VC and private equity target the defense sector

Some big names are scaling up in defense because of increasing demand and the changing global context. Jim Baumbick, Europe president at Ford, told the FT in September about plans to develop military-purpose vehicles with US and UK partners – the company’s first move into defense since 1990.

The aerospace & defense sector has traditionally been dominated by large, multinational manufacturers and prime contractors, explains Michael Patterson, Associate, in our Sector in Focus report for subscribers to Preqin’s Private Markets Research (PMR). That means public markets are the most common access route for investors.

However, ‘private equity- and venture-backed deal-making has surged’, writes Michael, which in turn provides opportunities via private markets. VC aerospace & defense AUM has increased almost tenfold, from $14.4bn in 2016 to $139.1bn in 2025, according to the report (Fig. 1).

Fig. 1: Rapid growth in aerospace and defense AUM for VC funds
VC aerospace & defense AUM

_{Source: Preqin, data as of June 2026}

_{This chart is taken from Sector in Focus: Aerospace & defense, a Preqin Private Markets Research report.}

Given the scale of US industry, it’s perhaps no surprise that North America made up $253.0bn of private equity AUM in aerospace & defense assets in 2025, followed by APAC at $48.3bn and Europe at $19.9bn.

In terms of private equity deal activity in the sector, North America accounted for $12.2bn out of $13.5bn last year – and defense-related activity is likely to have been a significant part of many other deals involving diversified industrial and tech businesses.

Much of the innovation story is policy-led. In January, the US administration announced an AI Acceleration Strategy for defense. Military applications are also prominent in the National Security Science and Technology Strategy published by the White House in August, which covers quantum, nuclear, biotech, and space, as well as AI.

The PMR report points to AI-enabled technology, unmanned systems, reusable rockets, satellite communications and earth observation, electric aviation, space infrastructure, and in-orbit services. Defense tech demand was cited by a quarter of venture fund managers surveyed by Preqin.

Innovation is needed ‘as conflicts are reshaped’, including dual-use technologies for military and civilian applications. A non-US example is Sydney-based Advanced Navigation, which raised a $110mn series C in March from Airtree Ventures, Quadrant Private Equity, and the Australian government’s National Reconstruction Fund Corporation.

Meanwhile, low-cost defense platforms, autonomous systems, and drones are also high-profile targets for VC in the US.

Torrance, California-based Castelion raised $1bn in a series C in August for its hypersonic strike missile, Blackbeard. The round was co-led by JPMorganChase, Andreessen Horowitz, and Carlyle, along with Lightspeed Venture Partners, Lavrock Ventures, Altimeter, General Catalyst, Interlagos, and T Rowe Price. Castelion was valued at $13bn.

New York-listed Joby Aviation acquired Resonant Sciences, a Dayton, Ohio-based developer of radio frequency sensing and mission systems, for $500mn.

Falls Church, Virginia-based defense tech company Lyntris raised $297.5mn in an IPO last month, although ‘a number of stock-sell offs and investor anxiety over valuations have led some companies to push back IPO plans’, according to the Wall Street Journal.

Covenant recently announced it was opening a factory in Dallas to build its Anthem ground-launched long-range missiles for the US military. Founded two years ago, the company has so far raised $250mn from backers including Andreessen Horowitz, Founders Fund, Lux, 8VC, Aleph, Lightspeed, and Altimeter Capital.

There’s also a decades-long history of buyouts among the complex supply chains in aerospace. In June, for example, Bain Capital invested in Commerce, California-based FDH Aero, previously backed by Audax Private Equity.

Defense specialists are raising more capital. In July, Washington DC-based mid-market private equity firm Capitol Meridian Partners closed a $1.9bn second fund, following up its $900mn debut vehicle in 2024.

Europe’s fast-changing security priorities

Activity in Europe is smaller in scale, but changing rapidly. The region accounted for $19.9bn of aerospace and defense-tagged private equity AUM in 2025, according to Preqin data (Fig. 2). That’s behind the US at $253.0bn and APAC at $48.3bn. Europe also made up a small fraction of global deal value.

Fig. 2: North America AUM continued to climb; other regions fell slightly
Private equity aerospace & defense AUM, by region

_{Source: Preqin, data as of June 2026}

_{This chart is taken from Sector in Focus: Aerospace & defense, a Preqin Private Markets Research report.}

However, the geopolitical and policy context means a shift toward defense investment, particularly among the region’s NATO members – although many governments, such as the UK’s, face the challenge of balancing national security with other budget demands.

Defense spending by the EU’s 27 member states reached €418bn in 2025, and could rise to €454bn this year, representing a 75% increase since 2021, reported European Business Magazine.

Germany’s government published a national start-up and scale-up strategy in July, setting out about 150 measures to improve conditions for early-stage companies based in the country.

It includes a chapter about security and defense, highlighting the importance of AI, cybersecurity, unmanned systems, and data analysis. A new structure is being established for the federal government’s direct investments in start-ups and scale-ups.

Katherina Reiche, Federal Minister for Economic Affairs and Energy, said the strategy was ‘laying the foundations for the next generation of German global market leaders’. This involves ‘lowering bureaucratic hurdles, mobilizing more private and public VC, and making it easier to create start-ups directly from academia’.

Germany’s already home to some sizable defense-related ventures and notable unicorns.

In July, for example, Munich-based Helsing raised $1.8bn in a series E, valuing the company at $18bn. Investors included Dragoneer Investment Group, Lightspeed Venture Partners, Disruptive, Iconiq, Growth Equity at Goldman Sachs Alternatives, JPMorganChase, Canada Pension Plan Investment Board, General Catalyst, Plural, and Stepstone.

Berlin-based Stark raised €500mn in June to support R&D and increase manufacturing capacity. Investors included Sequoia Capital, Founders Fund, the NATO Innovation Fund, Project A, Air Street Capital, 201 Ventures, Advent International, and Döpfner Capital. The round reportedly valued Stark at €3.2bn.

In the same month, Munich-based Quantum Systems raised $1.2bn in a series D, led by new investors Blackstone, Noteus Partners, Advent, and returning investor Airbus Ventures. The round valued the company at about $8bn.

Berlin-based Project Q recently secured €15mn in a series A, led by returning investors Expeditions Fund and Project A, alongside Hensoldt AG and Heliad.

Private equity and VC firms in Germany are also doing deals further afield. In July, Hamburg-based DTCP led a $175mn series B in Kraken Technology Group, a UK maritime defense business, with participation by the British Business Bank, the NIF, Rheinmetall, Inocea Group, HICO, Thesiger Capital Group, BOKA Capital, Supernova Invest, and Hakluyt Capital.

Last December, KfW, a government-owned development bank, launched the Germany Fund (Deutschlandfonds) to boost public- and private-sector investment in industry and SMEs focused on decarbonization and critical raw materials, renewable infrastructure, and start-ups and scale-ups in deep tech and defense.

Satellites are ‘critical infrastructure’ for national security

Space technology – more specifically, satellites technology – is increasingly being seen as critical infrastructure, with growing commercial opportunities across national security, connectivity, intelligence, and communications.

Defense is among powerful demand-side drivers according to a paper Space Economy: A New Investment Frontier by Tony Kim, Simon Wan, and Tomas Hamudis, and Yasmin Meissner at BlackRock. This is creating ‘a significant infrastructure investment opportunity for the next decade’.

The military appeal is becoming clearer. Satellites provide intelligence gathering, surveillance, navigation, and resilient communications capabilities that have become integral to modern defense operations. BlackRock also notes that space infrastructure often has dual-use characteristics, enabling the same assets to serve commercial and defense customers, improving potential returns.

Goldman Sachs says we're in a ‘Second Space Age’, arguing that space is becoming a new pillar of the industrial economy and an increasingly important arena for geopolitical competition and national security. The investment bank estimates the global space economy could be worth $1.8tn by 2035 – including greater participation from private capital.

On the deals side, the AI boom is fueling a resurgence in ‘ambitious moonshot bets’ by venture investors, reports the FT, bolstered by early SpaceX backers’ huge returns, and falling valuations for traditional software companies. AI-powered simulations are reducing the cost of experimenting in areas such as nuclear fusion and space tech.

There have been some big recent rounds. In June, Finnish-Polish producer of satellites ICEYE raised €1bn in a series F round led by US private equity firm General Atlantic, and including Solidium, Tesi, Varma, Ilmarinen, Lifeline Ventures, Nokia, the Qatar Investment Authority, and TCV. The round valued ICEYE at €10bn, over four times larger than in December 2025 (€2.4bn).

Impulse Space, based in Redondo Beach, California, recently raised a $308mn series D extension, making the total round $808mn. The company’s Helios spacecraft has been selected for the US Space Force’s National Security Space Launch (NSSL) program.

Governments across the world are emphasizing technological innovation and strategic autonomy. Space infrastructure sits at the intersection of these priorities. For example, the UK government has unveiled a £7.8bn national space strategy, including £880mn to ‘help beef up' control and intelligence, surveillance, and reconnaissance capabilities.

Investors aim for aerospace and defense

A positive factor is that the number of Europe-based LPs with exposure to aerospace and defense increased by 20% between December 2025 and August 2026, and by 44% in 2024–2025, according to Preqin investor data (Fig. 3). Private capital could help fill a ‘supply-chain’ financing gap, says the European Financial Review.

Fig. 3: Strategies targeted by Europe-based LPs with exposure to defense
Buyout, VC, and growth strategies favored by Europe-based investors

_{Source: Preqin investor data as of August 2026}

There are several initiatives in which government, industry, and the financial sector are combining that have a direct effect on private capital activity. For example, the European Commission’s Readiness 2030 strategy aims to stimulate up to €800bn additional defense spending, including the €150bn Security Action for Europe (SAFE) loan program.

On the private markets side, Brussels-based representative body Invest Europe published a model Limited Partnership Agreement in June for investors and fund managers in Europe’s defense and dual‑use capabilities.

And the sector’s industrial giants are backing innovative funds and start-ups. In June, BAE Systems announced it would invest €25mn each in two VC funds focused on European defense start-ups, managed by Expeditions (Warsaw/London) and Lakestar (Zurich), respectively. Lakestar then joined a $300mn series C for Cambridge Aerospace last month.

Investment in large-scale, advanced ‘exquisite systems’ in defense aviation continue to account for far more budget than either ‘affordable mass’ or ‘expendable systems’. Consultancy BCG estimates they were respectively worth $65bn, $5bn, and $55bn last year (US and EU combined).

Buyout firms will likely remain involved in big deals from big funds. In the summer, UK-headquartered multinational Cobham Ultra, a portfolio company of Advent, sold its Ultra Maritime division to Lockheed Martin for $3.45bn.

In the spring, Warburg Pincus launched a European Defence Investment Initiative with MEAG, the asset management arm of insurer Munich Re.

Shaun Beaney is Editor of Preqin First Close, Jayda Etienne is Deputy Editor, and Kerstin Weil is Research Editor.

Additional research by Albert Frank.

Second Look is edited by Libby Fennessy, Production Editor, Preqin First Close.

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Read the original newsletter stories:

Germany targets billion-dollar defense and security unicorns

Venture investors target US high-tech defense start-ups

Defense investment means a great deal to Europe

Space investment shifts orbit from moonshots to critical infrastructure

_{The opinions and facts included in the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin accepts no liability for any decisions taken in relation to the above.}