Hardly a day goes by without defense mentioned in business and financial media. Private capital investment in the sector has been going on for decades, but now geopolitics has made it a hot topic.

Carlyle Group goes as far as to argue in a white paper The New Martial Plan: ‘US private capital – venture capital (VC) and private equity (PE) – developed out of the US military-industrial complex, giving rise to Silicon Valley, the internet, and AI’.

We could be heading into a new, transformative phase. Firstly, there’s more attention on Europe. Secondly, there’s ever-deeper sophistication of emerging technologies.

On that first point, our research editor Kerstin Weil has outlined, defense investment is part of the ‘zeitgeist’ on both sides of the Atlantic. That new spirit has been created in part by a reshaping of NATO (with Finland and Sweden joining) and pledges by governments to step up defense investment. Military spending in the region rose by 17% to $693bn last year.

Some investment institutions and banks have restrictions, or even prohibitions, on defense-related activity. Last week, the FT reported on how these can act as a break on lending to start-ups, for example.

However, Europe-focused VC defense deals totaled $949mn as of June 2025, already well above the $690mn in the whole of 2024 (Preqin data). By comparison, the US saw $2.7bn of defense-related venture deals last year, and at $3.2bn so far this year (to October), it’s already easily surpassed that total.

There are also initiatives such as the NATO Innovation Fund, a planned €1bn-plus capital pool to draw from, and cooperation with the European Investment Fund.

Carlyle’s white paper describes Europe’s defense industry as ‘highly fragmented’. Companies are smaller than their US counterparts, with less capacity. That means more potential for collaboration. But ‘standardization and coordination may be a European superpower’, enabling supply chains to become more competitive.

The second transformative factor is the development of highly innovative technology. This means there’s a ‘fundamental re-architecture of defense: moving from hardware-heavy arsenals to software and AI-defined autonomy’, according to Bessemer Venture Partners.

The Silicon Valley firm describes five core activities: physical autonomy; aerial defense; command and control systems; space technology; and advanced industrial manufacturing. (Its European portfolio includes companies across Belgium, Finland, France, Germany, Lithuania, Norway, Poland, Portugal, Slovenia, Switzerland, and the UK).

A positive factor of much wider interest is potential dual use, when technologies can be utilized in the military but also well beyond. Private capital-backed cybersecurity companies are one example (see Thursday’s issue of Preqin First Close).

Bessemer describes other examples of dual-use, such as the potential life-saving role of robotics in civilian contexts. And in a maritime setting, unmanned surface and underwater systems can strengthen defense, while also serving offshore energy and undersea cable maintenance.

With private capital firms on maneuvers, perhaps dual-use will be another superpower that investors – and all of us – benefit from.