A recent survey by KfW Research and the German Private Equity and Venture Capital Association indicates that 30 percent of investors in Germany have already invested in companies within the security and defence sector. The survey covered both venture capital investors focusing on young, innovative businesses and private equity firms investing in established enterprises.
Investor interest is primarily directed at businesses with high dual-use potential—those whose products serve both military and civilian purposes. Sectors such as cyberdefence, robotics, artificial intelligence (AI), and surveillance or reconnaissance systems are viewed as especially attractive. Between half and three quarters of surveyed investors rated these segments as very attractive, while 90 percent found communication systems to be rather attractive. Traditional military areas like weapons systems or military vehicles were considered less appealing.
The study also found that nearly half (45 percent) of equity investors expect to invest in security-related companies over the next twelve months. Most intend to do so opportunistically, based on available opportunities, rather than following a dedicated investment strategy for the security and defence industry.
Regulatory challenges remain a significant concern for investors. Many see regulations related to environmental, social, and governance (ESG) criteria—and their own standing regarding ESG—as major obstacles to increased investment in this sector.
“In the coming years, the security and defence industry will acquire greater importance in Germany than it had in the past. Young, innovative enterprises have the potential to quickly develop solutions to new threats. That is also why equity investment in this area can be expected to continue gaining in importance,” said Dr Dirk Schumacher, Chief Economist of KfW.
Investment levels reflect growing interest: while defence technology and dual-use sectors attracted only EUR 28 million from venture capitalists in 2019, this figure rose sharply to nearly EUR 800 million invested in start-ups active in these areas by 2024.