Investors say Europe is investing in defense in preparation for Trump's return. Former President Trump previously said he would not support NATO allies under attack. European defense spending will reach 552 billion euros in 2023, up 16 percent in one year. LONDON, Aug 22 (Reuters) – Donald Trump's possible return to the White House is fueling a surge in investment in defense technology startups across Europe, eight prominent industry executives and investors said. The Republican presidential candidate has threatened to withdraw the United States from NATO and said he would not defend allies that do not increase their defense budgets. He is in a close race with Vice President Kamala Harris in the Nov. 5 election.
According to the Stockholm International Peace Research Institute (SIPRI), President Trump's unpredictable behavior, combined with the war in Ukraine and tensions in the Middle East, is expected to drive global military spending to a record high of $2.4 trillion in 2023.
In June, the $1.1 billion NATO Innovation Fund (NIF) announced a partnership with venture capital firms and defense startups across Europe to bolster the continent's security, while the European Union released its first-ever defense industrial strategy earlier this year, pledging more than $1 billion to military innovation.
While a possible Trump presidency isn't the only driver of these efforts, it has been a big driver of subsequent investments by government and venture capitalists in makers of drones, robots and quantum computing, the eight executives said.
Munich-based Vsquared Ventures is one of Europe's leading deep tech investors and recently raised €214 million ($237.99 million) to invest in space, robotics and other technologies.
“Trump's threats have caused European countries to think very differently about investing in their own capabilities and often outsourcing contracts to start-ups,” said Herbert Mangesias, founding partner at V-Squared, which works with the NATO Fund.
“We want faster cycles, wider experimentation and greater capabilities. Ministry planning is very slow and the venture capital world is one potential solution to this problem,” he added.
Vsquared's portfolio includes IQM, Europe's leading quantum computing company, and Isar Aerospace, a rocket manufacturer that has raised over €400 million in private capital.
Currently, the NIF is supported by 24 NATO member states, with eight others not involved, including Canada and the U.S. “My ambition is to eventually have all NATO member states participating in the fund,” Andrea Traverson, the organization's managing partner, told Reuters in an interview.
Asked whether Trump's return had affected NIF operations, he said, “I don't think it will change our mission. This is important to anyone who cares about our mission of protecting the citizens of our allies.”
Structural changes
While Russia's aggression in Ukraine is a key reason for the increased spending, some defense investors also say President Trump's stance on U.S. allies has unsettled NATO and European leaders, prompting governments to boost defense spending and invest in and partner with new technology companies.
“A possible second term for Trump has multiple implications for defense companies in the U.S. and Europe,” said Ricardo Mendes, CEO of Lisbon-based drone manufacturer Tekevar, which has contracts with Britain, Ukraine, the EU and others.
“Discussions are underway to review procurement procedures, with a focus on increasing flexibility and introducing agility, which will favour small and medium-sized technology companies,” he added.
According to data compiled by SIPRI, European defense and security spending is set to increase by 16% since 2022 to 552 billion euros as of 2023.
ARX Robotics, a German startup that recently raised €9 million in funding backed by NIF, is building autonomous robots that can be deployed on the battlefield.
Asked whether a possible Trump victory in November would affect defence spending, Chief Executive Stephen Loebel said: “Of course. It's in the back of everybody's mind. Europe needs to increase its defence spending and now there's a shift in momentum.”
Resilience
Across the world, venture capital fundraising faced a steep decline in 2023 as investors waited to see how pandemic-era ventures would fare against a backdrop of rising interest rates and stock market volatility. In Europe, total investment in startups fell 44%, from $103 billion to just $57 billion, according to Pitchbook data.
In contrast, investment in domestic defense technology startups remained relatively steady, falling 21% from $2.6 billion to about $2 billion during the same period.
Germany is easing restrictions on investment in defense companies as it increases defense spending, Finance Minister Christian Lindner told Reuters in February.
Mangesius cited Quantum Systems, a German drone manufacturer that recently signed a contract with the German government, as a company that directly benefits from Germany's plans for a Trump return.
“This is a direct result of what Trump said. The German government reacted and put in money because European countries need to be self-sufficient,” he said. “You can't outsource your security to other countries.”
Bulent Altan, co-founder of Munich-based Alpine Space Ventures, told Reuters that Europe has been investing in defense technology to be a better partner to the United States.
“And if that partnership goes awry along the way, we can't just stand there idly,” he said.
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Reporting by Martin Coulter in London and Crystal Hu in New York; Editing by Matt Scaffham and Sharon Singleton
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