London, UK , BAE Systems, one of the world’s largest defence, security, and aerospace companies, has committed 50 million euros to European defence-tech venture funds as part of its recently launched Launchpad programme. This strategic investment, announced in June 2026, signals a significant acceleration in the integration of private capital and innovative startups into Europe’s evolving defence industrial base, with profound implications for foreign direct investment (FDI) and emerging markets like Turkey. The move underscores a broader shift in global defence spending and technology development, driven by escalating geopolitical tensions and a renewed focus on technological sovereignty across Europe.
BAE Systems’ Strategic Pivot: Fueling European Innovation
BAE Systems’ 50 million euro commitment is directed towards venture capital funds managed by Expeditions and Lakestar, both focused on nurturing European defence-tech startups. This initiative, the second stage of the Launchpad programme, aims to accelerate disruptive innovation by supporting early-stage ventures and facilitating the transition of promising defence technologies from prototype to operational use. Dave Ewing, Head of Technology Commercialisation at BAE Systems, emphasized the company’s long-standing valuation of “the capability and ingenuity that early-stage founders can bring to the table,” highlighting the investment as a serious commitment to developing “the technologies of tomorrow.”
The Launchpad programme is designed as a “win-win” scenario, allowing BAE Systems to spin out its own defence technologies into commercial markets while simultaneously backing external startups that introduce novel solutions to the defence sector. This strategy aligns with national priorities such as rapid technology incubation, sovereign capability, and economic growth, extending access for startups to broader sectors like energy and advanced manufacturing. Klaus Hommels, Founder and Chairman of Lakestar, noted that Europe is at a “pivotal moment in redefining its security and technological sovereignty,” asserting that supporting next-generation defence-tech founders is critical.
The Evolving European Defence Landscape
The investment by BAE Systems comes amidst a dramatic resurgence in European defence spending and a concerted effort to bolster the continent’s defence technological and industrial base (EDTIB). Geopolitical shifts, particularly Russia’s ongoing war in Ukraine, have served as a “stark wake-up call,” accelerating a paradigm shift in European defence policy.
According to reports from the European Defence Agency (EDA), total defence expenditure by the 27 EU Member States reached €343 billion in 2024, marking a 19% increase from 2023 and bringing defence expenditure to 1.9% of GDP. Projections indicate that this trend will continue, with spending expected to reach €392 billion in 2025, or 2.1% of GDP, surpassing the long-held NATO guideline of 2% for the first time since data collection began. Defence investment, specifically, reached a record €106 billion in 2024 and is projected to increase to €130 billion in 2025, with a significant portion directed towards equipment procurement and research and development (R&D).
Venture funding in European defence-tech has mirrored this growth, with a notable surge in recent years. Venture funding in the sector jumped 20-30% in 2024, reaching over $5 billion. In 2025, the European DefenseTech VC market registered 154 deals with a total investment volume of €2.8 billion, representing a compound annual growth rate (CAGR) of 69% from 2021 to 2025. Another analysis by Dealroom, in collaboration with the NATO Innovation Fund, reported that $8.7 billion was funnelled into “deep tech” startups across the defence, security, and resilience (DSR) category in 2025, a 55% increase over 2024.
Key areas attracting this investment include artificial intelligence (AI), autonomous systems, drones, satellites, cybersecurity, electronic warfare, quantum technologies, and advanced materials. Countries like Germany, the UK, and France collectively account for 62% of the total capital invested in European defence tech venture capital, underscoring their central roles in the ecosystem. Notable European startups in this space include Helsing (Germany) for AI defence software, ICEYE (Finland) for synthetic aperture radar satellites, and Quantum Systems (Germany) for AI eVTOL drones, all of which have secured substantial funding rounds.
Drivers of Defence-Tech FDI: Geopolitics and Innovation
The heightened interest in defence technology FDI is fundamentally driven by a confluence of geopolitical imperatives and rapid technological advancements. The war in Ukraine has highlighted critical capability gaps and the urgent need for European nations to enhance their military readiness and strategic autonomy. This has led to increased defence budgets and a political will to invest in cutting-edge technologies that can provide a decisive edge in modern warfare.
Beyond traditional hardware, there is a growing recognition that deterrence and defence now encompass data, cloud computing, AI, autonomy, and software. This shift opens up new avenues for responsible, growth-oriented investment, as governments increasingly view defence as a form of social responsibility aimed at protecting sovereignty and civilian populations.
The European Union has also introduced several initiatives to foster defence innovation and attract investment. The European Defence Fund (EDF), with a budget of nearly €7.3 billion for 2021-2027, supports collaborative defence research and development projects. The EU Defence Innovation Scheme (EUDIS) and its Defence Equity Facility, managed by the European Investment Fund (EIF), plans to invest €175 million between 2024 and 2027 to mobilize around €500 million for private funds targeting innovative dual-use defence technologies. Additionally, the European Defence Industrial Programme (EDIP) and the Security Action for Europe (SAFE) initiative are designed to enhance production capacity and incentivize joint procurement from the European defence industry, with a strong emphasis on “buy European” rules.
However, despite the significant growth, Europe still lags behind the United States in defence tech venture funding, with roughly 65% of European defence-tech funding still originating from US investors. This imbalance creates both urgency and opportunity for European and allied capital to invest in the market.
Implications for International Investors and Emerging Markets
BAE Systems’ investment, alongside the broader surge in European defence-tech funding, presents a complex but compelling landscape for international investors.
A Catalyst for European Defence Ecosystems
For investors, the BAE Systems Launchpad programme signifies a major defence prime’s commitment to integrating external innovation, potentially de-risking investments in smaller startups. This corporate venture capital approach can act as a catalyst, encouraging further private capital into the sector. The focus on dual-use technologies, which have both military and civilian applications, also broadens the market appeal and potential for commercial scalability, making these ventures more attractive to a wider range of investors.
The increasing harmonization of FDI screening mechanisms across EU Member States, with new regulations requiring mandatory screening for critical sectors like defence, AI, and quantum computing, introduces a more structured, albeit potentially more complex, regulatory environment. Investors must conduct thorough due diligence to navigate these stricter rules, which may include broader definitions of “foreign investor” and increased scrutiny of low shareholdings in sensitive sectors.
The Turkish Defence Industry: A Potential Beneficiary?
For emerging markets, particularly Turkey, the European defence tech boom presents both opportunities and challenges. Turkey has rapidly emerged as a significant player in the global defence industry, driven by sustained state investment and a focus on indigenous capabilities. The country’s defence and aerospace exports reached $7.1 billion in 2024 and surged to $10.56 billion in 2025, marking a 49% increase year-on-year. New sales contracts also saw substantial growth, from $10 billion in 2024 to $17.8 billion in 2025.
Turkey now ranks 11th globally in defence exports, supplying nearly 40 countries across Asia, Africa, and parts of Europe. Key areas of Turkish expertise include unmanned aerial vehicles (UAVs), military aircraft like the KAAN fighter jet, missile systems, naval platforms, and electronic warfare systems. Major Turkish defence companies such as Baykar Technologies, Turkish Aerospace Industries (TUSAS), and ASELSAN are driving this growth. ASELSAN, for instance, is undertaking the largest defence industry investment in Turkey’s history with its $1.5 billion Oğulbey Technology Base, focused on air and missile defence systems.
The Turkish government actively supports the defence industry through initiatives aimed at indigenization and export expansion. The country’s AI sector, which has significant defence applications, is also experiencing rapid growth, projected to reach $1.62 billion by 2024 and $7.37 billion by 2030.
While Turkey is not an EU member, its growing defence capabilities and strategic location position it as a potential partner for European nations seeking to diversify their supply chains and enhance their defence industrial base. Turkish firms have secured defence supply deals with NATO and EU members like Poland, Spain, Portugal, and Romania, and exports to Europe and the US almost quadrupled since 2021 to $5.6 billion in 2025. However, Turkish firms often face structural barriers in the EU, including members-only defence initiatives and political resistance stemming from broader diplomatic disputes. For foreign investors, this means navigating a nuanced landscape where economic opportunity must be balanced with geopolitical considerations and adherence to complex regulatory frameworks.
Conclusion: A New Era for Defence Investment
BAE Systems’ 50 million euro investment into European defence-tech venture funds is more than just a corporate move; it is a clear indicator of a transformative period for the global defence industry. The confluence of increased geopolitical instability, rising defence budgets, and rapid technological innovation is creating unprecedented opportunities for investment in cutting-edge defence technologies.
For international investors and corporate decision-makers, this new era demands a strategic approach. While Europe offers a burgeoning market for defence tech, supported by significant public and private capital and a push for technological sovereignty, it also comes with stringent regulatory oversight, particularly in FDI screening. Emerging markets like Turkey, with their robust and rapidly expanding indigenous defence industries, present compelling growth prospects, especially in areas like drones and AI. However, investors must carefully assess the geopolitical context and potential market access barriers. The ability to navigate these complexities, identify dual-use technologies with broader commercial appeal, and align with national and regional strategic priorities will be key to unlocking value in this dynamic and critical sector.