From Sheds to Battlefields: How Europe's $920 Billion Defense Push Is Opening Doors for Startups
JOENSUU, Finland — The journey of Finnish startup Kelluu began, as many tech ventures do, in a modest setting: an old shed. For years, the company focused on building van-sized, camera-equipped airships for civilian uses like monitoring power lines. But in a meeting last fall, CEO Janne Hietala arrived with transformative news. Kelluu, just seven years old, had officially become a defense contractor.
A NATO member nation—its name withheld for operational security—has agreed to purchase Kelluu's airships for surveillance under an alliance program designed to funnel cutting-edge technology into Western militaries. The systems are slated for integration within two years. Remarkably, Kelluu's first presentation to NATO took place mere months prior, in November 2024.
This rapid ascent signals a profound shift in Europe's defense industrial base. For decades, the market was dominated by a handful of giant contractors, known as "primes," which operated on timelines spanning decades and held a near-monopoly on major contracts. Small firms typically faced a binary choice: sell to a prime or remain on the sidelines.
That paradigm is now crumbling. The war in Ukraine, the specter of a second Trump administration impacting transatlantic ties, and the demonstrated effectiveness of agile, mass-produced drone warfare have jolted NATO planners. A consensus has emerged: to deter Russia, Europe needs a faster, more innovative pipeline for equipment that can be rapidly designed, adapted, and scaled.
"The luxury of multi-year development cycles is gone," a spokesperson for NATO's Defence Innovation Accelerator for the North Atlantic (DIANA) told *Business Insider*. DIANA, conceptualized before the 2022 invasion but formally established after it, acts as a matchmaker between startups and alliance militaries. Demand is skyrocketing; the agency reported 4,000 applications for its latest cohort, a significant jump from 1,200 in its 2023 inaugural batch, with at least half from European founders.
Capital is following the momentum. Once a taboo for many venture capitalists, defense tech is now a hot sector. The NATO Innovation Fund reported European defense tech VC investments hit $1 billion in 2024, a fourfold increase since 2020.
This reporter traveled through Northern Europe in late 2025, where security anxieties run high, to meet founders navigating this newly opened landscape. Their ambitions are buoyed by massive financial commitments: the EU aims to allocate an additional $920 billion for defense by 2030, while NATO members are debating raising their spending target to 5% of GDP.
"It's no surprise that even U.S. investors, who largely ignored this space, are now scrutinizing the European market," Hietala observed. "That simply wasn't happening a year ago."
The race is on for a slice of Europe's expanding war chest, and a new generation of builders, far from the traditional defense establishment, is determined to claim it.
Voices on the Ground
Lena Vogel, Security Analyst (Berlin): "This isn't just about spending more; it's about spending smarter. DIANA and similar initiatives are crucial to breaking the procurement logjam. The agility shown in Ukraine's use of commercial tech is the textbook we now need to study."
Marcus Thorne, Veteran & Defense Consultant (London): "A welcome change, but let's be clear: integrating these small, novel systems into complex military logistics and doctrine is the real challenge. A startup can build a brilliant sensor, but can it survive electronic warfare? The primes still have a vital role in systems integration."
Anya Petrova, Tech Journalist (Riga): "It's a gold rush, plain and simple. While innovation is desperately needed, the hype risks attracting opportunists. We must ensure this flood of capital actually produces battlefield-ready, secure technology, not just PowerPoint presentations for investors. The stakes are too high for another tech bubble."
Professor Erik Lund, Military History Dept. (Stockholm): "Historically, major conflicts have always accelerated technological adoption and reshaped industrial players. What we're witnessing is the early stage of that cycle. The startups that succeed will be those that deeply understand military problems, not just those with cool tech looking for an application."
Credits
Reporter: Matthew Loh
Editors: Sam Fellman, Cheryl Teh, Meghan Morris, Lina Batarags
Illustrator: Tyler Le
Adapted from the original reporting on Business Insider.