European Commission’s transformation roadmap tackles startup scaling crisis with new financing vehicle and fast-track procurement reforms
The European Commission has committed to launching a €1bn fund-of-funds by Q1 2026 to address what officials describe as Europe’s most critical defence financing gap: the inability of promising startups to scale beyond early-stage innovation.
The fund, announced Wednesday as part of the EU Defence Industry Transformation Roadmap, will target growth capital for defence technology companies and aims to leverage additional private investment from venture capital, private equity and infrastructure funds. It forms the centrepiece of Brussels’ effort to prevent European defence innovators from either failing to scale or falling into the hands of foreign investors.
The initiative acknowledges a structural weakness: while European defence tech attracted a record €5bn in private investment in 2024—a fivefold increase since 2019—American and Asian capital represented nearly half of all late-stage funding for deep-tech defence startups.
Four transformation goals
The roadmap, presented alongside proposals to ease cross-border military movement (often called a “military Schengen”), represents Brussels’ most comprehensive attempt to transform Europe’s defence industrial ecosystem. It focuses on four key objectives: supporting the full investment journey of defence companies from startup to scale-up; accelerating time-to-market for defence technologies; improving access to contracts for innovative firms; and generating the defence skills and talent needed by 2030.
More than 230 defence tech startups have been founded in Europe since Russia’s 2022 invasion of Ukraine, but their growth has been constrained by procurement processes designed for legacy defence primes and limited access to testing infrastructure. The roadmap aims to integrate these “New Defence” players—startups, scaleups and innovative SMEs—with established contractors.
“The defence investment surge in Europe creates conditions for rapid evolution of disruptive technologies,” the roadmap states. “Yet without fundamental changes in procurement and financing, New Defence players risk being locked out of the very industrial transformation they’re meant to drive.”
Accelerating innovation
The Commission proposes several mechanisms to speed up defence technology development. A pilot instrument called AGILE will fund rapid innovation challenges with six-to-12-month delivery timelines, while a new “manufacturing-as-a-service” initiative will allow startups to access existing industrial capacity from larger firms—including from non-defence sectors—without upfront capital investment.
“Ukraine has demonstrated what’s possible when you combine agility with industrial capacity,” the roadmap states, citing Kyiv’s success in scaling drone production from concept to battlefield deployment in weeks rather than years. The Commission will strengthen its Defence Innovation Office in Kyiv to monitor frontline technological developments and facilitate knowledge transfer to European contractors.
Improving deal flow
For investors, the roadmap includes concrete measures to improve deal flow and exit opportunities. The Commission will create a marketplace for EU-backed defence technologies, enabling fast-track procurement for companies that have received European Defence Fund grants. This addresses a persistent complaint from venture investors: that EU-funded R&D projects rarely translate into commercial contracts due to lengthy, fragmented national procurement processes that favour established primes.
As part of the roadmap, member states will be encouraged to allocate at least 10 per cent of armament procurement budgets to emerging and disruptive technologies, with advisory support from the European Defence Agency. The Commission will also revise the 2009 Defence Procurement Directive to introduce streamlined procedures for innovative SMEs and fast-track procurement for low-cost products such as drones.
Talent pipeline
The skills shortage presents another bottleneck. The roadmap commits to reskilling 600,000 workers for the defence sector by 2030, primarily by redirecting talent from the automotive industry through a new Skills Guarantee pilot launching Q4 2025. A Defence Industry Talent Platform will support traineeships in dual-use and defence SMEs through vouchers, addressing complaints from startups that security clearance requirements limit their access to skilled professionals.
Technology focus
The transformation agenda places particular emphasis on artificial intelligence, quantum technologies, space-based systems and cyber capabilities—all areas where Europe maintains technological strength but struggles to integrate innovations into military capabilities at speed. Between 4 and 8 per cent of European Defence Fund budgets are dedicated to disruptive technologies, but the Commission acknowledges that procurement timelines remain incompatible with venture capital return horizons.
Implementation outlook
For investors, the roadmap signals Brussels’ intent to institutionalise startup-friendly mechanisms rather than relying on emergency measures. Whether member states—particularly those protective of national defence champions—will embrace procurement reforms favouring new entrants remains the critical implementation question.
The Commission estimates the transformation measures, combined with broader ReArm Europe initiatives, could help mobilise up to €800bn in defence investment by 2030. Success will depend not only on financing availability but on whether Europe’s defence establishment can overcome what the roadmap describes as “a mindset inherited from peacetime” that prioritises process over speed