Fueling Europe's Defense Innovation
Placing the EIF's new €200M fund in context
Good morning,
Earlier this week the European Investment Fund announced that it was creating a €200 million ($216M) fund to invest into defense and security technologies and startups.
Now, there are those that will claim this amounts to chump change and shows that Europe isn’t serious about its own defense; but, those naysayers are very much wrong.
This investment fund needs to be placed in context with the larger defense investment movement. Massive investment of private capital into the defense sector is relatively new. We’re just starting to see venture flowing back into defense in America, with some investors committing portions of their funds to the sector and even fewer dedicating entire funds.
Europe private capital is beginning to expand its investments in a very similar manner—with firms committing portions of existing funds to defense without overexposing themselves by creating entirely new funds for it. I’ve been contacted by several funds looking to establish defense investment programs. And I’ve seen other firms increase their positions too. In total, it’s hard to calculate the contribution of these dispersed commitments, but we do know that private equity deal activity in 2021 (before Russia’s invasion of Ukraine) was €3.8 billion. In other words, it’s not insignificant.
Next, governments and intergovernmental organizations are increasing their spending too. NATO’s €1 billion fund will launch by next month. The European Union runs the European Defence Fund, the 2023 work program of which includes €1.2 billion to support early development and R&D for strategic defense capabilities. Countries are also increasing their spending on defense. Yesterday, Estonia announced it would spend €13.4 billion over the next ten years on defense.
As my friend, fellow Old Grad, corporate banker, former Lithuanian Vice Minister of Defense, and former NATO Assistant Secretary General, Giedrimas Jeglinskas has said, “The fact that EU, which is what EIF represents, is getting into dual use and defense tech is a major step forward. We can all agree that ideally EIF’s initiative would have an extra zero for scale, but on the other hand, given that it is still a “VC”, small is easier to manage and to deploy. I would expect that this EIF effort is but a beginning of many more dual use funds in the future.”
For my part, and as someone that has crafted defense investment programs for not just one, but two VC firms, I applaud this announcement from the European Investment Fund (EIF) as they do their part to help secure Europe and the Western, liberal, democratic order and the society of states against the swelling tide of autocracy, revisionism, and other threats that seek to return the world to the global orders of the 17th and 18th centuries of territorial expansionism and where “might-makes-right.”
Keep building!
Andrew