as Anduril CEO Brian Schimpf seemed to think.

The founders who raise well now raise on orders. A signed contract, even a small one, is much more critical in a funding round than a headline valuation. Kraken Technology Group shows how this works: it won a contract from the MOD’s Defence Unicorn Fund in May, then closed a £130 million Series B in July with the British Business Bank, the NATO Innovation Fund, and Rheinmetall alongside. In a similar vein, Cambridge Aerospace’s valuation rose from $1.3 billion to $3.4 billion in the four months following the MOD placing a contract for its Skyhammer interceptor.

The same discipline applies to contracting with primes. Teaming with a prime is often the fastest route into a large programme, especially for a company that builds a subsystem. Founders should treat a prime as a sales channel with terms: agreed workshare, protection for their own IP, and firm limits on exclusivity. A teaming agreement signed in a hurry can lock a start-up out of other bids for years.

There's No Time Like the Present

Despite the complexity surrounding a defence tech venture as set out by this two-part analysis, it has never been a better time to build. Certainly hurdles still exist: some British defence start-ups are still being turned away by banks, as Jonathan Singh set out in these pages. However, the MOD has promised to make clear that ESG rules should not stand in the way of access to finance for defence ventures.

Every step is time-consuming, and not nearly as fast as founders will like. Nevertheless, making it across the valley of death requires planning for each element in turn. Start at home, build relationships, then find the person who owns the gap. Build compliance ahead of demand, use NATO and Ukraine to prove the product works, protect IP, and raise on orders. Only then should the U.S. market be considered.

This is the short version of a longer guide – one that covers the order in which to approach each buyer, how to write an innovation bid that already contains its own route to a programme, how to negotiate IP terms with the MOD and the primes, and when a European start-up is genuinely ready for the United States. Each could fill an article of its own.

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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