Key Points
- NATO Innovation Fund (NIF) allocates initial investments.
- €1bn fund backs deeptech and defence technology.
- Focus on startups and VC funds in Europe and UK.
- Eight investments include ARX Robotics and Space Forge.
Boosting Defence Startups
Defence startups have received significant backing as VCs increasingly support the sector. A notable new investor is the NATO Innovation Fund (NIF), a €1bn fund backed by 24 nations, focusing on deeptech and defence technology. Today, NIF announces its initial investments in startups and VC funds, targeting various tech domains from robotics to materials manufacturing.
The NIF, established in 2021 and concluded last year, prioritizes investments that bolster defence and security, supporting both companies and VC funds across Europe and the UK. The US, however, is not a participant. The fund also emphasizes “resilience” areas such as new materials, manufacturing, climate, energy, and biotech. According to partner Kelly Chen, spacetech deals are also a major focus, with many companies eager to join post-launch.
Chris O’Connor, another partner at NIF, revealed that the fund has made eight investments so far, though the exact amount of the €1bn fund deployed remains undisclosed.
A consortium of NATO allies has confirmed the first tranche of companies awarded funding as part of the group’s $1.1 billion innovation fund https://t.co/zXCK2GGExS
— Reuters (@Reuters) June 18, 2024
Startup Investments in Innovative Technologies
Among NIF’s notable startup investments is Munich-based ARX Robotics, which is developing scalable unmanned robotic systems for defence and commercial use. ARX Robotics recently raised a €9m seed round from investors including Project A.
Another investment is iCOMAT, a UK-based materials startup creating lighter and stronger structures for aerospace, automotive, and defence sectors. Additionally, NIF invested in Space Forge, a Welsh company utilizing space environments to manufacture advanced materials like semiconductors.
NIF also funded London-based Fractile AI, which is enhancing computing technology to optimize the performance of large language models (LLMs).
Looking ahead, Chen expresses interest in supply chain startups. She emphasizes the importance of resilience in Europe’s energy resources, raw materials, and supply chains, which are often dependent on other countries. NIF aims to bolster these critical areas from raw materials to final products, serving both commercial and government clients.
VC Fund Investments
NIF is actively investing in early-stage funds. These LP investments include Munich-based Vsquared Ventures’ new €214m deeptech fund, central eastern Europe-focused OTB Ventures’ $185m fund, Berlin-based early-stage fund Join Capital, and a €10m contribution to Alpine Space Ventures’ €160m spacetech fund.
VC firms have shown great interest in NIF, with partners noting a significant shift towards deep technology investments. “We’re seeing funds pitching from all the countries represented in our capital base,” says O’Connor, highlighting the evolving strategies in this sector.
NIF is also committed to investing beyond traditional startup hubs, aiming to spread funding across diverse geographies. O’Connor stresses the fund’s mission to not just focus on the UK or Germany but to support broader regions.
Evolving Defence Tech Landscape
The focus on defence tech has intensified recently, especially following the Russia-Ukraine conflict. Despite some institutional investors’ reluctance to invest in offensive technologies or weapons, there is a growing willingness to support the sector.
O’Connor notes that discussions within the ecosystem are becoming more sophisticated, with entities like the European Investment Bank starting to reconsider their stance on defence investments.
NIF provides a new capital source for deeptech and defence-focused VCs, although it avoids ammunition manufacturers. O’Connor acknowledges that the narrative around defence investments is changing, driven by the recognition of the significant role commercial technology plays in national security and resilience.
