LONDON, Aug 22 — Donald Trump’s potential White House return has helped spur a flurry of investment in defence-technology startups across Europe, according to eight prominent industry executives and investors.

The Republican presidential candidate has threatened US withdrawal from Nato and said he would not defend allies that did not increase their defence budgets. He’s locked in a tight-run race with Vice President Kamala Harris in the November 5 election.

Trump’s unpredictability, combined with the war in Ukraine and tensions in the Middle East, has contributed to global military spending reaching a record high of US$2.4 trillion in 2023, according to the Stockholm International Peace Research Institute (SIPRI).

In June, the US$1.1 billion Nato Innovation Fund (NIF) announced partnerships with venture capital firms and defence startups across Europe, aiming to bolster security on the continent.

Meanwhile, the European Union earlier this year unveiled its first ever defence industrial strategy, committing more than US$1 billion towards military innovation.

While the prospect of a Trump presidency was not the only factor behind those initiatives, it has been a significant driver of subsequent investments made by governments and venture capitalists alike in manufacturers of drones, robotics and quantum computing, the eight executives said.

Operating out of Munich, Vsquared Ventures is one of Europe’s leading deep-tech investors, having recently raised a €214 million fund to invest in space, robotics, and other technologies.

"Trump’s threats have made European states think very differently about investing in their own capabilities and giving contracts out, often to startups,” said Herbert Mangesius, founding partner at Vsquared, which has partnered with the Nato fund.

"We want to see faster cycles, broader experimentation, and better capabilities. The planning in a ministry is so slow, and the VC world is one potential answer to this problem,” he added.

Vsquared’s portfolio includes IQM, one of Europe’s leading quantum computing companies, and Isar Aerospace, a rocket manufacturer which has itself raised more than €400 million of private capital.

At present, the NIF is backed by 24 Nato countries, with eight remaining countries — including Canada and the US — not involved. "My ambition is to eventually have all Nato allies join the fund,” Andrea Traversone, the organisation’s managing partner, told Reuters in an interview.

Asked if Trump’s potential return had influenced the NIF’s activities, he said: "I don’t think it will make a difference to our mission. This matters to anyone who is interested in our mission of protecting citizens of allied partners.”

Structural change

While Russia’s invasion of Ukraine has been the primary reason for higher spending, some defence industry investors say Trump’s approach towards US allies has shaken leaders in Nato and across Europe. That has resulted in governments increasing their defence spending, investing in, and partnering with new technology companies.

Ricardo Mendes, CEO of Lisbon-based drone manufacturer Tekever, which has contracts with Britain, Ukraine, the EU and others, said: "A second Trump presidency means different things for American and for European defence companies. There’s a structural change in the defence sector here.”

"We’ve become very much reliant on the US,” he added. "I talk to a lot of people in defence, and what I’m hearing is that it’s very important for European countries to be more self-sufficient. I don’t necessarily like it, but that’s the way it’s going.”

As of 2023, defence and security spending across Europe had risen 16 per cent to €552 billion since 2022, according to data collated by SIPRI.

ARX Robotics, a German startup which recently raised a €9 million funding round backed by the NIF, builds autonomous robots that can be deployed on the battlefield.

Asked if the potential for a Trump victory in November was influencing defence investment, CEO Stefan Roebel said: "Absolutely. That’s something everybody has in the back of their heads. Europe needs to up its investment in defence, and you’re seeing a shift in momentum now.”

Resilience

Around the world, VC funding faced a major downturn in 2023 as investors waited to see how their pandemic-era ventures would play out against a backdrop of rising interest rates and public market volatility. In Europe, overall startup investment fell 44 per cent, from US$103 billion to just US$57 billion, according to Pitchbook data.

By comparison, investment in local defence technology startups remained relatively resilient, falling 21 per cent in the same period, from US$2.6 billion to around US$2 billion.

Germany is easing red tape for investments into defence companies, Finance Minister Christian Lindner told Reuters in February, as Berlin ramps up its military spending.

Mangesius cited Quantum Systems, a German drone manufacturer which has recently signed deals with its home government, as a company that has directly benefited from Germany planning for a Trump return.

"It was a direct consequence of what Trump said. That made the German state react and put money into this because European countries need to be self-sufficient,” he said. "You can’t outsource your own security to another country.”

Bulent Altan, founding partner at Alpine Space Ventures, also based in Munich, told Reuters that Europe had been investing in defence-tech in order to be a better partner to the US

He said: "And if that partnership should have hiccups along the way, you’re not standing there with nothing in your hand.” — Reuters