4 Defence Tech Startups Benefitting From an Investment Boom

Just over a year ago, we posted on this blog about “why defence tech is no longer taboo”, noting that the grim reality of conflicts and rising tensions around the world had eroded much of the traditional stigma around investing in the sector. We noted how funding for startups such as Mach Industries, ARX and Quantum Systems had in fact “accelerated in recent years, with the importance of defence tech being impossible to deny in an age of dramatic geopolitical turbulence”. 

Now, as we approach the mid-point of 2025, the sector is looming larger than ever on the venture capital landscape, with Jack Wang of VC firm Project A recently telling  Sifted that “We’re seeing more founders building in defence tech than ever before”. It’s significant that many hail not from military backgrounds but “instead mainstream tech – from ex-unicorn founders to ex-Palantir engineers.”

This rush of entrepreneurs has expanded the diversity of the defence tech ecosystem, with startups racing to innovate on multiple fronts – from AI-powered software systems which can maximise operation efficiency, to cybersecurity solutions for defence data, to the development of new materials that can be used in the creation of autonomous vehicles (perhaps the segment most synonymous with defence tech in many people’s minds). 

This innovation gold rush is spiking investor interest, as is the growth of the market due to soaring defence spending around the globe.

Last year saw the steepest year-on-year rise in military spend since the end of the Cold War, with expenditure in Europe being the main contributor to this increase. The spending patterns continue to be precipitous, with parliamentarians in Germany recently voting for a massive increase in defence investment, and the UK government pledging to significantly boost spending on drones and AI systems, among other innovative technologies.

Of course, defence tech targets continue to present certain complexities and challenges for investors. Such firms are often subject to stronger regulatory scrutiny and export controls, and much of their work and contracts may be classified which makes it more challenging for investors to undertake due diligence. 

However, the pace of innovation and ever-increasing military spending means that we can expect the sector to continue to be a magnet for investment, with prominent VC firms like Andreessen Horowitz and 8VC ploughing money into defence tech targets, and the European Investment Fund (EIF) recently announcing a EUR 40m pot for early-stage defence-focused startups (the first time the EIF has invested in a dedicated European defence fund).

The momentum of the market is also well demonstrated by the just-announced takeover of a legacy company by a well-funded startup: namely, Grob Aircraft’s purchase by drone and battlefield AI systems firm Helsing. Meanwhile, ground vehicle specialist ARX and reconnaissance drone firm Quantum Systems have forged a partnership to develop unmanned battlefield systems – an example of how pioneering startups are breaking out of their respective subsectors to create integrated solutions for armed forces, in the tradition of the big defence contractors.

Let’s now take a quick look at five companies in this space which have been reaping the benefits of the energised defence tech market.

Described by Crunchbase as the “poster child for defence tech startups”, Anduril has consistently made tech headlines since its inception – both because of its starry pedigree (its co-founders include Oculus Rift creator Palmer Luckey and Palantir alumnus Trae Stephens) and its immense funding windfalls. 

The company – whose product suite includes air and sea drones, and the AI-powered open software platform Lattice – secured a USD 1.5bn Series F round last August, and in February was reported to be preparing for a new round which could be worth at least USD 2.5bn. More recent news that Anduril is partnering with Meta to develop battlefield XR tech has further boosted its status as one of the most prominent defence techs in the world right now.

Another major fundraise in the defence tech sector came in May, when CHAOS Industries secured a Series C round worth USD 275m. This arrived in the wake of a USD 145m Series B back in November, with investors clearly impressed by the potential of the startup’s military communications, radar and sensor technologies, including its flagship “Vanquish” product which tracks drones, missiles and aircraft.

While CHAOS hasn’t yet announced any major contracts, the company has been bullish about its significance for US defence systems, with its founder boldly declaring that any funding it receives constitutes “investment not just in our company, but in the security of our nation.”

Drone monitoring is a highly competitive segment within defence tech, and one of CHAOS Industries’ key rivals drawing investor interest is Hidden Level. In February, the company enjoyed a USD 65m Series C round, following on from a USD 35m Series B last year. 4

Its passive radar sensing technology, which is trained to detect drones and other aerial threats, has earned the firm contracts with the US Army and Air Force, meaning its technology is being put to real-world use monitoring airspace around military bases and other critical infrastructure. 

Launched only this year, Orasio has already managed to secure a EUR 16m seed round. While this investment success can partly be attributed to the founders’ credentials (one being entrepreneur Florian Fournier, who helped steer the automated payroll firm PayFit to huge success), it also reflects the appeal of Orasio’s technology, which leverages AI to swiftly analyse video feeds for suspicious behaviours and anomalies.

Orasio intends to sell its tools to military forces, private companies and government authorities. While controversies still swirl around the responsible usage of such technology, and the potential for privacy infringement, Fournier has pointed out that AI video analysis is here to stay, and that “it won’t be a question of whether we can use video intelligence, but what we can use it for.”

Here at Hampleton, our analysts are keeping a close eye on this space as well as numerous other tech sectors, and we’d be delighted to chat to you about what the M&A market might hold for your tech or software company. Drop our managing partner Dr Jan Eiben a line to find out more. 

You can also find detailed analysis of the tech industry in our free half-yearly M&A market reports, which explore transaction statistics, valuation trends and pivotal deals within sectors ranging from Digital Commerce to Autotech & Mobility. Be sure to subscribe to ensure you never miss out on the latest research and insights from Hampleton Partners.