From investment to impact – using private capital to accelerate defence tech

Defence spending in Europe could reach €1trn by 2030

October 17, 2025European NATO countries are continuing to adapt to a new defence and security reality. Public investment in defence is already rising to meet this, with the number of European NATO countries meeting a 2% GDP target rising from 5 to 21 over the past three years. Following the 2025 Hague NATO Summit, members have made a commitment of further rises to 3.5% of GDP on core defence requirements, with an additional 1.5% on wider defence and security. McKinsey estimates that on a balanced acceleration pathway, tempering the 3.5% target with national fiscal realities, European defence spending will rise from 470bn EUR in 2025 to approximately 800bn EUR in 2030. Under a more aggressive pathway meeting 3.5% of GDP, defence spending could rise to ~1trn EUR in 2030.

Exhibit 1

Global private capital deployment in Aerospace and Defence has been stable – we are not yet seeing increases in line with growth in government spending commitments 

Private capital investment in the defence sector can reinforce this growth and capitalise on greater public funding for defence. However, while seed and VC funding is rising, our analysis demonstrates that across total deployment, increased public funding is not yet reflected in overall private capital deployment. Globally, private capital deployment across Aerospace and Defence sectors has been stable after reaching a peak of $26bn in 2020 (see Exhibit 2), and within this investment has been concentrated in the largest deals. Private capital players are actively seeking to invest in the European defence ecosystem, and providing greater assurances and direction to private capital investors on future defence spending, particularly capital spend, can help derisk their investments and unlock additional growth capital. 

Exhibit 2

The UK is the largest destination for private capital in Europe, driven by the largest transactions

Europe attracts 25% of global private capital flows into A&D, though flows have been highly volatile. The UK is by far the largest destination for A&D private capital in Europe with nearly 50% of total investments over the period 2015 through Q3 2025. This has been mainly explained by large Leveraged Buy-out (LBO) transactions which are over 80% of total private capital deployment¹ – Melrose’s take private of GKN in 2018 (€9.6 bn), Advent’s acquisitions of Cobham in 2020 (€4.4 bn) and Ultra Electronics in 2022 (€2.6 bn). Since 2023, the UK has averaged a 10% share of European private capital deployment. However, if we focus in on earlier stages of the investment journey and look at seed through late-stage VC funding, the trajectory for A&D private capital is more positive. From 2019 through 2024, overall private capital deployment in the UK for these investment categories increased 5.5x, from €34m to €218m.

Exhibit 3

Exhibit 4

What will it take to ‘crowd-in’ private capital to A&D?

The UK Government has, through publications such as the Strategic Defence Review, the National Security Strategy, and the recently published Defence Industrial Strategy, made clear its ambition to attract more private capital investment, for example through the new dedicated UK Defence Innovation Fund with at least £400m budget annually. There are also several forums through which to engage, including the new Defence Investors’ Advisory Group. The forthcoming Defence Investment plan could further clarify investment priorities and set long term procurement demand signals.

While the clarity investors are seeking is becoming more visible, there are several levers for private capital investors, government entities and Defence start-ups to keep in mind as the ecosystem seeks to ‘crowd-in’ more private capital investment. Each have a different role to play in scaling the UK (and wider European) defence ecosystem.

Government can play a vital role in:

• Rapidly implementing the new segmented approach² to procurement. The UK’s Defence Industrial Strategy 2025 targets a segmented approach to procurement, with a two-year timeframe for major platforms, one-year for pace-setting modular upgrades, and three months for rapid commercial exploitation. Rapidly implementing this segmented approach can help resolve one of the largest pain points of private capital confidence in the defence ecosystem and help make the conversion of public commitments into awarded contracts more rapid and predicable.
• Provide greater clarity on underlying digital systems and infrastructure to help expand procurement options. Where there are capabilities that the foundation of the UK’s defence strategy intended to connect with products and services (e.g., the Digital Targeting Web), the UK can take the lead on setting out the framework to industry to streamline development and reduce duplication. This can help support SME suppliers, who may lack the resources to design bespoke systems. 
• Adopt novel approaches to procuring capacity as well as capability. The Strategic Defence Review and Defence Industrial Strategy targets goals to strengthen supply chains (e.g., through at least six new energetics and munitions factories). To contract for supply chain capacity, the UK can consider novel approaches e.g., contract with real estate developers or contract manufacturing providers to directly build capacity vs. procuring capability end to end. 

At the same time, there are levers that the private sector, both investors and defence companies, can pull to accelerate the deployment of private capital in defence:

• Defining commercial models that deliver for customers and investors including a clear exit route. One of private capital’s key challenges in defence is a clear pathway to revenue (even with the most successful products/services). Industry and investors can target this challenge, by scaling dual-use applications where appropriate to derisk dependency on defence revenues and fostering greater collaboration across the defence sector to target multiple pathways to revenue.
• Clarifying the growth impact from defence investments. Given the imperative on UK growth, investors and defence companies can be clearer on the benefits that investments can deliver and take an active role in shaping the impact of greater defence investment. 

Reflecting on the momentum discussed in this article, there is an opportunity for a greater range of investors to participate in the aerospace and defence sector. The Financial Conduct Authority has recently clarified³ that its sustainability rules do not require investors to treat defence companies differently because they are in the defence sector, giving greater clarity to investors who wish to consider defence sector opportunities. Across Europe, this is starting to happen – since 2022 the portion of ESG funds with exposure to aerospace and defence has risen from 33% to 54%⁴. Against this backdrop and the scaling journey that the UK and wider European defence has begun, we see potential for a broader range of investors to consider how they can participate in the Defence sector.