Germany's Defense Start-ups Eager to Leave
The conflict in Ukraine spurred a boom in German defense technology, resulting in numerous startups now developing software, artificial intelligence, and drone systems for military applications. However, despite the growth of these enterprises, many founders express dissatisfaction with launching their ventures in Germany. Moreover, 71% of German defense tech founders rated the country’s defense readiness as poor, and a quarter very poor.
A recent Handelsblatt report reveals that only approximately one-third of German defense startup founders would choose to establish their company in Germany again if given the opportunity to start over. This conclusion is derived from a Bitkom survey of 44 defense startups. The remaining respondents indicated they would prefer to relocate: 25% to the United States, 16% to another European Union country, and 18% to other regions. The primary reasons cited include a stagnant economy, stringent regulations, and a shortage of private and public capital. Additionally, military technology still carries a social stigma in Germany. A significant number of founders feel overlooked, with one-third reporting a lack of appreciation in Germany.
Despite these challenges, several German companies have achieved substantial success. Helsing, based in Munich, has become one of Europe’s most valuable defense AI startups, with an estimated valuation of €5 billion. Quantum Systems, known for its military drones, is on the verge of joining the unicorn club with a valuation exceeding $1 billion. Other notable players include Arx Robotics and Alpine Eagle, which launched in 2023 and specializes in counter-drone technology. Bitkom president Ralf Wintergerst emphasizes that such startups must play a central role in revitalizing Germany's military, alongside traditional defense firms: “If Germany is serious about its so-called Zeitenwende, it must urgently integrate digital technologies into defense strategy. Startups must play a key role in strengthening the Bundeswehr and attracting future talent.”
Germany has initiated some measures to address these concerns. Defense spending is now largely exempt from the national debt cap, and the EU has proposed a €150 billion defense fund. Nonetheless, founders remain skeptical about whether these funds will directly benefit them. Startups advocate for expedited procurement processes, reduced bureaucracy, and improved access to military buyers. Many businesses fail to endure long enough to enter formal government procurement channels.
Proposed solutions include amendments to national security clearance laws and the creation of a public-facing marketplace where startups can engage with military innovation units—similar to existing platforms in the United States. Additionally, founders request more live testing and trial sites to evaluate products in practical scenarios, with Erding Air Base being converted to support such activities. Furthermore, financial investment is a critical concern. Founders urge the government to prioritize investment in startups, citing France’s Fonds Innovation Défense and the Netherlands’ SecFund as exemplary models. France is even considering allowing retail investors to invest in defense startups.
Given the high costs associated with employment and materials in Germany, it is understandable why startups seek cost-saving opportunities elsewhere. Consequently, Germany may find itself inadequately prepared for future challenges.