The UK allocated £61.4B to defence tech investment in 2025, maintaining one of Europe’s largest defence budgets with a focus on naval and air upgrades, cyber capabilities and nuclear deterrence.
A new report by Tracxn titled “European Defence Tech Report 2025: Is Europe’s Defence Tech Entering its Most Compelling Phase for Investors?” shows that the spending equates to 2.3% of the UK’s GDP and is topped in Europe only by Germany, which spent £66.4B over the same period.
More than two-thirds of all equity funding raised in the defence tech ecosystem is concentrated in its three most funded startups, which includes the UK’s ALL.SPACE at £151m.
The report also found that the top three funded cities are Munich in Germany with £1.5B equity funding, followed by Reading in the UK with £163m, and Helsinki in Finland with £112m. Collectively, they represent more than 80% of total equity funding raised by the ecosystem.
The industry saw Tekever and Quantum Systems reach unicorn status this year, with the former having a UK production operation alongside its Portugal base.
Looking at the state of the European defence tech sector as a whole, around 384 startups are founded in the ecosystem, of which 32% have emerged over the last 10 years. The all-time equity funding has surpassed £2.25B across over 130 rounds, and annual equity inflows have jumped from £1.5m in 2016 to £826m in 2025, reflecting strong growth over the past decade.
A total of 119 VCs have invested, with Project A emerging as the most active VC, participating in nine rounds. It continues to lead in 2025 YTD with five rounds, displacing the NATO Innovation Fund that led in 2024 with two rounds. Over the past decade, first-time VCs outnumbered or matched existing investors in nine of these years.
European defence tech has seen 27 acquisitions and 15 IPOs over the past decade, with acquisitions focusing on strengthening surveillance and electronic warfare capabilities, while IPOs aim to accelerate global expansion and R&D investments.
Earlier this month, the Department for Science, Innovation and Technology (DSIT) launched a cyber runway scheme in partnership with Plexal to use SMEs to bolster the digital defence of UK critical national infrastructure (CNI).
